chapter 3 econ 202

What is produced is ultimately determined by

consumers because if the goods offered are not what consumers want, consumers will not buy them

"If you compare a list of today's most powerful and profitable companies with a similar list from 30 years ago, you will see lots of new entries:"

creative destruction

An institution that brings buyers and sellers together

market

The phrase "invisible hand" means that

market prices provide information to consumers regarding products they wish to purchase, and to producers regarding products they wish to produce.

In a market system scarce goods are allocated through the operation of

market prices that are determined by consumers and producers acting in their own self-interest

The right of private persons and firms to obtain, control, employ, dispose of, and bequeath land, capital, and other propert

private

Millions of economic resources tend to get arranged logically and productively rather than haphazardly and unproductively because

private property owners are motivated to protect and maximize the benefits from their property

What each individual or firm believes is best for itself and seeks to obtain

self interest

"Division of labor" means that workers

specialize in tasks that take advantage of their individual abilities and skills. correct

Ted and Fred are the owners of a gas station. They invested $150,000 each and pay an employee named Lawrence $35,000 per year. This year revenues are $900,000, while costs are $940,000. Who is legally responsible for bearing the $40,000 loss?

ted and fred

The market system depends on private property ownership and the protection of private property rights to

provide an incentive to maintain property and allow for the orderly transfer of property ownership

"Each day, central planners in the old Soviet Union were tasked with setting 27 million prices—correctly:

Coordination problem

In a command economy scarce goods are allocated by

a government-appointed planning board based on the board's long-term priorities.

Self-interest helps achieve society's economic goals because

as consumers and producers exercise their freedom to act in their own self-interest markets will produce the desired goods at the lowest possible cost.

True or False: Households sell finished products to businesses.

false

True or False: Money must be issued by a government for people to accept it

false

The freedom of resource 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

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 interprise

The use of capital in the production process

improves efficiency, increases output, and provides for growth. correct

in market economies, firms rarely worry about the availability of inputs to produce their products, whereas in command economies input availability is a constant concern because

in market economies, buyers of inputs know that sellers want to earn profits

"Managers in the old Soviet Union often sacrificed product quality and variety because they were being awarded bonuses for quantitative, not qualitative, targets:

incentive problem

There is a wide variety of desired goods and services in a market system because

individual wants are diverse. correct

"It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest:" Invisible hand correct.

invisible hand

Some large hardware stores such as Home Depot boast of carrying as many as 20,000 different products in each store. This volume of goods is the result of

the choice of consumers regarding what to purchase to satisfy their wants and the choice of producers regarding what to produce to maximize profits.

Consider the following statement: "The market system is a profit-and-loss system." This statement is

true, because producer decisions are motivated by the attempt to earn profits. correct revised 4/11/11

Consider the following statement: "Competition is the disciplinarian of the market economy." This statement is

true, because when producers face competition they are driven to provide goods and services at the lowest possible cost.

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 each see fit:

competiton

The emergence of the MP3 (iPod) technology is an example of "creative destruction" because

it has replaced compact discs as a technology used for the storage and transfer of music.

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

laissez faire system

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:

market system

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

. A woman who wants to start a flower shop finds she cannot do so unless the central government has already decided to allow a flower shop in her area:

command system