Econ Chapter 2 (Questions)

How were the Soviet Union and communist China similar?

Both suffered from severe economic problems as a result of central planning.

What is argument that some analysts use to criticize government regulator?

It results in inefficiency

What type of economy is the US?

The foundation of the US economy is free market however it is a mixed system,

What strategy of modern manufacturing is Adam Smith referring to in this statement?

Specialization

Key advantages of free market economic systems include

economic efficiency, economic freedom, economic growth, and variety of goods.

What did Karl Marx believe about capitalism?

that it led to exploitation of workers

Consider this diagram, which is comparing two different systems of production. Which of the following is MOST LIKELY depicted in the top half of this diagram?

Traditional economy

Which economic goal does this exchange at an outdoor food stand BEST represent?

Economic freedom

Short Answer- How would you characterize the economy of the United States?

I would characterize the economy of the United States of a mixed economy. There is definitely a lot of government control, which is needed to make sure the businesses are successful. Producers and consumers have freedom in what they are producing and buying. The government is here to help businesses, but they do not determine what the people can or can't sell and buy. Therefore, the United States has economic freedom with a balance of government involvement.

Which policy change was partly responsible for economic growth in China starting in the 1970s?

Promoting new agricultural products

What are two things that a command economy fails to provide consumers?

Variety of goods and responsive prices

What is one reason centrally planned economies tend to not be efficient?

Workers lack the incentive to work harder.

Gov has often become involved in market-based economies in order to-

address various limits of free market system

What are the economic goals of society?

efficiency, freedom, security, equity, growth

China's economy more mixed than N. Korea because China has-

free markets

Which of the following is typical of a centrally planned economy?

government control

What is a disadvantage of central planning?-

lack of economic efficiency

How do self-interest and competition affect free markets?

they work together to regulate supply, demand, and prices.

police protection and national defense examples of what government role in circular flow model?

Hindering physical flow of factors between households and firms in the product market

What is one way in which the economy of North Korea differs from the economy of Mexico?

Mexico's government is less involved in the economy than North Korea's government is.

Which of the following represents a difference between socialism and communism?

Socialism may allow some free market practices; communism does not.

Which of the following describes the benefits of specialization in a free market?

Specialization leads to efficient use of capital, land, and labor.

Which of the following is an explanation of what Adam Smith called the "invisible hand" of the marketplace?

Self-interest, competition, and incentives promote smoothly running markets.

How do socialism and communism differ when it comes to government systems?

Socialism can be democratic, while communism is authoritarian.

What are the advantages of a free market economy?

efficient response to change marketplace conditions, variety of goods and services, freedom of choice for consumers and producers, and growth and innovation

What do socialism and communism have in common?

-Even distribution of wealth -centralized control of economic power

What are the reasons for mixed economies?

-We don't trust producers -Manufactures don't have the best interest -There needs to be a balance of government involvement and economic freedom.

What are the three basic questions every economic system should answer?

-What goods & services should be produced? -How should goods and services be produced? -Who consumes the goods & services that are produced?

What are the disadvantages of central planning?

-centrally planned economies have trouble meeting these goals in practice -you can't plan for everything -one person can not just plan this the most efficient way

Short Answer- Why are public goods considered examples of market failure?

Because there is no profit, therefore, the market is not getting money. Public goods are goods provided to society, either by the government or a private organization. In a situation when a government provides the public good, the market is not making money since people are getting the goods for free. Public goods do not benefit the market because the economy is not receiving a profit from these goods.

Which goal reflects desire of individuals to be an entrepreneur?

Freedom

Short Answer- Suppose you read a news article reporting that your local government has denied a request by an entrepreneur to build a new coffee shop on property it owned in a residential are because of a zoning issue. Would you support such a ruling? Why or why not?

I would not support it. In a situation like this, the government is too involved. The entrepreneur should be able to do whatever he wants because he owns the property. It would not make sense if he had to go buy another property to make a coffee shop because he already has his property, and he should be able to determine how it is used.

What does this diagram imply about the value of technological innovations?

Innovations in technology increase economic growth.

This flowchart shows the process for creating clothing in a centrally planned economy. In a market economy, which of the follow would replace "Top Planners" as the primary decision-makers about what to produce?

owners of firms

Short Answer- Why do markets exist?

to allow producers and consumers to exchange goods and services in order to make a profit and have the things you need to survive. It provides stability. You need/want the goods produced to make you satisfied. The person selling the product also receives money, so they are able to buy the things they need and want because in order to survive, you need money because everything in life has a price.

According to circular flow model of market economy firms and by factors of production from households then

use these factors to produce goods and services

Who makes most basic decisions in centrally planned economy?

Government

Short Answer- Why do nations tend to have mixed economies?

