Econ Chapter 2 Review

Front 1

the set of mechanisms and institutions that resolves the what, how, and for whom questions for an economy

Back 1

economic system

Front 2

an economic system with no government involvement so that private firms account for all production

Back 2

pure market economy

Front 3

an economic system in which all resources are government-owned and production is coordinated by the central plans of government

Back 3

pure centrally planned economy

Front 4

an economic system that mixes central planning with competitive markets

Back 4

mixed economy

Front 5

describes the U.S. economic system, where markets play a relatively large role

Back 5

market economy

Front 6

an economic system in the process of shifting from central planning to competitive markets

Back 6

transitional economy

Front 7

an economic system shaped largely by custom or religion

Back 7

traditional economy

Front 8

shows the possible combinations of the two types of goods that can be produced when available resources are employed fully and efficiently

Back 8

production possibilities frontier

Front 9

producing the maximum possible output from available resources

Back 9

efficiency

Front 10

an expansion in the economy's production possibilities or ability to produce

Back 10

economic growth

Front 11

to be able to make something using fewer resources than other producers require

Back 11

absolute advantage

Front 12

occurs when individual workers focus on single tasks, enabling each one to be more efficient and productive

Back 12

specialization

Front 13

a system of exchange in which products are traded dircetly for other products

Back 13

barter

Front 14

anything that everyone is willing to accept in exchange for goods and services

Back 14

money

Front 15

an action that sorts the production process into separate tasks to be carried out by separate workers

Back 15

division of labor

Front 16

List three examples of "bartering" taking place

Back 16

1. trading a pencil for a pen
2. exchaning a goat for a cow
3. trading eggs for milk

Front 17

What does the PPF curve do if more resources become available?

Back 17

The PPF curve shifts outward

Front 18

What does "inefficient" represent inside the PPF?

Back 18

The economy is not using its resources efficiently

Front 19

Name one example of a traditional economy

Back 19

caste systems in India

Front 20

Name one example of a transitional economy

Back 20

Hungary's economy

Front 21

Name one example of a mixed economy

Back 21

The United States' economy

Front 22

Name three problems with centrally planned economies

Back 22

1. consumers get low priority
2. little freedom of choice
3. inefficient

Front 23

Name three problems with pure market economies

Back 23

1. difficulty in enforcing private property rights
2. some people have fewer resources to sell
3. no public goods

Front 24

What three questions must all economies answer?

Back 24

What good and services will be produced?
How will they be produced?
For whom will they be produced?

Front 25

Explain Adam Smith's "invisible hand"

Back 25

People's own selfishness would answer the three questions and through market competition, everything would work out on its own