MicroEconomics Ch 2

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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


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