ECONOMICS
Economic Systems - Ch 2
1. How do economic systems differ? (5 points)
The way in which a society decides to produce and distribute goods an services.
2. Why aren’t all people paid the same amount in factor payments for the resources they provide? (5 points)
Societies place different values on different resources and products. A possible example
is doctors’ wages compared to sanitation workers’ wages.
3. Why do governments provide safety nets for their citizens? (4 points)
To fulfill the goal of economic security and predictability
4. Give an example of a market economic system. (3 points)
the United States
5. How does specialization make us more efficient? (4 points)
It allows each of us to focus on individual tasks and not worry about all of our basic needs
at once.
6. What is profit? (4 points)
The financial gain of a transaction
7. How does competition among firms benefit consumers? (4 points)
It benefits consumers by causing firms to sell higher-quality goods at lower prices.
8. Explain what Adam Smith meant by “the invisible hand of the market place”. (4 points)
Using self interest as a tool, it guides a nation’s resources to their most productive use.
Individuals, each purchasing what is best for him or her, make decisions that ultimately
benefit the nation. Consumers can buy products they want at reasonable prices.
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9. What is the connection between incentives and consumer sovereignty in a free market economy? (4 points)
Consumer sovereignty has to do with the power consumers have to choose what they will
buy so they exert control over what is produced by creating the incentive for firms to
produce high quality goods and services.
10. How do socialism and communism differ? (4 points)
Socialist countries the government often owns major industries. Socialism has been
achieved peacefully through democracy.
Communist governments occur after a violent revolution. All economic and political power
rests in the hands of central government. Communist governments are authoritarian.
11. What characterizes an authoritative government? (4 points)
It is strongly centralized. It demands strict obedience from its citizens. It does not allow
individuals freedom of judgment and action.
Define (5 points each)
Market Economy
Laissez Faire
Competition
Socialism
Command Economy
Market-based economic system with limited government involvement
French term meaning let them do as they please
The struggle among producers for the dollars of consumers
A social and political philosophy based on the belief that democratic means should be
used to distribute wealth evenly throughout the society
Economic system in which central authority is in command of the economy
The 2
nd
Week 2 of 13.
quiz towards your midterm.
SPECIAL NOTE:
Section 4 of Chapter 2 will be on next week’s quiz!
Economic Systems - Ch 2
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