Because you can't fully trust the government or producers. Manufactures don't have our best interest because they do whatever it takes to sell something even if it not safe. There needs to be a little government control to have things safe and under control. Nations have mixed economies because there needs to be a balance between government involvement and economic freedom.

What distinguishes an authoritarian government from a democratic one?

It requires strict obedience from its citizens.

Which of the following BEST describes the U.S. free enterprise system?

Individual or corporate ownership of capital goods

What role does competition among producers play in a free market?

It causes firms to produce what consumers want while moderating prices.

Why do markets exist?

to allow people to exchange goods and services

Short Answer- How do U.S. economic policies related to the security of financial institutions benefit the consumer?

The U.S. economic policies related to the security of financial institutions benefit the consumer because the government protects the bank, and if anything happens, they will give them money. It affects a consumers because it makes the consumer feel safe enough to put their money in a bank.

Short Answer- Why do economists say that there is no consumer sovereignty in a centrally planned economy?

because decisions on what to produce are not determined by consumers. The government has full control on what is produced and how it is produced. Consumers have no say in a centrally planned economy because decisions are made by the government.

How is a society's economic system defined?

by how it answers the three basic economic questions

Government involvement in a modern economy is generally defended because

governments are more able than firms to meet some needs and wants of society.

Private property ownership and some government regulation of the economy are basic characteristics of which economic system?

mixed economy

Short Answer- Why does the government track business cycles?

so they can promote economic growth and stability. Tax rates from the government can also influence business decisions, so the government needs to track the businesses to make sure customers are not getting taken advantage of. The government also needs to see that they are getting their taxes, but they also need to track it to make sure the businesses are successful, so they will obtain taxes. The government being able to track businesses encourages the business to work harder and have a business that is secure, so they can have profit.

A government hiring freeze would directly impact what aspect of the circular flow model of a mixed economy?

factor product

Short Answer- A society's economic goals can conflict with one another. What is a likely trade-off resulting from the goal of making sure the food supply is safe?

By gaining economic security to make sure your product will sell, you are losing the economic freedom you have to produce whatever you want. However by having economic security, you will make a better profit because you will know that your product made will be successful. It is worth losing economic freedom because you have security and make money.

Short Answer- Of the four different economic systems, which places the most severe restrictions on the uses of private property. Explain.

Of the four different economic systems, the one that places the most severe restrictions on the uses of private property is the command economy. In the command economy, the government has control over what is produced, how, where it is located, etc. The government controls the wealth and property. The government will control what is located on the property, so with the government controlling everything in a command economy, the economy definitely has the most severe restrictions of private property.

Short Answer- Which basic economic question deals with the issue of how the income of people in various occupations is determined?

The basic economic question that deals with the issue of how the income of people in various occupations is determined is the question of how the product is produced. The reason it is the question of how is because all products cost a different amount to produce. Some products require more materials to be made, and because the materials would cost more, the product would cost more as well.

Short Answer- When a store hires a new worker, which arena of exchange is involved- the factor market or the product market? Explain.

The factor market of exchange is involved. They are the labor, so they are making the products. They work to make the products produced successful. The workers work to complete the products.

Short Answer- What are the main risk and the main reward facing entrepreneurs in the free enterprise system?

The main risk is failing because no one will buy the product. Everytime a product is made, there is a huge risk that it won't succeed. The main reward in a free enterprise system is that you will succeed and make profit. In a free enterprise system, the people get to choose what they will buy. so you will either fail or succeed. It depends on if the people will buy it or not!

Short Answer- What are some opportunity costs of greater government involvement in the economy?

To have a greater government involvement, there are opportunity costs that come with. Producers don't have much of a say in what they make because the government determines it. Consumers also don't have the ability to buy what they want because the government will determine how the money is used.

Which is an example of why the U.S. government makes transfer payments?

to support retired people

The distribution of income received in the form of rent, wages, or interest is the main factor that determines

who consumes goods and services

Which of these is an example of restrictions that government places on the use of business property?

zoning laws

Why does free market result in availability of wide variety of goods and services?

Because producers have incentives to meet consumers' desires for variety

Short Answer- Why does government intervene in a mixed economy?

To make sure the market is working correctly. The government intervenes to help make the market successful because you simply can't do it all on your own. The government also intervenes because producers do not always have our best interest, so the government makes sure that the business is fair for the people. There needs to be a balance between the government and economic freedom, so people have a say, but we are still protected.

How does innovation promote economic growth?

by introducing new goods and services that create new markets

What two qualities that work together to regulate the marketplace are present in this photo of two cellphone service providers?

competition and self-interest.

In a free market system, the concept of consumer sovereignty means that

consumers have the power to decide through their actions what goods and services get produced.

An economy that maximizes its scarce resources and can deliver the right goods in the right quantity to the right people at the right price has achieved which economic goal?

efficiency

Which basic economic goal is most easily achieved in a traditional economy?

equity