Economics Chapter 2 Vocab

Economic system

the structure of methods and principles a society uses to produce and distribute goods and services

Factor payment

the income people receive in return for supplying factors of production

Profit

the amount of money a business receives in excess of its expenses

Safety net

a set of government programs that protect people who face unfavorable economic conditions

Standard of living

level of economic prosperity

innovation

the process of bringing new methods, products, or ideas into use

Traditional economy

an economic system that relies on habit, custom, or ritual to decide the three key economic questions

Market

any arrangement that allows buyers and sellers to exchange things

Specialization

the concentration of the productive efforts of individuals and firms on a limited number of activities

Free market economy

an economic system in which decisions on the three key economic questions are based on voluntary exchange in markets

Household

a person or group of people living in a single residence

Firm

an organization that uses resources to produce a product, which it then sells

Factor market

the arena of exchange in which firms purchase the factors of production from households

Product market

the arena of exchange in which households purchase goods and services from firms

Self-interest

an individual's own personal gain

incentive

the hope of reward or fear of penalty that encourages a person to behave in a certain way

Competition

the struggle among producers for the dollars of consumers

Invisible hand

a term coined by Adam Smith to describe the self-regulating nature of the marketplace

Consumer sovereignty

the power of consumers to decide what gets produced

Centerally planned economy

an economic system in which the government makes all decisions on the three key economic questions

Command economy

another name for a centrally planned economy

Socialism

a range of economic and political systems based on the belief that wealth should be distributed evenly throughout a society

Communism

a political system in which the government owns and controls all resources and means of production and makes all economic decisions

Authitorian

describing a form of government that limits individual freedoms and requires strict obedience from its citizens

Laissez-faire

the doctrine that the government should not intervene in the marketplace

Private property

property that is owned by individuals or companies, not by the government or the people as a whole

Mixed economy

a market-based economic system in which the government is involved to some extent

Economic transition

a period of change in which a nation moves from one economic system to another

Privatization

the process of selling businesses or services operated by the government to individual investors, and then allowing them to compete in the market place

Free enterprise system

an economic system characterized by private or corporate ownership of capital goods