Chapter 2 Economic Systems and Tools Review

In which of these economies might monopolies be possible? (a) pure market economy (b)pure command economy (c) traditional economy (d) none of the previous

(a) Pure market economy

___?___ enjoy(s) the most control in a pure centrally planned economy. (a) the government (b) the wealthy (c) independently owned businesses (d) no one entity

(a) The government

In a pure market economy, which of these factors answers the three economic questions of the economy? (a) the government (b) culture (c) markets (d) all of the previous

(b) Culture

Pure market economies do not involve..... (a) households (b) government (c) firms (d) factories.

(b) Government

Explain the law of comparative advantage.

Comparative advantage is the worker, firm, region, or country with the lowest opportunity cost of producing an output should specialize in that output.

Explain what causes the production possibilities frontier to shift.

The ratio of consumer goods to capital goods is how the production possibilities frontier shifts.

Ideally, which of these people would a pure centrally planned economy benefit most? (a) the wealthy (b) government officials (c) the most highly educated people (d) the general public

(b) Government officials

Which question does an economy not have to answer? (a) How will goods and services be produced? (b) How many goods and services will be produced? (c) What goods and services will be produced? (d) For whom will goods and services be produced?

(b) How many goods and services will be produced?

The United States is considered to be a ___?___. (a) pure market economy (b) market economy (c) command economy (d) transitional economy

(b) Market economy

Which of the following allows consumers the most choice? (a) pure command economy (b) transitional economy (c) pure market economy (d) traditional economy

(c) Pure market economy

A pure market economy will most benefit a.... (a) high-school dropout (b) single mother (c) disabled veteran (d) middle class business woman

(d) Middle class business woman

Which of these countries has a pure market economy? (a) Canada (b) China (c) Australia (d) none of the previous

(d) None of the previous

Describe a pure command economy, and identify its problems.

A pure command economy is completely run by the government. Problems include low consumer priority, shortage of freedom of choice, inefficient central planning, wasted resources and environmental damage.

Describe a pure market economy, and identify its problems.

A pure market economy is entirely composed of private firms and has absolutely no government involvement. Problems with this system include difficulty enforcing property rights, lack of resources, monopolies, lack of public goods, and externalizes.

Describe the production possibilities frontier and explain its shape.

The production possibilities frontier shows the possible combinations of the two types of goods that can be produced when available resources are employed fully and efficiently. As of right now, it is decreasing.

Identify the three questions that all economic systems must answer.

The three economic questions are: What goods and services will be produced? How will they be produced? For whom will they be produced?

Understand the gains from specialization and exchange.

Through specialization and exchange, both ends save time.

Compare mixed, transitional, and traditional economies.

Transitional economies are economies that are in the process of switching from one economy form to another. Traditional economies are becoming more scarce since they're largely based on custom or religion and often use the barter system, something that has rare use in the global market. Mixed economies are economies that are associated with more than one type of economy. A common mixed economy is a mixture between market and central economies because they yield large profits, but have regulations to help environments and prevent monopolies, allowing more consumer choice and sometimes lower prices.