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ECON_2306 => Lecture 2 Slides - Scarce Resources...

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Unformatted text preview: Scarce Resources Economic Resources Property Resources Land Capital L2:The L2:The Economizing Problem and the Market System (Chapter 2) !"#$%&'$(' )#%*+, Input Factors of Production 2 Human Human Resources Labor Labor Entrepreneurial Ability 1 Principles of Microeconomics Principles of Microeconomics Entrepreneurial Ability Entrepreneurship is the willingness to take certain is risks risks in the pursuit of goals. Takes the Initiative Makes Strategic Business Decisions Innovator The Risk Bearer Resource Payments PROPERTY RESOURCES LAND CAPITAL HUMAN RESOURCES LABOR 3 RENTAL INCOME INTEREST INCOME WAGES PROFIT & LOSS 4 ENTREPRENEUR Principles of Microeconomics Principles of Microeconomics 1 Production Possibilities Frontiers and RealRealworld Trade-offs TradeScarcity The situation in which unlimited wants exceed the limited resources available to fulfill those wants. Production possibilities frontier A curve showing all the attainable combinations of two products that may be produced with available resources. Opportunity Cost The highest-valued alternative that must be given up in order to engage in an activity. 5 Principles of Microeconomics Production Possibilities -+)*%./%(,%0$1"2%$'"3%45$210,%666 10,000 Robots or 400,000 Pizzas Using all of our resources, to get some pizza, we must give up some robots! /$5%,7)84",666 6 Principles of Microeconomics Production Possibilities Production Possibilities 4 0 PIZZA .'%*)9",%/$58 PIZZA ROBOTS (in thousands) thousands) .'%*)9",%/$58 0 10 1 9 2 7 3 4 0 10 1 9 2 7 3 4 4 0 (in hundred thousands) (in hundred thousands) ROBOTS (in thousands) :5)4+.0)"%/$58 (thousands) Robots 7 Principles of Microeconomics Principles of Microeconomics Pizzas (hundred thousands) 8 2 Production Possibilities PRODUCTION POSSIBILITIES 3 4 4 0 .'%*)9",%/$58 PIZZA ROBOTS (in thousands) 0 10 1 9 2 7 .'%*)9",%/$58 PIZZA ROBOTS (in thousands) 0 10 1 9 2 7 3 4 4 0 (in hundred thousands) (in hundred thousands) :5)4+.0)"%/$58 (thousands) :5)4+.0)"%/$58 (thousands) Robots Principles of Microeconomics Pizzas (hundred thousands) 9 Robots Principles of Microeconomics Pizzas (hundred thousands)10 PRODUCTION POSSIBILITIES PRODUCTION POSSIBILITIES .'%*)9",%/$58 PIZZA ROBOTS (in thousands) 0 10 1 9 2 7 3 4 4 0 .'%*)9",%/$58 PIZZA ROBOTS (in thousands) 0 10 1 9 2 7 3 4 4 0 (in hundred thousands) (in hundred thousands) :5)4+.0)"%/$58 (thousands) :5)4+.0)"%/$58 (thousands) Robots Principles of Microeconomics Pizzas (hundred thousands)11 Robots Principles of Microeconomics Pizzas (hundred thousands)12 3 PRODUCTION POSSIBILITIES Production Possibilities .'%*)9",%/$58 PIZZA ROBOTS (in thousands) 0 10 1 9 2 7 3 4 4 0 (in hundred thousands) ;.8.*,2%<,#$150,#%8,)'#%)% ".8.*,2%$1*41*666 At any point in time, a full-employment, fullproduction economy must sacrifice some of product X to obtain more of product Y. :5)4+.0)"%/$58 (thousands) Robots Principles of Microeconomics Pizzas (hundred thousands)13 14 Principles of Microeconomics Production Possibilities Q 14 13 12 11 10 9 8 7 6 5 4 3 2 1 Production Possibilities Q 14 13 12 11 10 9 8 7 6 5 4 3 2 1 Robots (thousands) A Robots (thousands) Unattainable B C D W A Attainable but Inefficient 1 2 3 4 Attainable & Efficient E 5 6 7 8 Unattainable LAW OF INCREASING OPPORTUNITY COSTS B The amount of other C W products that must be products that must be forgone or D sacrificed to Attainable obtain 1 unit of a specific product is Attainablecalled the & Efficient opportunity cost of that but good. Inefficient E 1 2 3 4 5 6 7 8 Notes... Pizzas ofhundred thousands) ( Principles Microeconomics Q 15 Pizzas ofhundred thousands) ( Principles Microeconomics Q 16 4 PRODUCTION POSSIBILITIES Q 14 13 12 11 10 9 