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Economics - Unit 1 Economics Fundamentals
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Economics - Unit 1 Economics Fundamentals
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Economics - Unit 1 Economics Fundamentalseconomic systems - The ways in which a society answers the three basic
economic questions to organize production, distribution, and consumption of
goods and services to solve the economic problem of scarcity
3 basic economic questions - Every economic system must answer the
three basic economic questions: What to produce; How to produce it? For
whom to produce?
command economy - a system in which the central government makes
all economic decisions
traditional economy - An economy in which production is based on
customs and traditions and economic roles are typically passed down from one
generation to the next--usually subsistence agriculture
market economy - a system based on private ownership, free trade
between buyers and sellers, and competition
mixed economy - market-based economic system with limited
government involvement.
invisible hand - a term coined by Adam Smith to describe the self-
regulating nature of the marketplace
laissez faire - the doctrine that states that government generally should
have little or no involvement in the marketplace
, comparative advantage - the ability of an individual, firm, or country to
produce a good or service at a lower opportunity cost than other producers.
absolute advantage - the ability to produce more of a given product
using a given amount of resources
free enterprise - The freedom of private businesses to operate
competitively for profit with minimal government regulation.
capitalism - economic system in which the means of production are
privately owned and operated for profit
incentives - Used to change behavior in order to persuade people to take
certain economic actions. Ex. profit and the ownership of private property are
incentives to start a business
consumer sovereignty - the role of consumer as the ruler of the market,
determining what products will be produced
profit motive - To be motivated by the desire to make money.
private ownership - property/resources that individuals own and
control; a core principle of capitalism
role of government - To maintain legal and social framework, overcome
market failure by providing public goods and services, maintain competition,
redistribute income, correct for externalities, to protect individuals and their
property rights, stabilize the economy
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