Micro Chapter 2 Homework (1) - Copy (1)

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Tarrant County College, Fort Worth *

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2301

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Economics

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May 1, 2024

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docx

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Micro Chapter 2 Homework 1. Contrast how a market system and a command economy try to cope with scarcity. Market systems rely on supply and demand to guide business owners to allocate resources where they are most needed and profitable. Without increased government intervention, businesses and individuals act in self-interest and usually try to find the least costly and most efficient use of resources and means of production, not wasting them, and freeing up resources for other uses and production. Scarcity also promotes competition and encourages businesses to find the most cost-effective way to produce. Sometimes the government will intervene if there are not enough resources or capital goods and will find ways to help produce them or encourage production of them. Command systems use central planning to allocate resources to the production of goods and services that they see for societies demands and their economic goals. This lack of competition can hinder adaptability. They may overproduce some goods and services and not produce enough of others due to the coordination problem. 2. How does self-interest help achieve society’s economic goals? Why is there such a wide variety of constantly improving products and services in a market economy? In what ways are entrepreneurs and businesses at the helm of the economy by commanded by consumers? Self interest helps achieve economic goals because people and business owners alike act in a way to allocate their resources carefully to produce or be able to consume the most profitable outcome. This leads to competition to give the consumer the lowest price with the best quality achievable and causes producers to constantly improve their products and minimize their costs to stay competitive, relative, and profitable. The theory of “The Invisible Hand” goes with the above statement as producers are guided by what the demands of consumers are but for their own self interest. 3. Why is private property and the protection of property rights so critical to the success of the market system? The fact that land can be used as the owner sees fit and cannot be unjustly taken away promotes mutually agreeable transactions to take place. This protection of investment encourages owners to improve on and best utilize their land or other private property
resources. Secure ownership ensures that people take care of these resources and use them to contribute to the market system to put more money in their own pockets, and in doing so adds more goods and or services to the economy and aids in the growth of it. 4. Decide whether each of the following descriptions with closely corresponds to being part of a command system, a market system or a laissez-faire system. a. A women wants to start a flower shop fins she cannot do so unless the central government has already decided to allow a flower shop in her area. Command system b. Shops stock and sell goods that their customers want but the government levies a sales tax on each transaction in order to fund elementary schools, military expenditures, roads, and public programs for the poor, sick and elderly. Market system c. The only taxes levied by the government are to pay for law enforcement and a legal system to enforce contracts. Laissez-Faire System, although not completely inline with original definition, it fits most closely. 5. Examples of command economies are A) the United States and Japan. B) Sweden and Norway. C) Mexico and Brazil. D) Cuba and North Korea. 6. Property rights are important because they
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