8 7 6 5 4 3 2 1 Allocative Efficiency: MB=MC P Marginal Benefit & Cost Production Possibilities Robots (th Robots (thousands) Unattainable LAW OF INCREASING A OPPORTUNITY COSTS B A graph of the production C possibilities curve W be will CONCAVE - bowed out from D Attainable the origin. Economic resources are but not completely adaptInefficient able to other uses. E 1 2 3 4 5 6 Notes... MC MB=MC $15 10 Attainable & Efficient 5 MB Principles of Microeconomics Pizzas ( Microeconomics Pizzas ofhundred thousands) (hundred Principles 7 8 Q 17 Quantity of Pizzas 1 2 3 Q 18 Production Possibilities Q 14 13 12 11 10 9 8 7 6 5 4 3 2 1 1 Production Possibilities Q 14 13 12 11 10 9 8 7 6 5 4 3 2 1 Robots (thousands) Robots (thousands) Unemployment & Underemployment Shown by Point U U Unemployment Notes... Economic Growth & Underemployment The ability to produce Shown by a larger total output - Point U a rightward shift of the production More of either or U possibilities curve caused by...both is possible More of either or both is possible 2 3 4 5 6 7 8 Pizzasof(Microeconomics thousands) hundred Principles Q 19 Pizzasof(Microeconomics thousands) hundred Principles 1 2 3 4 5 6 7 8 Q 20 5 Production Possibilities Q 14 13 12 11 10 9 8 7 6 5 4 3 2 1 Production Possibilities Q 14 13 12 11 10 9 8 7 6 5 4 3 2 1 1 2 A’ B’ Robots (thousands) Robots (thousands) Unemployment Notes... Economic Growth 2 – Better resource U quality More of advances & Underemployment 1 – Increase in resource supplies Point U Shown by either or both 3 – Technological is possible =0$'$8.0%>5$(*+ C’ D’ E’ Pizzasof(Microeconomics thousands) hundred Principles 1 2 3 4 5 6 7 8 Q 21 Pizzasof(Microeconomics thousands) hundred Principles 3 4 5 6 7 8 Q 22 Production Possibilities Production Possibilities ?($%=7)84",#%$/%=0$'$8.0%>5$(*+ ALTA - FAVORS PRESENT GOODS Goods for the Future CURRENT CURVE FUTURE CURVE CONSUMPTION ?($%=7)84",#%$/%=0$'$8.0%>5$(*+ ALTA - FAVORS PRESENT GOODS Goods for the Future CURRENT CURVE FUTURE CURVE CONSUMPTION ZORN - FAVORS FUTURE GOODS Goods for the Future CONSUMPTION FUTURE CURVE CURRENT CURVE Goods for the Present Goods for the Present Alta Goods for the Present 23 Principles of Microeconomics Alta Principles of Microeconomics Zorn 24 6 As the economy moves down the production possibilities frontier, it experiences increasing marginal opportunity costs because increasing automobile production by a given quantity requires larger and larger decreases in aircraft carrier production. Refer Refer to the graph below. What is the opportunity cost cost of moving from point B to point C? a. 200 SUVs. b. 400 SUVs. c. 200 roadsters. d. 400 roadsters. 25 Principles of Microeconomics Principles of Microeconomics 26 Refer Refer to the graph below. What is the opportunity cost cost of moving from point B to point C? a. 200 SUVs. b. 400 SUVs. c. 200 roadsters. d. 400 roadsters. What What happens to a country that produces a combination of goods that uses all of the resources available available in the economy? a. The country is operating on its production The possibilities possibilities frontier. b. The country is maximizing its opportunity cost. c. The country has eliminated scarcity. country has eliminated scarcity d. All of the above. 27 Principles of Microeconomics Principles of Microeconomics 28 7 What What happens to a country that produces a combination of goods that uses all of the resources available available in the economy? a. The country is operating on its production The possibilities possibilities frontier. b. The country is maximizing its opportunity cost. c. The country has eliminated scarcity. country has eliminated scarcity d. All of the above. Production Possibilities Frontiers and RealRealworld Trade-offs TradeEconomic Growth Economic Growth Economic Growth The ability of the economy to produce increasing quantities of goods and services. 