ECON 2302: Ch 2 Homework
2c. The presence in a market of independent buyers and sellers who compete with one another and who are free to enter and exit the market as they see fit
Competition
5. Which of the following statements is true about risk management in market systems versus command systems?
Market systems manage risk better because entrepreneurs taking risks bear the costs of poor decisions, where in command systems government decision makers don't bear those costs.
2b. The right of private persons and firms to obtain, control, employ, dispose of, and bequeath land, capital, and other property
Private property
2e. What each individual or firm believes is best for itself and seeks to obtain
Self-interest
2. Match each term with the correct definition. 2a. An institution that brings buyers and sellers together
Market
1. Decide whether each of the following descriptions most closely corresponds to being part of a command system, a market system, or a laissez-faire system. 1a. A woman who wants to start a flower shop finds that she cannot do so unless the central government has already decided to allow a flower shop in her area.
1a. Command system
1b. Shops stock and sell the goods customers want but the government levies a sales tax on each transaction to fund elementary schools, public libraries, and welfare programs.
1b. Market system
1c. The only taxes levied by the government are to pay for national defense, law enforcement, and a legal system designed to enforce contracts between private citizens.
1c. Laissez-faire system
4. Assume that a business firm finds that its profit is greatest when it produces 10 bars of product A and sells them for $4 each. Suppose also that each of the three techniques shown in the table below will produce the desired output. a. With the resources prices shown, which technique will the firm choose? b. Why? c. Will production using that technique entail profit or loss? d. What will be the amount of that profit or loss? e. Will the industry expand or contract?
4. Assume that a business firm finds that its profit is greatest when it produces 10 bars of product A and sells them for $4 each. Suppose also that each of the three techniques shown in the table below will produce the desired output. a. With the resources prices shown, which technique will the firm choose? b. Why? c. Will production using that technique entail profit or loss? d. What will be the amount of that profit or loss? e. Will the industry expand or contract?
2g. The freedom of resources owners to dispose of their resources as they think best; of workers to enter any line of work for which they are qualified; and of consumers to spend their incomes in whatever way they feel is most appropriate
Freedom of choice
2d. The freedom of firms to obtain economic resources, decide what products to produce with those resources, and sell those products in markets of their choice
Freedom of enterprise
3. With current technology, suppose a firm is producing 400 loaves of banana bread daily. Also assume that the least-cost combination of resources in producing those loaves is 5 units of labor, 7 units of land, 2 units of capital, and 1 unit of entrepreneurial ability, selling at prices of $40, $60, $60, and $20, respectively. Assume the firm can sell these 400 loaves at $2 per unit. a. What is the firm's total revenue? b. What is its total cost? c. Calculate the amount of economic profit or loss. d. Will it continue to produce banana bread? e. If this firm's situation is typical for the other makers of banana bread, will resources flow toward or away from this bakery good?
a. Total Revenue = 400 loaves to be sold x $2 price/unit = $800 b. Total Cost = $200 for Labor (5 units x $40) + $420 for Land (7 units x $60) + $120 for Capital (2 units x $60) + $20 for Entrepreneurial ability (1 unit for $20) = $760 c. TR - TC = $800 - $760 = $40 profit d. Yes e. Toward
2f. Economic transactions willingly undertaken by both the buyer and the seller because each feels that the transaction will make him or her better off
Mutually agreeable
