Enhance Your Learning with Economics - Laissez-faire Flash Cards for quick learning
An economic theory that advocates for minimal government intervention in the economy, allowing free markets to operate without restrictions.
A Scottish economist and philosopher who is considered the father of modern economics. He introduced the concept of the invisible hand and argued for the benefits of free markets.
A metaphor used by Adam Smith to describe the self-regulating nature of the market. According to Smith, individuals pursuing their own self-interests in a free market unintentionally benefit society as a whole.
An economic system in which prices are determined by supply and demand, and there is little to no government intervention. Resources are allocated based on individual choices and market forces.
The fundamental forces that determine prices in a market economy. Supply refers to the quantity of a good or service available, while demand refers to the quantity that consumers are willing and able to buy.
The rivalry among sellers in a market, which leads to lower prices, improved quality, and innovation. Competition is a key feature of a free market economy.
A market structure in which a single firm dominates the industry and has the power to control prices and exclude competitors. Monopolies are seen as a potential distortion of free markets.
Actions taken by the government to influence or control the economy. This can include regulations, taxes, subsidies, and other policies that affect businesses and individuals.
Advantages of a laissez-faire approach include economic efficiency, innovation, and individual freedom. Supporters argue that free markets lead to optimal resource allocation and overall prosperity.
Critics of laissez-faire argue that it can lead to income inequality, market failures, and exploitation. They believe that government intervention is necessary to address these issues and promote social welfare.
Historically, laissez-faire policies were prominent during the Industrial Revolution in countries like Britain and the United States. These policies aimed to promote economic growth and development.
Critics argue that laissez-faire can result in market failures, such as monopolies, externalities, and information asymmetry. They believe that government intervention is necessary to correct these market imperfections.
Laissez-faire principles continue to influence economic policies in various countries. Some argue for limited government intervention, while others advocate for a more balanced approach that addresses market failures.
A situation in which the allocation of goods and services by a free market is inefficient, leading to a suboptimal outcome. Market failures can occur due to externalities, public goods, and imperfect competition.
The costs or benefits that are not reflected in the market price of a good or service. Externalities can be positive (e.g., education spillover effects) or negative (e.g., pollution).
Goods or services that are non-excludable and non-rivalrous, meaning that they are available to everyone and one person's consumption does not diminish the availability for others. Public goods are often underprovided by the market.
A market structure in which firms have some degree of market power, allowing them to influence prices. Imperfect competition can lead to higher prices and reduced consumer welfare.
The unequal distribution of income among individuals or households in an economy. Critics argue that laissez-faire policies can exacerbate income inequality, leading to social and economic disparities.
The interaction of supply and demand that determines prices and quantities in a market economy. Market forces include factors such as consumer preferences, production costs, and competition.
The well-being of individuals and society as a whole. Critics argue that laissez-faire policies may not adequately address social welfare concerns, such as poverty, healthcare, and education.
Rules and requirements imposed by the government on businesses and individuals. Regulations aim to promote fairness, safety, and consumer protection, but can also impose costs on businesses.
Financial charges imposed by the government on individuals and businesses to fund public expenditures. Taxes can be used to redistribute income and finance public goods and services.
Financial assistance provided by the government to businesses or individuals to support specific activities or industries. Subsidies can be used to promote economic development or address market failures.
A state in which resources are allocated to maximize overall welfare or utility. Laissez-faire proponents argue that free markets lead to economic efficiency by allowing prices to reflect supply and demand.
The process of creating and implementing new ideas, products, or methods that improve efficiency, productivity, and economic growth. Free markets are often seen as conducive to innovation.
The ability of individuals to make choices and pursue their own interests without undue interference. Laissez-faire policies aim to preserve individual freedom by limiting government intervention.
An increase in the production of goods and services in an economy over time. Laissez-faire policies are often associated with economic growth due to their emphasis on free markets and entrepreneurship.
A period of rapid industrialization and technological advancements that occurred in the 18th and 19th centuries. Laissez-faire policies were influential during this time, promoting economic development.
The process of improving the economic well-being and quality of life in a country. Laissez-faire policies were historically associated with economic development and the growth of industries.
The unintended impacts of an economic activity on third parties. Spillover effects can be positive (e.g., knowledge spillovers from research and development) or negative (e.g., pollution from industrial production).
The release of harmful substances or pollutants into the environment. Pollution is often considered a negative externality that is not adequately addressed by free markets.
A modified form of laissez-faire that advocates for minimal government intervention in the economy, while recognizing the need for certain regulations and social safety nets.
An approach that combines elements of laissez-faire with targeted government intervention to address market failures and promote social welfare. This approach seeks to strike a balance between economic freedom and social equity.
The efficient allocation of resources in an economy to maximize overall welfare. Laissez-faire proponents argue that free markets lead to optimal resource allocation through the price mechanism.
The state of being successful and flourishing in economic terms. Supporters of laissez-faire believe that free markets promote overall prosperity by incentivizing innovation and entrepreneurship.
Flaws or limitations in the functioning of markets that prevent them from achieving optimal outcomes. Market imperfections can include monopolies, externalities, and information asymmetry.
A situation in which one party in a transaction has more information than the other, leading to an imbalance of power and potential market failures. Information asymmetry can hinder the efficiency of free markets.
Actions taken by the government to influence the economy, such as fiscal and monetary policies. Economic policies can be used to stabilize the economy, promote growth, and address social issues.
The use of government spending and taxation to influence the economy. Fiscal policy can be expansionary (increasing spending or reducing taxes) or contractionary (decreasing spending or increasing taxes).
The use of interest rates, money supply, and other monetary tools by the central bank to control inflation, stabilize the economy, and promote growth. Monetary policy can be expansionary or contractionary.
An institution responsible for managing a country's money supply, controlling interest rates, and ensuring the stability of the financial system. Central banks play a key role in monetary policy.
A sustained increase in the general price level of goods and services in an economy over time. Inflation erodes the purchasing power of money and can have various economic impacts.
The use of economic policies to reduce fluctuations in economic activity, such as booms and recessions. Stabilization policies aim to promote steady growth and minimize the impact of economic shocks.
The use of economic policies to stimulate economic activity and increase the production of goods and services. Growth-oriented policies aim to enhance productivity, investment, and innovation.
Problems or challenges that affect society, such as poverty, inequality, and unemployment. Economic policies can be used to address social issues and promote social welfare.
The process of starting and managing a business, taking on financial risks in the hope of making a profit. Entrepreneurship is seen as a driving force behind economic growth and innovation.
The fair and just distribution of resources, opportunities, and benefits in society. A balanced approach to laissez-faire aims to promote social equity alongside economic freedom.
The ability of individuals and businesses to make economic decisions without interference from the government. Laissez-faire policies prioritize economic freedom as a means to promote prosperity.