29 Principles of Microeconomics Principles of Microeconomics 30 Refer Refer to the graph below. Which graph best represents represents the concept of economic growth? a. The graph on the left. b. The graph on the right. c. Both graphs. d. Neither graph. Refer Refer to the graph below. Which graph best represents represents the concept of economic growth? a. The graph on the left. b. The graph on the right. c. Both graphs. d. Neither graph. 31 Principles of Microeconomics Principles of Microeconomics 32 8 The Market System Market A group of buyers and sellers of a good or service and the institution or arrangement by which they come together to trade. Product Markets Markets for good—such as computers—and services—such as medical treatment. Factor markets Markets for the factors of production, such as labor, capital, natural resources, and entrepreneurial ability. According According to Adam Smith, which of the following is is true? a. Markets work because producers, aided by Markets government, ensure that neither too many nor too few few goods are produced. b. Market prices can come to reflect the prices Market desired desired by consumers. c. Individuals usually act in a rational, selfinterested way. d. All of the above. 33 Principles of Microeconomics Principles of Microeconomics 34 According According to Adam Smith, which of the following is is true? a. Markets work because producers, aided by Markets government, ensure that neither too many nor too few few goods are produced. b. Market prices can come to reflect the prices Market desired desired by consumers. c. Individuals usually act in a rational, selfndividuals usually act in self interested way. d. All of the above. The Market System The Gains from Free Markets Free market A market with few government restrictions on how a good or service can be produced or sold, or on how a factor of production can be employed. The Market Mechanism Individuals Individuals usually act in a rational, self-interested self-interested way. Adam Smith understood that people’s motives can can be complex. In famous In a famous phrase, Smith said that firms would be led by the “invisible hand” of the market to provide consumers consumers with what they wanted. 35 36 Principles of Microeconomics Principles of Microeconomics 9 The Market System The Role of the Entrepreneur Entrepreneur Someone who operates a business, bringing together the factors of production—labor, capital, and natural resources—in order to produce goods and services. Generally Generally speaking, for a market system to work, individuals individuals must: a. be very cautious in their approach to saving be and and investment. b. take risks and act in rational, self-interested self-interested ways. ways. c. be able to evaluate and understand all be available options. available d. consult people who have experience. 37 Principles of Microeconomics Principles of Microeconomics 38 Generally Generally speaking, for a market system to work, individuals individuals must: a. be very cautious in their approach to saving be and and investment. b. take risks and act in rational, self-interested self-interested ways. ways. c. be able to evaluate and understand all be available options. available options. d. consult people who have experience. CIRCULAR FLOW MODEL RESOURCE MARKET BUSINESSES HOUSEHOLDS PRODUCT MARKET 39 Principles of Microeconomics Principles of Microeconomics 40 10 CIRCULAR FLOW MODEL RESOURCE MARKET CIRCULAR FLOW MODEL $ COSTS RESOURCE MARKET $ INCOMES RESOURCES INPUTS RESOURCES INPUTS BUSINESSES HOUSEHOLDS BUSINESSES HOUSEHOLDS GOODS & SERVICES PRODUCT MARKET 41 Principles of Microeconomics Principles of Microeconomics GOODS & SERVICES PRODUCT MARKET 42 CIRCULAR FLOW MODEL $ COSTS RESOURCE MARKET CIRCULAR FLOW MODEL $ COSTS RESOURCE MARKET $ INCOMES $ INCOMES RESOURCES INPUTS RESOURCES INPUTS