chapter 2 homework

what is the circular-flow diagram and what does it illustrate

the circular-flow diagram shows how households and firms are linked through product and factor markets.

what role do they play in the working of a market system? Private property rights:

encourage a significant number of people to be willing to risk funds by investing them in business encourage firms to spend money on research and development

using the same amount of resource, suppose that Nicaragua can produce twice as much sugar as Colombia. Nevertheless, Colombia could still have the comparative advantage in producing sugar if

it is even less efficient than Nicaragua in the production of goods other than sugar

Evaluate the following argument: "adam smith's analysis is based on a fundamental flaw: he assumes that people are motivated by self- interest. But this isn't true. I'm not selfish, and most people I know aren't selfish"

This statement is based on the misconception that following your self-interest and being selfish are the same thing.

the primary difference between absolute and comparative advantage is

absolute advantage refers to the ability to produce more of a good or service using the same amount of resources and comparative advantage refers to the ability to produce a good or service at a lower opportunity cost

in economic terminology, the inputs used to make goods and services are referred to as

factors of production

what are the two main categories of participants in markets

firms and households

If a country has a comparative advantage in the production of a good, then that country

has a lower opportunity cost in the production of that good

which participants are of greatest in determining what goods and services are produced

households

absolute advantage is the ability of an individual,a firm, or a country to

produce more of a good or service than competitors using the same amount of resources

It is not form the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest

pursuing their own self-interest, entrepreneurs produce the goods and services most desired by their customers for financial reward

what are private property rights ?

the rights individuals and firms have to the exclusive use of tangible, physical property and intellectual property.

why are independent courts important for a well-functioning economy ?

to make their decisions based on the law to make their decisions free of influence form other parts of the government to make their decisions free of influence form other parts of the government to make their decisions free of intimidation by criminal gangs.