Unit 2 (Chapters 2 and 3)
Copy down each of the assigned vocabulary words and definitions. Then
leave 5-7 line spaces underneath the word and definition during class
lecture today.
Provide a well thought out, thorough, reasonable, and logical real life
example of the vocabulary term. You can use yourself as the subject in the
example, or make-up a fictional, descriptive scenario that shows me you
understand the meaning of the word. 3pts each
Draw or provide an image of each vocabulary term 3pts each
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Def: The collection of institutions, laws, activities, values, and motivations
that collectively provide a framework for the method used by a society to
produce and distribute goods and services.
The assorted institutions that society uses to answer the three basic
questions of allocation and address the fundamental problem of scarcity
Another, more popular term for economic system is economy.
An economy, or economic system, is the structural framework in which
households, businesses, and governments undertake the production and
consumption decisions that allocate limited resources to satisfy unlimited
wants and needs.
Your example:
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Def: A level of material
comfort as measured by the
goods, services, and luxuries
available to an individual,
group, or nation.
In principle, an economy's
ability to produce the goods
and services that consumers
use to satisfy their wants and
needs.
In practice, it is the average
real gross domestic product
per person--usually given the
name per capita real GDP.
Your example:
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Def: A family or community based economic system that
relies on habit, customs, and rituals to decide its choices (to
decide question of production and consumption of goods
and services)
Where people grow their own food and make their own
goods
Aborigines
Amazon tribes
Your example:
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Def: Individual or consumer based economic system in
which decisions on production and consumption of
goods/services are based on voluntary exchange in
markets.
An economy in which markets answer all allocation
decisions and answers all three questions of allocation.
There is no government. Markets do it all.
Economy with private ownership, free trade, and
competition
Prices determined by supply and demand
Your example:
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Def: an economic system in which the
central government makes all the
decisions on the production and
distribution of goods/services.
The production of goods and services is
undertaken by state-owned enterprises.
Central government makes all economic
decisions
Decides what goods to produce and
prices
Any communist country or dictatorship
Your example:
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Def: A market-based economic system with government
involvement: Markets allocate resources through voluntary
choices made by living, breathing people. Government forces
allocation through involuntary taxes, laws, restrictions, and
regulations.
Both institutions play vital roles in an economy.
Most modern economics
While, in theory, we could have a pure market economy or a
pure command economy, in the real world all economies are
mixed, relying on both markets and governments for
allocation decisions.
Your examples:
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Def: A setting where buyers and sellers establish prices for
identical or very similar products, and exchange goods
and/or services.
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Your example :
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Def: A cost or benefit that motivates a decision or action by consumers,
businesses, or other participants in the economy
The key to understanding human behavior lies in identifying incentives.
Incentives are rewards or punishments that influence people’s actions
When incentives change, people’s behavior changes in predictable ways.
Some incentives are explicitly created by government policies to achieve a
desired end or they can just be part of the wacky world we call economics.
The most noted incentive in the study of economics is that provided by prices.
When prices are higher buyers have the "incentive" to buy less and sellers
have the "incentive" to sell more.
When prices are lower buyers have the "incentive" to buy more and sellers
have the "incentive" to sell less.
Price incentives play a fundamental role in the allocation
Your example:
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Def: a system of social organization in which the means of
producing and distributing goods is owned collectively or by a
centralized government that often plans and controls the
economy.
In theory, an economy that is a transition between capitalism and
communism. It is based on—
(1) government, rather than individual, ownership of resources,
(2) worker control of the government, such that workers, rather
than capitalist, control capital and other productive resources,
(3) income allocated on need rather than on resource ownership
or contribution to production (using the needs standard rather
than the contributive standard).
Your example:
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Def: A system of government in which the state plans and controls the economy
and a single, often authoritarian party holds power, claiming to make progress
toward a higher social order in which all goods are equally shared by the people.
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In theory, an economy based on -- (1) a classless society, where everyone does their best to contribute to the common good,
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(2) a common, rather than individual, ownership of all resources,
(3) the complete disappearance of government, and
(4) income allocated based entirely on need rather than on resource ownership or
contribution to production (that is, a needs standard)
Your example:
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Def: an economic system in which private business operates in
competition and largely free of government control.
An economy in which businesses and consumers are "free" to
engage their resources in any desired production, consumption, or
exchange without government restriction, regulation, or control.
Your example:
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Def: Selling state-owned businesses to private investors
The process of converting or "selling off" government-owned
assets, properties, or production activities to private
ownership.
Your example
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Def: The free and willing exchange of goods
and services between buyers and sellers in
some sort of marketplace.
The process of willingly trading one item for
another.
The emphasis here is on "willingly.“
Voluntary exchanges are the heart and soul
of market transactions, and should be
contrasted with the "involuntary" exchanges
mandated by government taxes, laws, and
regulations.
