Chapter+2+HW

**Key Terms** Economic System : the methos used by a society to produce and distribute goods and services Factor Payments : the income people receive for supplying factors of production such as land, labor, or capital Patriotism : the love of one's country; the passion that inspires a person to serve his or her country Safety Net : government programs that protect people experiencing unfavorable economic conditions Standard of Living : level of economic prosperity Traditional Economy : economic system that relies on habit, custom, or ritual to decide questions of production and consumptions of goods and services Market Economy : economic system in which decisions on production and consumption of goods and services are based on voluntary exchange in markets Centrally Planned Economy : economic system in which the central government makes al decisions on the production and consumption of goods and services Command Economy : economic system in which a central authority is in command of the economy; a centrally planned economy Mixed Economy : market-based economic system with limited government involvement
 * Chapter 2.1 Notes**

**Three Key Economic Questions** - what goods and services should be produced? - how should these goods and services be produced? - who consumes these goods and services?

**What Goods and Services Should Be Produced?** - society must decide what to produce to satisfy it's needs and wants - difficult to distinguish between needs and wants

- require land, labor and capital - factors or production used to create schools, solar power, nuclear power etc.
 * How Should Goods and Services Be Produced? **

**Who Consumes Goods and Services?** - society answers question of distribution based on its unique combination of social values and goals

**Economic Goals and Societal Values** - societies answer the questions based on importance they attach to various economic goals

**Economic Efficiency** - resources always have an opportunity cost because they are always scarce - if a society can accurately assess what to produce it increases its economic efficiency - manufacturers would be wasting resources if they produce something that consumers do not want

- laws forbid people from making certain purchases or possess certain items - patriotism is the love for one's country; the passion that inspires a person to serve his or her country
 * Economic Freedom **

**Economic Security and Predictability** - economic systems reassure people that goods and services will be available when they need them - the security of knowing that help is available if we are elderly, poor, unemployed, or facing other potential economic disadvantage - safe net is a set of government programs that protect people experiencing unfavorable economic conditions

**Economic Growth and Innovation** - a nation's economy must grow for a nation to improve its standard of living, or level of economic prosperity - especially true if the country's population is growing - economy must grow to create new jobs and income for people

**Economies and Values** Traditional Economies - traditional economy relies on habit, custom, or ritual to decide what to produce, how to produce it, and to whom to distribute it - little room for change/innovation

**Market Economies** - economic decisions are made by individuals and are based on exchange, or trade - choices made by individuals determined what gets made and how, as well as who consumes the goods and services produced

**Command Economies** - in centrally planned economy the central government alone decides how to answer all three key economic questions - centrally planned economy are sometimes called command economies because a central authority is in command of the economy

**Mixed Economies** - modern economies - market-based economic systems in which government plays a limited role

Chapter 2.1 Assessment 1. What us an economic system? - the method used by a society to produce and distribute goods and services 2. How do a traditional economy, a market economy, a command economy, and mixed economy differ? - whether the government is involved 3. Why aren't all people paid the same amount in factor payments for the resources they provide? Provide your own example of two unequal factor payments.