Name __________________________
Period______
Quiz Date / due date ______________
Economic Systems
Principles and Practices of Economics
Chapter 2 Study Guide
Directions: Referring to your text, read pages 23-46, and answer the following questions.
Use this as a reference when studying for the chapter quiz, and be prepared to turn it in for
credit prior to taking the quiz.
Section 1:
1. The method used by a society to produce and distribute goods and services is known as
an _____________________ ___________________.
2. Economic systems have come about in response to what problem? _______________
3. List the three key economic questions that all societies must answer:
3.1.
_________________________________________________________
3.2.
_________________________________________________________
3.3.
_________________________________________________________
4. Thinking back to Chapter 1, list the main factors of production. (hint: if you need help
look at figure 2.1 on page 24.)
4.1.
___________________
4.2.
___________________
4.3.
___________________
4.4.
___________________
5. The terms for income people receive for supplying factors of production are called
________________ _________________.
6. Each society answers the question of distribution based in its unique combination of
_______________ __________________ and ________________.
7. List the five major Economic Goals that societies have
7.1.
___________________________________
7.2.
___________________________________
7.3.
___________________________________
7.4.
___________________________________
7.5.
___________________________________
8. The term for the government programs that protect people from experiencing unfavorable
economic conditions is a _________________ _________.
9. The level of economic prosperity for a nation (or individual) is known as the
____________________ ______ ___________________.
10. Identify the four basic Economic Systems.
10.1.
______________________________________
10.2.
______________________________________
10.3.
______________________________________
10.4.
______________________________________
11. Which economic system is a combination of traditional, market, and centrally planned
economies? _________________________
12. In which economic system are decisions made by individuals and are based on exchange
or trade? _________________________
13. Which economic system relies on habit, custom, or ritual to decide how the answer the
three basic economic questions? _______________________
14. Which economic system is also known as a command economy, in which the government
is in control of the country’s economy? _________________________________
Section 2:
15. An arrangement that allows buyers and sellers to exchange things is known as a
_______________________.
16. Why do markets exist?
17. The concentration of the productive efforts of individuals and firms on a limited number
of activities in order to be more efficient is called ____________________________.
18. Economic systems that are based on voluntary exchanges in markets are called
____________________ ___________________ economies.
19. Who answers the three basic economic questions in free market economies?
________________________
20. The term for the special drawing that represents how a free market economy works is
called the _____________________ __________________ diagram.
21. In the circular flow diagram, what does the inner ring represent?
22. In the circular flow diagram, what does the outer ring represent?
23. A person or group of people living in the same residence, also those who own the factors
of production and are the consumers of goods and services is known as a _____________
24. An organization that uses resources to produce a product that is sells is called a business
or ___________________.
25. The market in which firms purchase the factors of production from households is known
as the _______________________ ___________________.
26. The financial gain made from a transaction is known as the _________________.
27. According to Adam Smith, a historical philosopher and economist, what is the
motivating force in the free market? ___________- ________________
28. The expectation or hope of reward or fear of punishment that encourages people to act is
known as an ______________________.
29. What is the regulating force of the free market? __________________________
30. Explain how the “invisible hand” regulates the marketplace.
31. When consumers have the power to decide what is produced because that is what keeps
businesses profitable (and in business), it is known as ____________ ______________
32. What goals are hard to achieve in a pure market economic system? Economic
_____________________ and Economic _________________________.
33. Read the profile about Adam Smith on page 33. When he coined the phrase “laissez
faire,” meaning, “let them do as they please.” Who did he think should be free to pursue
their own interests in the market system? ____________________ Who did he think
should allow individuals that freedom? ___________________
34. Smith asserted that the invisible hand would guide a nation’s resources to their most
_______________________ use.
Section 3:
35. What two driving economic forces are not present in centrally planned economies?
____________________________ and _________________________.
36. The belief that democratic means should be used to distribute wealth evenly throughout a
society is known as ________________________.
37. The belief that all economic and political power should be in the hands of the central
government is known as __________________________.
38. Another term for communist governments is that they are ________________________,
which means that they demand strict obedience from their citizens, and do not allow
individuals many freedoms.
Section 4:
39. As mentioned previously, Adam’s Smith’s doctrine that the government generally should
not intervene in the marketplace is known as __________________ _______________.
40. Looking at the Global Connections box on page 41, what percentage of their income do
Swedes pay in taxes? _____ %; Americans? _____ %
41. What is the greatest expenditure of the U.S. Government? ____________ ____________
42. What are the three reasons that the U.S. Government intervenes in economic policies?
42.1.
_______________________________________
42.2.
_______________________________________
42.3.
_______________________________________
43. Read the chapter summary on page 46 carefully.
44. Answer items 1-6 from the Key Terms activity on page 46, by writing the correct
matching term in the appropriate blanks below.
1. ___________________________________
2. ___________________________________
3. ___________________________________
4. ___________________________________
5. ___________________________________
6. ___________________________________