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60 Cards in this Set

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Circular Flow Model (Book) =
The flow of resources from households to firms and of products from firms to households.

These flows are accompanied by reverse flows of money from firms to households and from households to firms.
Essentially what does the Circular Flow Model do?
Graphically depicts how money, resources, goods, services, and the method of payments for them are exchanged.
Businesses get paid in which market?
Product Market
Businesses spend money in which market?
Resource Market
What are the two markets?
1) Product Market
2) Factor Market
Factor market can also be classified as what?
Resource Market
What is the difference between a simple and complex circular flow model?
The simple circular flow model excludes government, whereas the complex circular flow includes it.
What's the most important aspect of the simple circular flow model?
Leave the government out of it.
What is the Product Market?
Where goods and services are exchanged.
What is the Factor Market?
Where the factors of production are exchanged.
What are factors of production?
LLCE.

L - land
L - labor
C - capital
E - entrepreurship
What are the intended results of land?
Rent
What are the intended results of entrepreneurship?
Profit
What are the intended results of capital?
Interest
What are the intended results of labor?
Wages
What is a Market System (Book):
All the product and resource markets of a market economy and the relationships among them; a method that allows the prices determined in those markets to allocate and coordinate the decisions made by consumers, firms, and resource suppliers.
What are the characteristics of a Market System?
1) Private Property

2) Freedom of Enterprise and Choice

3) Self-Interest

4) Competition

5) Markets and Prices

6) Reliance on Technology and Capital Goods

7) Specialization

8) Active (but limited) government

9) Geographic Specialization
In regards to the market system, what does the characteristic of "Private Property" mean?
Private individuals and firms own most of the property resources of land and capital rather than the government.
What do property rights encourage?
Investment, innovation, exchange, maintenance of property, and economic growth.

No one would invest in anything if someone could intervene and take it for their own profit (it obviously being the govt.)
Freedom of Enterprise =
Ensures that entrepreneurs and private busineses are free to obtain and use economic resources to produce their choice of goods and services and to sell them in their chosen markets.
Freedom of Choice =
Enables owners to employ or dispose of their property and money as they see fit.

It also allows workers to enter any line of work for which they're qualified. Finally, it ensures that consumers are free to buy the goods and services that best satisfy their wants.
Freedom of Choice =
Enables owners to employ or dispose of their property and money as they see fit.

It also allows workers to enter any line of work for which they're qualified. Finally, it ensures that consumers are free to buy the goods and services that best satisfy their wants.
Self-interest =
That which each firm, property owner, worker, and consumer believes is best for itself and seeks to obtain.
Self-interest =
That which each firm, property owner, worker, and consumer believes is best for itself and seeks to obtain.
What is the basis of competition?
Freedom of choice exercised in pursuit of a monetary return.
What two things does competition require?
1) Independently acting sellers and buyers operating in a particular product or resource market.

2) Freedom of sellers and buyers to enter or leave markets, on the basis of their economic self-interest.
What is the basis of competition?
Freedom of choice exercised in pursuit of a monetary return.
Freedom of Choice =
Enables owners to employ or dispose of their property and money as they see fit.

It also allows workers to enter any line of work for which they're qualified. Finally, it ensures that consumers are free to buy the goods and services that best satisfy their wants.
The diffusion of economic power in competition does what?
Limits potential abuse of power.
What two things does competition require?
1) Independently acting sellers and buyers operating in a particular product or resource market.

2) Freedom of sellers and buyers to enter or leave markets, on the basis of their economic self-interest.
Self-interest =
That which each firm, property owner, worker, and consumer believes is best for itself and seeks to obtain.
What is the coordinating system of the market system?
A system of markets and prices.

Meaning that the decisions made on each side of the market determine a set of product and resource prices that guide resource owners, entrepreneurs, and consumers as they make and revise their free choices and continue to pursue their self-interest.
The diffusion of economic power in competition does what?
Limits potential abuse of power.
Modern industrial economics have extensive amounts of what specifically?
Technologically advanced capital goods. In turn, these goods aid these economies in achieving greater efficiency in production.
What is the basis of competition?
Freedom of choice exercised in pursuit of a monetary return.
What is the coordinating system of the market system?
A system of markets and prices.

Meaning that the decisions made on each side of the market determine a set of product and resource prices that guide resource owners, entrepreneurs, and consumers as they make and revise their free choices and continue to pursue their self-interest.
What is roundabout production?
The construction and use of capital to aid in the production of consumer goods.
What two things does competition require?
1) Independently acting sellers and buyers operating in a particular product or resource market.

2) Freedom of sellers and buyers to enter or leave markets, on the basis of their economic self-interest.
Modern industrial economics have extensive amounts of what specifically?
Technologically advanced capital goods. In turn, these goods aid these economies in achieving greater efficiency in production.
The majority of consumers produce virtually...
None of the goods they consume, and they consume little of what they produce.
What is roundabout production?
The construction and use of capital to aid in the production of consumer goods.
The diffusion of economic power in competition does what?
Limits potential abuse of power.
Is the phrase "A jack of all trades" important to a Market System?
No.

A jack of all trades lacks specialization integral to most market systems.

The jack of all trades may be a colorful individual but is certainly not an efficient producer.
The majority of consumers produce virtually...
None of the goods they consume, and they consume little of what they produce.
What is the coordinating system of the market system?
A system of markets and prices.

Meaning that the decisions made on each side of the market determine a set of product and resource prices that guide resource owners, entrepreneurs, and consumers as they make and revise their free choices and continue to pursue their self-interest.
Modern industrial economics have extensive amounts of what specifically?
Technologically advanced capital goods. In turn, these goods aid these economies in achieving greater efficiency in production.
Is the phrase "A jack of all trades" important to a Market System?
No.

A jack of all trades lacks specialization integral to most market systems.

The jack of all trades may be a colorful individual but is certainly not an efficient producer.
What is roundabout production?
The construction and use of capital to aid in the production of consumer goods.
The majority of consumers produce virtually...
None of the goods they consume, and they consume little of what they produce.
Is the phrase "A jack of all trades" important to a Market System?
No.

A jack of all trades lacks specialization integral to most market systems.

The jack of all trades may be a colorful individual but is certainly not an efficient producer.
Division of Labor =
Specialization of workers.

The separation of work required to produce a product into a number of different tasks that are performed by different workers.
T/F: Specialization saves time.
True.

By devoting all of your time to a single task, you avoid the loss of time incurred in shifting from one job to another.
Specialization fosters what kind of learning?
Learning by doing.

By devoting your time to one task you develop skills required to perform the job as well as the ability to stay focused and have the ability to brainstorm and test new and possibly improved ways to do the job.
Specialization makes use of:
Differences in ability.

If Caveman A is strong and good at tracking animals why Cavemen B is patient and weak, the distribution of talents would be most efficient if Caveman A hunted and Caveman B were to fish.
What are the two main types of specialization?
1) Human Specialization
2) Geographic Specialization
Geographic Specialization =
Having Nebraskans specialize in wheat while farmers in Florida specialize in the production of oranges.
What is a medium of exchange and what is its importance?
A convenient way to exchange goods (required to specialize).

Obviously, that method being through exchange of money.
Bartering =
Swapping goods for goods.
Why is bartering problematic?
It requires a "coincidence of wants" meaning that not everybody wants the other persons goods.

We can assume that Nebraska will trade wheat for Florida's oranges. However, Florida may want to buy potatoes from Idaho instead.

Therefore, trade is stymied.
What is money socially defined as?
Whatever society accepts as a medium of change is money.