The Market Economy Part 1 (Adam Smith) 1234 The Market Economy Part 2 (Characteristics) Specialization Entrepreneurs

Individuals pursuing their self- interest by engaging in mutually beneficial transactions that allow them to increase their standard of living and this results in an overall increase in the standard of living for society was referred to as this by Adam Smith. What is the “invisible hand”?

3 results of a free market according to Adam Smith. What are producers will work to supply the public with better & cheaper goods, Workers who become more productive will be able to command higher wages that will result in more purchasing power, and producers will use their resources more efficiently in order to minimize waste of those resources and lower their overall costs?

The government establishing regulations that serve as barriers to entry in a market and protect businesses already in the market and results in a distortion of the free market is referred to as this. What is crony capitalism?

The government paying subsidies to certain farmers resulting in a distortion of the free market is referred to as this. What is crony capitalism?

4 characteristics of a “laissez- faire” market economy as they relate to economic freedom. What are ability to buy what we want from who we want, ability to go somewhere else if a business is not selling what we want, freedom to start & run a business or pursue any job we want, ability for a business to make what they want, hire whom they want, and set their own wages & prices?

The concept that individuals and businesses must be able to rely on others to uphold their end of a deal is this characteristic of a market economy. What are binding contracts?

3 reasons the profit motive is important in a market economy. What are profit is the incentive for someone to start/own/operate a business, profit is the reward for someone who successfully starts/owns/operates a business, and profit is the payment for the risk a business owner takes on by starting/owning/operating a business?

OWNER EMPLOYEE SUPPLIER or GOVERNMENT: the one that is paid last from a business’s operations. Who is the owner?

OWNER EMPLOYEE SUPPLIER or GOVERNMENT: the one that not guaranteed to get paid from a business’s operations. Who is the owner?

The concept that individuals need to be guaranteed that if they work hard and acquire/maintain/improve a property that it will not be taken away from them for nothing in return is this characteristic of a market economy. What are property rights?

The 3 main ways government normally intervenes in a market economy. What are protect property rights & contracts, promote the general welfare, and protect consumers, workers, & the environment?

The concept that someone who does one specific part of a production process and gets very good at doing it is this. What is specialization?

The concept that someone who does one specific part of a production process while others perform different steps in the production process is this. What is division of labor?

The 3 reasons that specialization leads to economic interdependence. What are specialization improves productivity leading to higher output resulting in more goods & services available & a higher standard of living, it encourages trade because you will need to get the things you don’t make from others, and you become economically interdependent because you rely on someone else to provide you the things you are not producing for yourself?

The concept that one individual/company/country has a higher level of productivity in producing a product over another is called this. What is absolute advantage?

The concept that one individual/company/country can produce a product at a lower opportunity cost than another is called this. What is comparative advantage?

The concept of comparative advantage as it relates to two individuals/businesses/countries and products they can make is this. What is they should specialize in products in which they have a lower opportunity cost and trade with the other for other products they need?

That the entrepreneur supplies the vision and makes key decisions that set the course for the business enterprise describes this role of an entrepreneur. What is strategist?

That the entrepreneur supplies the energy drive and enthusiasm needed to turn ideas into reality describes this role of an entrepreneur. What is spark plug?

That the entrepreneur invests time energy abilities and his/her own money (and often others) to start a new business even though there is no guarantee of success describes this role of an entrepreneur. What is risk taker?

That the entrepreneur thinks of ways to turn new inventions technologies techniques or ideas into goods or services people want describes this role of an entrepreneur. What is innovator?

The 3 reasons entrepreneurs normally start a business. What are Personal Satisfaction, Contribute to the Economy, and Profit Motive?

This is how profits are calculated. What is Revenues – Costs of Production?