Ch.2 The Market System & Circular Flow

Characteristics that best describe the command system.

A central planning board makes all economic decisions concerning resources. Government owns resources.

Describe concept of Laissez-Faire

A market system in which firms are free to pursue maximum profits and the role of government is limited to protecting private property.

Which have been used as medium of exchange? Human organs cattle cigarettes stones metals shells

All but human organs

Nebraska has excess wheat to trade and wants oranges. Florida has excess oranges and wants wheat. Therefore, an exchange occurs.

Coincidence of wants

A central planning board sets the division of output between capital and consumer goods in a ____ system.

Command

Communism exhibits all the characteristics of a ____ system.

Command

the command economies of the former Soviet Union and of Eastern Europe failed due to:

Coordination problems and incentive problems

The creation of new products and production methods that completely destroys the market positions of firms that are wedded to existing products and older ways of doing business is called______.

Creative destruction

What's made possible because of private property rights in a market system?

Economic growth. innovation exchange Investment Maintenance of property

What are the 3 virtues of the market system?

Efficiency, Incentives, Freedom

The most important consequence of property rights is that they____.

Encourage cooperation by ensuring that only mutually agreeable economic transactions take place

The titile to an automobile or the dead to a cattle ranch assures a buyer that the seller is the legitimate owner of that property. This is an example of property rights_____.

Facilitating exchange

The three main decisions that must be addressed by an economic system include which goods to demand, how to motivate employees, and how to distribute goods in a market. True/ False

False

An active, but limited gov. is characteristic of which market system in modern advances industrial economies?

Free Market system

Provide opportunity and motivation for technological advances?

Freedom of choice. Competition. Personal reward Self-Interset

____ owns most property resources in a command system.

Government

The economies of the former Soviet Union, eastern Europe, and China prior to market reforms faced problems caused by lack of coordination and a lack of ____.

Incentive

Just as a producer that charges more than the competitive price willl relinquish sales to other producers, so will an employer who pays less than the competitive wages rate will:

Lose workers to other employers

Describe role of a central planning board appointed by a command system government.

Makes all decisions concerning the use of resources. Organizes production. Makes decisions on the composition and distribution of output.

Describe role of central planning board appointed by a command system government.

Makes decisions on the composition and distribution of output. Organize production. Makes all decisions concerning the use of resources.

A ___ system does private individuals and firms own most of the property resources such as land and capital

Market

Private individuals and firms, not the government, own most of the property resources such as land and capital in a free _____ system.

Market

In a market system, _____ create powerful incentives for forms to innovate and entrepreneurs to pioneer new products and processes.

Monetary rewards

in a market system, specialization requires exchange. which of the following best describes the use of money in an exchange?

Money facilitates exchange by ending the need for a coincidence of wants usually resulting from barter.

The way to get ahead in a command economy, such as in the economies of the former Soviet union, Eastern Europe, & China prior to market reforms, was through:

Participation in the political hierarchy of the Communist party

Business success in the command economies of the former Soviet Union, Eastern Europe, and China prior to market reforms was based on:

Political savvy

What is the coordinating mechanism in a market system?

Prices

____ ownership of capital gives capitalism its name.

Private

Economic growth, investment, innovation, exchange, and maintenance of property are all possible because of ____.

Private property rights

Enables individuals and businesses to obtain, use and dispose of property resources as they see fit in a market economy.

Private property rights

Mutaually agreeable economic transaction takes place as a result of:

Property rights

Competition is the _____ mechanism of the market system, whereas the market system itself is the organizing and ___ mechanism.

Regulatory; coordinating

Freedom of entry and exit of producers enables the economy to adjust to changes in what areas?

Resource availabilty. Consumer tastes. Technology.

When every economic unit in a society such as individuals, firms or gov. attempts to achieve their own particular goal usually requiring delivering something of value to others, this is referred to as :

Self-interest

_____ is the use of resources by an individual,firm,region, or nation to produce one or a few good or services rather than the entire range of goods and services.

Specialization

Examples of capital goods?

Tools. Machinery. Large-scale factories

A Market system is a combination of centralized government initiatives and decentralized actions taken by firms. True/False

True

A Market system is characterized by the private ownership of resources and the use of markets to coordinate and direct economic activity. True/False

True

In a command system, the government or state decides how a country's resources will best be utilized. True/false

True. In the command economy, the gov. owns most property resources. Therefore, itll determine how to use these resources through a ( generally elected) central planning board.

A central feature of the ( pure) market system is the ability to reap monetary rewards from the innovation and creation of new products and processes. True/false

True. Money is a financial incentive that drives forms and entrepreneurs to be innovative and creative on a market economy.

What is a more desirable method of production?

Using a combination of labor, capital, and technology. More direct methods are often less efficient.

Entrepreneurs trying to maximize profits and minimize losses, property owners trying to get the highest price for the sale or rental of their resources, and workers trying to maximize their satisfaction by finding jobs that offer the best combination of wages, hours, benifits, and working conditions are all ex. of:

acting in one's self-interest

The _____ system requires coincidence of wants between the buyer and the seller.

barter

The market system depends on ____ among buyers and sellers.

competition

The ___ problems faced by the command economies of the former Soviet Union, eastern Europe, and China prior to market reforms became more difficult as the economies expanded and as markets became more complex.

coordination

The basis of competition is _____ of_____ exercised in the the pursuit of _____.

freedom;choice;happiness

The freedom of enterprise. the right of property owners to designate who will receive their property when they die.

helps sustain the institution of private property

Property rights also extend to:

intellectual property

A ___ is an institution or mechanism that brings buyers and sellers into contact.

market

The millions of decisions made by households and businesses are highly coordinated with one another by ___ and ____.

markets; prices

The use of _____ in market system facilitates the exchange of goods and services that specialization requires.

money

Tom wants cherries from Jack. Jack wants Mary's oranges but not Tom's apples. Mary wants some of Tom's apples but not Jack's cherries.

non coincidence of wants

The various forms of intellectual property rights discusses in McConnell include_____, ____ and _____.

patents; copyrights; and trademarks

Private individuals and businesses are able to utilize property as they wish as a result of

the right of private property and the ability to negotiate legally binding contracts.

In order to serve as money, an item must be widely accepted by sellers as a medium of exchange for goods and services. true/false

true

An economic system intends to address ___ goods and services are to be produced, how they are to be produced, ___ gets what is produced, How to accommodate change and how to promote technological progress.

what, who

Competition among ____ and ___ diffuses economic power within the economic units that make up the economy.

Buyers and sellers

What countries or areas have transformed from a pure command economy to a market - oriented economy?

The former Soviet Union and China.