2.1 Contrast how a market system and a command economy try to cope with economic scarcity. LO1
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2.2 How
does self-interest help achieve society’s economic goals? Why is there
such a wide variety of desired goods and services in a market system? In
what way are entrepreneurs and businesses at the helm of the economy
but commanded by consumers? LO2
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2.3 Why
is private property, and the protection of property rights, so critical
to the success of the market system? How do property rights encourage
cooperation? LO2
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2.4 What
are the advantages of using capital in the production process? What is
meant by the term “division of labor”? What are the advantages of
specialization in the use of human and material resources? Explain why
exchange is the necessary consequence of specialization. LO2
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2.5 What
problem does barter entail? Indicate the economic significance of money
as a medium of exchange. What is meant by the statement “We want money
only to part with it”? LO2
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2.6 Evaluate and explain the following statements: LO2a. The market system is a profit-and-loss system.b. Competition is the disciplinarian of the market economy.
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2.7 Assume
that a business firm finds that its profit is greatest when it produces
$40 worth of product A. Suppose also that each of the three
techniques shown in the table below will produce the desired output: LO3a.
With the resource prices shown, which technique will the firm choose?
Why? Will production using that technique entail profit or loss? What
will be the amount of that profit or loss? Will the industry expand or
contract? When will that expansion or contraction end?
b.
Assume now that a new technique, technique 4, is developed. It combines 2
units of labor, 2 of land, 6 of capital, and 3 of entrepreneurial
ability. In view of the resource prices in the table, will the firm
adopt the new technique? Explain your answer.
c.
Suppose that an increase in the labor supply causes the price of labor
to fall to $1.50 per unit, all other resource prices remaining
unchanged. Which technique will the producer now choose? Explain.
d.
“The market system causes the economy to conserve most in the use of
resources that are particularly scarce in supply. Resources that are
scarcest relative to the demand for them have the highest prices. As a
result, producers use these resources as sparingly as is possible.”
Evaluate this statement. Does your answer to part c , above, bear out this contention? Explain....
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2.8 Some
large hardware stores, such as Home Depot, boast of carrying as many as
20,000 different products in each store. What motivated the producers
of those individual products to make them and offer them for sale? How
did the producers decide on the best combinations of resources to use?
Who made those resources available, and why? Who decides whether these
particular hardware products should continue to be produced and offered
for sale? LO3
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2.9 What is meant by the term “creative destruction”? How does the emergence of MP3 (or iPod) technology relate to this idea? LO3
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2.10 In a sentence, describe the meaningof the phrase “invisible hand.” LO4
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2.11 In
market economies, firms rarely worry about the availability of inputs
to produce their products, whereas in command economies input
availability is a constant concern. Why the difference? LO4
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2.12 Distinguish
between the resource market and the product market in the circular flow
model. In what way are businesses and households both sellers and
buyers in this model? What are the flows in the circular flow model? LO5
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2.13 LAST WORD
What explains why millions of economic resources tend to get arranged
logically and productively rather than haphazardly and unproductively?
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