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Micro economics Chapter 2

Yolanda Thomas avatar Yolanda Thomas
16 April 2023
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Economic system
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A Particular set of institutional arrangements and a coordinating mechanism used to respond to the economizing problem
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Economic system differ according to which two main characteristics
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Who owns the factors of production and the methods used to coordinate economic activity
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A fundamental difference between the command system and laissez-faire capitalism is that in command system:
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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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The regulatory mechanism of the market system is:
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Competition
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Specialization in production is economically beneficial primarily because it:
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Permits the production of a larger output with fixed amounts of resources
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The use of money contributes to economic efficiency because:
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It promotes specialization by overcoming the problems with barter
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An increase in consumer desire for strawberries is most likely to
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Increase the number of strawberry pickers needed by farmers
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The economic function of profits and losses is to:
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Signal that resources should be reallocated
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If a competitive industry is neither expanding nor contracting, we should expect:
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Economic profits to be 0
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The most efficient combination of resources in producing a given output is the combination that:
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Uses the smallest total quantity of all the resources.
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The market system's answer tot he fundamental question" What will be produced?" is essentially:
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"Goods and services that are profitable"
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The market system's answer to the fundamental question "How will the goods and services be produced?" is essentially:
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"In ways that minimize the cost per unit of output"
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"Consumer sovereignty" means that
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Buyers determine what will be produced based on their "dollar votes" for the goods and services offered by the seller
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The invisible hand refers to the:
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Notion that, under competition, decisions motivated by self-interest promote the social interest.
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The incentive problem under communist central planning refers to the idea that:
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Workers, managers, and entrepreneurs could not personally gain by responding to shortages or surpluses or by introducing new and improved products
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A market system tends to restrict business risk to owners and investors. This results in which of the following benefits?
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Firms have to pay more to attract inputs, as these inputs have to share the risk
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According to economist Donald Boudreaux, the world's tens of billions of individual resources got arranged productively
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Because private property encourages people to consider the alternative uses of their resources and select those that provide the most rewards