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Canada
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Of the following countries, which one best exhibits the characteristics of a market economy?
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"let it be"
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The French term "laissez-faire" means...
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the division of output is decided by central planning rather than by individuals operating freely through markets
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A fundamental difference between the command system and laissez-faire capitalism is that, in command systems...
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government ownership of most property resources
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Which of the following is not a typical characteristic of a market system?
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Barter
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entails the exchange of goods for goods
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it promotes specialization by overcoming the problems with barter
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The use of money contributes to economic efficiency because...
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Economic profits and losses
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are essential to the reallocation of resources from less desired to more desired goods
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competitive pressures in the market will drive out higher-cost producers
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Firms are motivated to minimize production costs because...
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notion that, under competition, decisions motivated by self-interest promote the social interest
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The invisible hand refers to the...
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allocates resources efficiently and allows economic freedom
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Two major virtues of the market system are that it...
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individuals pursuing their self-interest will try to produce goods and services that people in society want and are willing to purchase
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The invisible hand promotes society's interests because...
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coordination problem under central planning
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"Under central planning, some group has to decide how to get the necessary inputs produced in the right amounts and delivered to the right places at the right time. This is a nearly impossible task without markets and profits." This quotation best identifies the...
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producers would not react because no price or profit signals occurred
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If products were in short or surplus supply in the Soviet Union...
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corporations
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In what type of business do the owners bear no personal financial responsibility for the company's debts and obligations?
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sellers of final products
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In the simple circular flow model businesses are...
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at the cost of not sharing in the profits of the firm
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In a market system, employees and suppliers are usually shielded from risk, but...
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how economic activities are coordinated and directed
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Economic systems differ from one another based on who owns the factors of production and...
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gives private individuals the right to own resources used in production
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The market system is an economic system that...
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setting prices of individual goods and services
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Laissez-faire capitalism limits the government's economic functions to the following, except...
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central planning conducted by the government
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One major element of the command system is...
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laissez-faire capitalism
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The government may not implement policies intended to redistribute income in which of the following economic systems?
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similar in that they are both basically command systems
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The economies of North Korea and Cuba are...
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a very limited government role in the economy
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Laissez-faire capitalism is characterized by...
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markets and prices
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In a capitalist system, the decisions and actions of millions of consumers and firms are highly coordinated by...
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a person trades a desk for a box of tools
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Which is an example of barter?
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consumers in the nation are made worse off
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If a nation restricts trade with other nations, then the most likely effect is...
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TC < TR
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In a market system, more resources will move toward an industry and expand its production if the industry has...
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at the lowest cost per unit
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The production technique that is most efficient is the one that produces a given amount of output...
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How will the output be produced?
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Economic efficiency is the primary guide in answering which of the fundamental questions in a market economy?
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private sector through the earning and spending of income
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"For whom is a given mix of goods and services to be produced? How, in other words, are the society's outputs to be distributed among its members?" In a market economy, this question is resolved primarily in the...
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demand for the industry's product is decreasing
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In a market system, resources will move away from an industry when...
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encourage firms to enter an industry
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An increase in the demand for a product and a reduction in its costs of production would...
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across industries, driven by the changes in resource prices paid by firms
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In a market system, as one industry expands while another contracts, resources will flow...
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the interdependence of businesses and consumers
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The circular flow model illustrates...
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Economic System
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a particular set of intitutional arrangements and a coordinating mechanism for saving the economizing problem; a method of organizing an economy, of which the market system and the command system are the two general types
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-who owns the factors of production
-the method used to motivate, coordinate, and direct economic activity
-the method used to motivate, coordinate, and direct economic activity
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Economic systems differ as to...
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Laissez-faire (pure) capitalism and command system (socialism, communism)
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2 Extremes of economic systems
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sunk cost
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cost that has already been incurred, cannot be recovered, and/or is irrelevant for present and future economic decisions
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New Zealand
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example of pure capitalism
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Market system (capitalism/mixed economy)
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economic system in which individuals own most economic resources and in which markets and prices serve as the dominant coordinating mechanism used to allocate those resources; all the product and resource markets of a market economy and the relationships among them
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pure capitalism
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economic system characterized by the private ownership of resources and the use of prices to coordinate economic activity in unregulated markets
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pure command system
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economic system characterized by the public ownership of resources and centralized planning
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firm
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the natural result of comparative advantage and specialization
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Jeremy Bentham
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economist: utilitarianism; Does it serve a purpose? If it does, keep it. If it doesn't, abolish it
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transfer payments
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cash or inkind benefits given to individuals as outright grants from the government
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freedom of enterprise
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freedom of firms to obtain economic resources to produce products of the firm's own choosing, and to sell their products in markets of their coice
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freedom of choice
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freedom of owners of property resources to employ or dispose of them as they see fit, of workers to enter any line of work for which they are qualified, and of consumers to spend their incomes in the manner they prefer
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Industrial Revolution
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development of large-scale factory production that began in Great Britain around 1750 and spread to the rest of Europe, North America, and Australia
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Information Revolution
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technological charge spawned by the invention of the microchip and the internet that enhanced the acquisition, analysis, and transmission of information
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market failure
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condition that arises when the unregulated operation of markets yields socially undesirable results
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natural monopoly
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1 firm that can serve the entire market at a lower per-unit cost than can two or more firms
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1. What goods and services will be produced?
2. How will the goods and services be produced?
3. Who will get the output?
4. How will the system accommodate change?
5. How will the system promote progress?
2. How will the goods and services be produced?
3. Who will get the output?
4. How will the system accommodate change?
5. How will the system promote progress?
answer
Market economies respond to what 5 fundamental questions?
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consumer sovereignty
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determination by consumers of the types and quantities of goods and services that will produces with the scarce resources of the economy; consumers' direction of production through their dollar votes
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creative destruction
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hypothesis that the creation of new products and production methods destroys the market power of existing monopolies
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Adam Smith
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economist: invisible hand, 1723-1790
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efficiency, incentives, and freedom
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3 virtues of the market system:
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coordination problem and incentive problem
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the 2 insurmountable problems that caused the command systems of the Soviet Union, Eastern Europe, and China to fail
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circular flow diagram
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illustration showing the flow of resources from households to firms and of products from firms to households. These flows are accompanied by reverse flows of money from firms to households and from households to firms.
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sole proprietorship
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an unincorporated firm owned an operated by one person (unlimited liability)
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80 percent of businesses, 10 percent of income
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Sole proprietorships are what percent of businesses and what percent of income (unlimited liability)
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Partnership
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an unincorporated firm owned and operated by 2 or more persons
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only 8 percent of businesses
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partnerships or only what percent of businesses
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corporation
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a legal entity chartered by a state or the federal government that is district and separate from the individuals who own it (owner bears no financial responsibility)(liability limited by value of their stock)
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8-10 percent of businesses and 80 percent of profit
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corporations are what percent of businesses and what percent of profit
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S corporation
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provided owners with limited liability and profits are only taxed once
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cooperatives
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people who pool their resources to buy and sell more efficiently than they could individually
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efficiency
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when there is no 1 change that could increase the production of one good without decreasing the production of the other good
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consumer cooperatives
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retail business owned and operated by some or all of its consumers to reduce costs
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comparative advantage
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ability to make something at a loner opportunity cost than other producers face
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producer cooperatives
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producers join forces to buy supplies and equipment and to market their output to reduce costs and increase profits
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antitrust laws
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prohibitions against price fixing and other anticompetitive practices
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