1.

Economic system A particular set of institutional arrangements and a coordinating mechanism for solving the
economizing problem; a method of organizing an economy, of which the market system and the command system
are the two general types.
2. Command system A method of organizing an economy in which property resources are publicly owned and
government uses central economic planning to direct and coordinate economic activities; command economy;
communism.
3. Market system All the product and resource markets of a market economy and the relationships among them; a
method that allows the prices determined in those markets to allocate the economy's scarce resources and to
communicate and coordinate the decisions made by consumers, firms, and resource suppliers.
4. Private property The right of private persons and firms to obtain, own, control, employ, dispose of, and bequeath
land, capital, and other property.
5. Freedom of enterprise The freedom of firms to obtain economic resources, to use those resources to produce
products of the firm's own choosing, and to sell their products in markets of their choice.
6. Freedom of choice The freedom of owners of property resources to employ or dispose of them as they see fit, of
workers to enter any line of work for which they are qualified, and of consumers to spend their incomes in a manner
that they think is appropriate.
7. Self-interest That which each firm, property owner, worker, and consumer believes is best for itself and seeks to
obtain.
8. Competition The presence in a market of independent buyers and sellers competing with one another along with
the freedom of buyers and sellers to enter and leave the market.
9. Market Any institution or mechanism that brings together buyers (demanders) and sellers (suppliers) of a
particular good or service.
10. Specialization The use of the resources of an individual, a firm, a region, or a nation to concentrate production
on one or a small number of goods and services.
11. Division of labor The separation of the work required to produce a product into a number of different tasks that
are performed by different workers; specialization of workers.
12. Medium of exchange Any item sellers generally accept and buyers generally use to pay for a good or service;
money; a convenient means of exchanging goods and services without engaging in barter.
13. Barter The exchange of one good or service for another good or service.
14. Money Any item that is generally acceptable to sellers in exchange for goods and services.
15. Consumer sovereignty Determination by consumers of the types and quantities of goods and services that will
be produced with the scarce resources of the economy; consumers' direction of production through their dollar
votes.
16. Dollar votes 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.
17. Creative destruction The hypothesis that the creation of new products and production methods simultaneously
destroys the market power of existing monopolies.
18. Invisible hand The tendency of firms and resource suppliers that seek to further their own self-interests in
competitive markets to also promote the interests of society.
19. Circular flow diagram An illustration showing the flow of resources from households to firms and of products
from firms to households. These flows are accompanied by reverse flows of money from firms to households and
from households to firms.
20. Resource market A market in which households sell and firms buy resources or the services of resources.
21. Product market A market in which products are sold by firms and bought by households.