Help
Options
Didn't know it?
click below
click below
Knew it?
click below
click below
Don't Know
Remaining cards (0)
Know
retry
shuffle
restart
0:00
Embed Code - If you would like this activity on your web page, copy the script below and paste it into your web page.
Normal Size Small Size show me how
Normal Size Small Size show me how
Microeconomics Chp 2
| Term | Definition |
|---|---|
| Economic systems | Set of institutionalized arrangements Coordinating mechanism |
| Differences in systems exist by | Degree of decentralized use of markets and prices in decision-making Degree of centralized government control |
| Laissez-Faire Capitalism | "Let it be" Keeps the government from interfering People interact in markets to buy and sell. |
| The Command System | known as Socialism or Communism Government ownership of resources. Decisions made by a central planning board. Examples: North Korea, Cuba, Myanmar |
| The Market System | a mix of decentralized decision making with some government control. Systems found in much of the world. Private markets are dominant force. Private ownership of resources. Self-interested behavior. |
| Characteristics of the Market System | Private property Freedom of enterprise and choice Self-interest Competition Markets and prices Technology and capital goods Specialization Use of money Active, but limited, government |
| How are technology and capital goods viewed in the Market System | Advanced technology and capital goods are encouraged. Specialization Division of labor Geographic specialization |
| Use of Money | Money makes trade easier. It is a medium of exchange. Without money, people would have to barter. |
| Bartering | goods/services are traded for other goods/services without the use of money |
| Why is an active, but limited, government used (Market System) | Government may be needed to alleviate market failures. Government can increase effectiveness of a market system. Possible government failure. |
| *The Five Fundamental Questions* | 1) What goods and services will be produced? 2) How will the goods and services be produced? 3) Who will get the goods and services? 4) How will the system accommodate change? 5) How will the system promote technological progress? |
| What Goods Will Be Produced? | Goods and services that create a profit Consumer sovereignty “Dollar votes” -The more that a product is bought indicates if it should continue being produced or not |
| How Will the Goods Be Produced? | Cheapest way/method available Minimize the cost per unit by using the most efficient techniques: -Technology -Prices of the necessary resources |
| Who Will Get the Output? | Those who want it and can afford it Consumers with the ability and willingness to pay will get the product. Ability to pay depends on income. |
| How Will the System Accommodate Change? | *Creative Destruction* Changes in consumer tastes Changes in technology Changes in resource prices or availability |
| Creative Destruction | The belief that the creation of new products and production methods destroys the market power of existing monopolies. Out with the old, in with the new |
| How Will the System Progress? | Technological advance -Creative Destruction Capital accumulation |
| The Invisible Hand | a metaphor introduced by Adam Smith to describe how individuals pursuing their self-interest in a free market can lead to beneficial social and economic outcomes. |
| Virtues of the market system | Efficiency Incentives Freedom |
| The Demise of Command Systems | Command systems fail to deliver adequate amounts of goods and services. Ex: Soviet Union, North Korea |
| Coordination problem (Command System) | Must correctly set output targets for all goods and services. Trying to coordinate the number of resources needed for goods in an entire country is nearly impossible |
| Incentive problem (Command System) | No adjustments for surplus or shortage. No rewards for innovation since everyone is given same pay |
| The Circular Flow Model | Private closed economy: Households Businesses Product market and the resource market The real flow and the money flow |
| How the Market System Deals with Risk (5) | Business owners and investors face risk Employees and suppliers have security Business risks are restricted to owners. Attracts needed inputs Focuses attention |
| Risks that business owners and investors face: | Losses due to input (resource) shortages Changes in consumer tastes Natural disasters that affect the supply chain |
| What security do employees and suppliers have during business failures | They are paid whether the firm makes a profit or not Business risks are restricted to owners |
| How do owners focus their attention (towards market risk) | -Owners personally responsible for outcome. -Will encourage wise decisions. Manage risk well and the owners will prosper. |
| Attracts needed inputs (resources): | Inputs easier to obtain since many dislike risks. |
| The power of government in Laissez-Faire is primarily to: | -Protect private property from theft. -Provide a legal environment for contract enforcement. |
Created by:
Phillies55
Popular Economics sets