MicroEconomics Ch 2
mixed capitalism
96% laissez faire - 4% government command
Examples of command economies are
Cuba and North Korea
most direct methods of productions are usually
the least efficient
private property
the right of persons and firms to obtain, own, control, employ, dispose of, and bequeath land, capital, and other property
Competition means that
there are independently acting buyers and sellers in each market.
round bout technology
use of capital with labor
can the system accommodate change
yes, through technological advancement and capital accumulation
Command Economy
Government makes all economic decisions
dollar votes
The "votes" that consumers cast for the production goods when they buy things
Four fundamental questions
The four questions that every economy must answer: what to produce, how to produce it, who gets the goods, and can the system accommodate change
specialization
The use of the resources to produce one or few goods rather than the entire range of goods
Property rights are important because they Select one: a. encourage cooperation by improving the chances of mutually agreeable transactions. b. ensure an equal distribution of income. c. allow the government to control how resources are allocated. d. guarantee that any exchange will make all parties better off than prior to the exchange.
a
A characteristic of centrally planned economies is that a. profits are the main measure of success of a firm. b. the price is relatively unimportant in allocating resources. c. entrepreneurship is quite prevalent and highly rewarded. d. there are many incentives for innovation and hard work.
b
According to the concept of the "invisible hand," if Susie opens and operates a profitable childcare center, then Select one: a. the profit Susie earns indicates that she is overcharging for her services. b. this demonstrates that consumer sovereignty is not present in this market. c. she has served society's interests by providing a desired good or service. d. government should regulate the business to ensure quality.
c
In a market system, self-interest is the motivating force that Select one: a. leads the economy to chaos and confusion, especially the larger economies. b. makes individuals unwilling to deliver anything of value to others. c. coordinates and creates consistency in the operations of various parts of the economy. d. makes owners of resources always want to use their resources themselves.
c
Which of the following is a distinguishing feature of a command system? Select one: a. widespread dispersion of economic power b. private ownership of all capital c. central planning d. heavy reliance on markets
c
In the circular flow diagram, households get their ability to pay for their consumption expenditures from the Select one: a. goods and services they get in the product markets. b. costs they incur for resources. c. revenues they receive for their products. d. incomes they earn for their resources.
d
The "coincidence of wants" problem associated with barter refers to the fact that Select one: a. specialization is restricted by the size or scope of a market. b. buyers in resource markets and sellers in product markets can never engage in exchange. c. money must be used as a medium of exchange or trade will never occur. d. for exchange to occur, each seller must have a product that some buyer wants.
d
The market system's answer to the fundamental question "What will be produced?" is essentially Select one: a. "Goods and services that can be produced using large amounts of capital." b. "Low-cost goods and services." c. "Goods and services that possess lasting value." d. "Goods and services that are profitable."
d
Which of the following is a fundamental characteristic of the market system? Select one: a. central planning by government b. government-set wages and prices c. unselfish behavior d. property rights
d
the circular flow
describes interaction between businesses and households and resources and profits
A production system where various workers concentrate on different specialized tasks to contribute toward a whole product is referred to as
division of labor
"Creative destruction" in a market system is brought about by
entrepreneurship
barter
exchange of one good or service for another
Market system
government has no intervention
freedom of enterprise
have the right to enter any enterprise and hire land labor and capital
freedom of choice
have the right to sell your resources to the highest bidder
competition
keeps quality of item high and prices low
self interest _______ (maximizes/minimizes) profits
maximizes
property rights encourage people to cooperate by helping to ensure that only ______ economic transactions take place
mutually agreeable
command economy problem with incentive
no incentive for people to be effective
product market
products are sold and consumers buy
resource market
resources are sold and businesses buy
the invisible hand
term economists use to describe the self-regulating nature of the marketplace
creative destruction
the creation of new products and production methods completely destroys existing products