Chapter 2: Economic Systems
A traditional economy is based on
ritual, habit, or custom
What is the meaning of consumer sovereignty?
Consumers are in control of the market
A shortage is when the quantity supplied is __________ _________ the quantity demanded.
Less than
Give an example of a public good
Roads, public parks, libraries
What is one way that business owners can raise money to grow their business?
Incubators, Venture Capitalists, Angel investors, and Crowdfunding
In a capitalist economy, _________ ____________ own and use the means of production for profit.
Private individuals
What is voluntary exchange?
The voluntary act of buyers and sellers freely and willingly engaging in market transactions
What is rationing?
When the government decides on each person's "fair share"
Name two types of monopolies
1) Natural
2) Geographic
3) Technological
4) Government
What is the difference between common and preferred stock
Common stock gets to vote on Board of Directors, preferred does not.
In a command economy the 3 economic questions are answered by
The government
What are the 3 roles of government in the American economy?
Protector, Provider, Regulator
If there is a surplus of a product than the producer needs to ________ the price
Lower
Give an example of an industry that is run by an oligopoly
Airlines, Cell Phone Providers, Steel, Car companies, etc
What are the 2 different types of mergers?
Horizontal and Vertical
In a market economy, the 3 economic questions are answered by
Supply and Demand created by Consumers
In a Free enterprise system resources are __________ ______________ and competition is allowed to run with __________ government interference
Privately owned; little to no
How do price ceilings protect consumers?
By limiting how much a producer can charge for a product
What are the 5 factors that contribute to market failure
Not Enough Competition
Not Enough Information
Resources that can’t, or won’t, move
Too few public goods
Externalities or Spillover effects
What is the purpose of labor unions?
To protect workers in a specific industry
Who answers the 3 economic questions in a mixed economy?
Tradition, markets, and government
What is inflation? How does it work with fixed income to create recessions?
Inflation is a general rise in prices. Markets typically fail when inflation mixed with fixed income since people have less money to spend on goods.
What are the pros and cons of rationing?
Pros
Maximizes the use of resources in a country
Cons
Takes away individual freedom to choose
What are the 5 factors that create perfect competition?
Large number of buyers and sellers
Identical products
Freedom of Exit or Entry
Informed Buyers
Informed Sellers
What is a charter?
Legal document that creates a corporation, sets the amount of preferred and common stock that can be traded.