chapter 2 economics

Chapter 2
Identifying Key Terms
1. Other terms for the market economic system are capitalism and invisible hand.
2. Many American believe that their economic system accounts for the high______ in the United States
3. The concept of _____ allows people to buy and own land, a home or their own business.
4. The____ can make profits or incur great losses.
5. A person may keep the___ they earn from selling.
6. Most people live in countries that have a ____.
7. Adam Smith said the economy is directed by an_____.
8. Our government promotes___ or fair and just economic policies.
9. The existence of ___ keeps prices low for consumers.

Recalling Facts and Ideas
Section 1
1. What basic economic question helps determine the career path of individuals?
- Do I want to make money employed under people or by employing people under me?

2. What economic question is being answered if an industry replaces some workers with machines?
- Introducing machines increases capital costs initially, but is designed to reduce labor costs in the long term. Of course it can also reduce the spending power of the replaced workers which means there are less people around to buy the products now produced by the machines.
3. How does a traditional economy answer the basic question “How should it be produced?”
- The term "traditional economy" is used to describe underdeveloped nations or tribal economies. This type of economy ensures that every member of society has a purpose, a certain activity or job. This brand of economics provides less of a demand on the resources of the earth because goods are usually only produced if they are needed and will be consumed.
4. Who answers the three basic economic questions in a command system?
- The planners estimate what is needed and the amount of labor of materials available. They then use input output matrices to assign production quotas and allocate labor and materials to each producing segment of the economy.
They produce for consumers and the government just as all system must, but often produce more for the military than most countries

5. Who owns the factors of production in a market economy?
- Much of the stock in the U.S. is owned by pension funds, which nominally act on the behalf of workers. That means you could say that workers own many of the means of production, even if they have no control over them.

Section 2

6. What are six important characteristics of free enterprise?
- Limited role of government, freedom of enterprise, freedom of choice, profit incentive, competition, and private property.
7. What is government’s limited role in pure capitalism?
- Capitalism rejects all government intervention in economic matters. The basis of capitalism is individualism not governed society
8. Why is private property important in the American economic system?
- Private property is important in the American economic system because people having the rights to risk investment, own productive assets, and learn new ways of producing; the invisible engine for creating wealth and prosperity for all.

Section 3
9. What are the three goals of the free enterprise system?
- economic growth efficiency and equity
10. What does the United States do to promote economic security for individuals?
- There are four programs that can broadly fit under this heading: unemployment insurance, Medicaid, Social Security, and Medicare.