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The Market System
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Capitalism characterized by the private ownership of resources and the use of markets and prices to coordinate economic activity
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Command System
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An economic system in which the allocation of resources is heavily controlled by government instead of free market forces.
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Specialization
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A situation in which different people each engage in a different task that they are best at.
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Dollar Votes
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The "votes" that consumers and entrepreneurs cast for the production of consumer and capital goods, respectively, when they purchase those goods in product and resource markets.
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The Invisible Hand
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Adam Smith's term for the natural self-regulation of a market economy driven by self-interest and efficiency
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Sole Proprietorship
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A business owned and managed by a single individual
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Partnership
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A business owned by two or more persons associated as partners.
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Corporation
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A business owned by stockholders who share in its profits but are not personally responsible for its debts
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Barter
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The direct exchange of one set of goods or services for another
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Money
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Assets that people are generally willing to accept in exchange for goods and services or for payment of debts.
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Creative Destruction
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The replacement of old products and production methods by innovative new ones that consumers judge to be superior. The process generates economic growth and higher living standards.
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Freedom of Enterprise
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Ensures that entrepreneurs and private businesses are free to obtain and use economic resources to produce their choice of goods and services and to sell them in their chosen markets.
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Self-interest
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An individual's own personal gain.
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Market
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An economy in which decisions about production and consumption are made by individual producers and consumers.
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Division of Labor
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Division of work into a number of separate tasks to be performed by different workers.
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Consumer Sovereignty
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Describes the role of the consumer as sovereign, or ruler, of the market deciding what gets produced.
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Circular Flow Diagram
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A visual model of the economy that shows how dollars flow through markets among households and firms.
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Product Market
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A market where producers offer goods and services for sale.
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Resource Market
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A market in which households sell and firms buy resources or the services of resources.
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