While involuntary government-forced
exchanges play an important role in a mixed
economy, economists really, really like
voluntary market exchanges because they
promote economic efficiency.
Your example:
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Def: The force that encourages people and organization to
improve their material well-being
In a free enterprise system, business owners make choices
themselves (without control of the government), operating in ways
they believe will maximize their profits
Forces management to exercise financial discipline because it
makes people economically responsible for their own success or
failure
It rewards innovation by letting creative companies grow
It improves productivity by allowing more efficient companies to
make more money.
Your example:
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Def: the concept that people have the right and privilege to
control their possessions, income, and intellectual property as
they wish
Private property provides critical incentives for the efficient
operation of competitive market and a market-oriented
economy.
Under private-property ownership, control over resources is
relinquished (that is sold) when the owners are compensated
for their opportunity costs.
And this is just the sort of thing that leads to an efficient use of
resources.
Your example:
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Def: Money that an individual or business receives in exchange for
providing a good or service or through investing capital.
Most people age 65 and under receive the majority of their income
from a salary or wages earned from a job.
Most individuals gain income through earning wages by working
and/or making investments into financial assets like stocks, bonds
and real estate.
In most countries, earned income is taxed by the government before
it is received.
The revenue generated by income taxes finances government actions
and programs as determined by federal and state budgets.
Example:
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def: an organization that tries to persuade public officials to act or
vote according to group members'’ interests.
Special interest groups are groups of people that set out to change
the opinions of politicians. Sometimes Corporations will work with
these kinds of groups or lobbyist as they are also known to try and
sway the public officials to vote in the way they want.
Some special interest groups can be fairly tame, merely voting in
elections for their chosen candidate, while others are quite active.
The more active ones form political action committees and
undertake all forms of lobbying (legal and illegal).
Example:
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Def: the study of the behavior and decision making of entire
economies
The big picture: analyzing economy-wide phenomena such
as GROWTH, INFLATION and UNEMPLOYMENT.
Contrast with MICROECONOMICS, the study of the behavior
of individual markets, workers, households and firms.
Macroeconomics is the product of all the microeconomic
activity in an economy.
The precise relationship between macro and micro is not
particularly well understood, which has often made it
difficult for a government to deliver well-run macroeconomic
policy
Your example:
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Def: The study of the economic behavior and decision making of
small units, such as individuals, families, and businesses.
The branch of economics that studies the parts of the economy
such as markets, prices, industries, demand, and supply.
It can be thought of as the study of the economic trees, as
compared to macroeconomics, which is study of the entire
economic forest.
considers issues such as how households reach decisions
about CONSUMPTION and SAVING, how FIRMS set a PRICE for
their OUTPUT, whether PRIVATISATION improves EFFICIENCY
whether a particular market has enough COMPETITION in it and
how the market for LABOUR works.
Your example:
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Def: the total value of all final goods and services produced in
a particular economy (country) during a given period of time,
usually a year.
This is the government's official measure of how much output
our economy produces.
It is calculated by adding the total value of a country's annual
output of goods and services. GDP = private consumption +
investment + public spending + the change in inventories +
(exports - imports). It is usually valued at market prices; by
subtracting indirect tax and adding any government subsidy,
Your example:
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Def: a shared good or service for which it would
be impractical to make consumers pay
individually and to exclude nonpayers
Goods that are difficult to keep nonpayers from
consuming (excludability), and use of the goods
by one person doesn't prevent use by others (rival
consumption).
Examples include national defense, a clean
environment, and any fourth of July fireworks
display.
Your example:
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Def: An economic side effect of a good or service that generates
benefits to many people, not just those who pay for the goods
Ex. #1) Ms. Morse buys an old house that is an eyesore on Oak
Street. She paints the house, cuts the grass, and plants flowers.
Her neighbors were not involved in her economic decision. But,
they receive benefits from it, such as higher property value and a
better view.
Ex. #2.) Morse’s Computer Company hires underprivileged
teenagers and trains them to be computer programmers.
Those workers are then available to be hired by other companies,
who benefit from the workers’ skills without having paid for them
Your example:
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An economic side effect of a good or service that
generates unintended costs
Negative externalities cause part of the cost of producing a
good or service to be paid for by someone other than the
producer.
Ex. 1) You next-door neighbor, Ms. Morse, takes up the
accordion and holds Friday nigh polka parties in her backyard.
Unfortunately, you hate my polka music.
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Ex. 2) A paper mill dumps chemical wasters into a nearby river, making it
unsafe for swimming.
The downstream town of Fort Bragg is forced to install special equipment at
its water treatment plant to clean up the mess.
If the treatment cost is $20 per ton of paper produced and the mill’s
production cost is $100, the full, or social cost of a ton of paper is $120.
The community, not polluter, winds up paying that $20.
Your example: