ECONOMICS
Economic Systems - Ch 2
1. How do economic systems differ?
The difference arises from the ways each system answers production and distribution questions.
2. Why aren’t all people paid the same amount in factor payments for the resources they provide?
Factor of payments differ because societies place different values on different resources and products.
3. Why do governments provide safety nets for their citizens?

To fulfill the goal of predictability

To fulfill the goal of economic security
4. Give an example of a market economic system. USA
5. How does specialization make us more efficient?
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?
The financial gain of a transaction.
7. How does competition among firms benefit consumers?
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”.

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.
Economic Systems - Ch 2
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9. What is the connection between incentives and consumer sovereignty in a free market economy?
Consumer sovereignty has to do with the power consumers have to choose what they will buy.
Consumers 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?
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?
It is strongly centralized. It demands strict obedience from its citizens. It does not allow individuals freedom
of judgment and action.
Match
Market Economy
Laissez Faire
Market-based economic system with limited government involvement
French term meaning let them do as they please
Competition
Socialism
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
Command Economy
Economic system in which central authority is in command of the economy
Week 2 of 10.
The 2nd quiz towards your midterm.
Economic Systems - Ch 2
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