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Chapter 2 Econ

economic system
the method used by society to produce and distribute goods and services
Factor Payments
The income people receive for supplying factors of production, land, labor, and capital, or entrepreneurship
safety net
available by the government to protect people experiencing unfavorable economic conditions.
Ex: social security, welfare
Standard of Living
Level of economic prosperity
Traditional Economies
Relies on habit, custom, or ritual to decide what to produce, how to produce it, and whom to distribute it
Market Economy
An economic system in which decisions are made by individuals and are based on exchange or trade
Command/Centrally Planed Economy
A system in which the central government makes all decisions about the production and consumption of goods and services
Mixed Economy
System that combine traditional and free market with limited government intervention.
Market
An arrangement that allows buyers and sellers to exchange goods and services
Specialization
the concentration of the productive efforts of individuals and firms on a limited number of activities
Free market economy
households and business firms use markets to exchange money and products. No government
Household
players in the free market economy which consist of a person or group of people living in the same residence
Firm
Business/organization that uses resources to produce a product, which it then sells. Firms purchase factors of production from households
Factor Market
Area of exchange between households and firms to purchase or rent land, they hire workers, paying them wages or salaries for their labor
Profit
Financial gain made in a transaction
Product Market
Goods and services that firms produce are purchased by households.
Self Interest
the motivating force in the free market
Incentive
the hope of reward or the fear of punishment that encourages a person to behave in a certain way
competition
the regulating force of the free market
invisible hand
the interaction of buyers and sellers motivated by self-interest and regulated by competition, all happens without a central plan.
Socialism
a social and political philosophy based on the belief that money and wealth should be distributed equally throughout society
Communism
a political system characterized by a centrally planned economy with all economic and political power given to the government
Laissez Faire
the doctrine that says government should not interfere in the marketplace
free enterprise
An economic system that permits the conduct of business with minimal government intervention

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