BUSINESSES HOUSEHOLDS BUSINESSES HOUSEHOLDS GOODS & SERVICES PRODUCT MARKET GOODS & SERVICES GOODS & SERVICES PRODUCT MARKET 43 GOODS & SERVICES Principles of Microeconomics $ REVENUE Principles of Microeconomics 44 $ CONSUMPTION 11 CIRCULAR FLOW MODEL $ COSTS RESOURCE MARKET CAPITALIST IDEOLOGY PRIVATE PROPERTY SELFINTEREST FREEDOM OF ENTERPRISE & CHOICE $ INCOMES RESOURCES INPUTS BUSINESSES HOUSEHOLDS COMPETITION GOODS & SERVICES PRODUCT MARKET GOODS & SERVICES $ REVENUE Principles of Microeconomics 45 $ CONSUMPTION 46 Principles of Microeconomics CAPITALIST IDEOLOGY PRIVATE LARGE PROPERTY CAPITALIST IDEOLOGY PRIVATE PROPERTY SELFINTEREST MARKETS & PRICES 47 NUMBERS FREEDOM OF ENTERPRISE & CHOICE FREEDOM OF ENTERPRISE & CHOICE SELF- ENTRY & COMPETITION INTEREST EXIT COMPETITION ACTIVE, BUT LIMITED, GOVERNMENT 48 Principles of Microeconomics Principles of Microeconomics 12 GLOBAL PERSPECTIVE Index of Economic Freedom, Selected Nations The Market System Demise of Command Systems Rankings among 156 nations, 2003 1 Hong Kong 3 New Zealand 6 United States 16 Chile 18 Canada 40 France 72 Malaysia 99 Pakistan 127 China 146 Iran 155 Cuba 156 North Korea FREE MOSTLY FREE MOSTLY UNFREE REPRESSED USSR Yugoslavia East Germany Two Insurmountable Problems The Coordination Problem The Incentive Problem 49 Source: Heritage Principles of Microeconomics Foundation & The Wall Street Journal 50 Principles of Microeconomics Characteristics of the Market System A. Private individuals and firms own most of the private property (land and capital). Property rights: The rights individuals or firms have to the exclusive use of their property, including the right to buy or sell it. Private property, coupled with the freedom to negotiate bi binding legal contracts, enables individuals and businesses to obtain, control, use, and dispose of this property. Private property rights encourage investment, innovation, exchange of assets, maintenance of property, and economic growth. Property rights extend to intellectual property through patents, copyrights, and trademarks. 51 Principles of Microeconomics Characteristics of the Market System B. Freedom of enterprise and choice exist. Freedom of enterprise means that entrepreneurs and businesses have the freedom to obtain and use resources, to produce products of their choice, and to sell these products in the markets of their choice. Freedom of choice means that of choice means that Owners of property and money resources can use resources as they choose. Workers can choose the training, occupations, and jobs they wish. Consumers are free to spend their income in such a way as to best satisfy their wants (consumer sovereignty). 52 Principles of Microeconomics 13 Characteristics of the Market System C. Self-interest Self-interest is one of the driving forces in a market system. Entrepreneurs try to maximize profits or minimize losses; resource suppliers try to maximize income; consumers try to maximize satisfaction income; consumers try to maximize satisfaction. As each tries to maximize profits, income, or satisfaction, the economy will benefit if competition is present. Characteristics of the Market System D. Competition among buyers and sellers is a controlling mechanism. Large numbers of sellers mean that no single producer or seller can control the price or market supply. Large number of buyers means that no single consumer or employer can control the price or market demand. Depending upon market conditions, producers can enter or leave an industry easily. E. Markets and Prices A market system conveys the decisions of the many buyers and sellers of the product and resource markets. A change in the market price signals that a change in the market has occurred. Those who respond to the market signals will be rewarded with 54 profits and income. Principles of Microeconomics 53 Principles of Microeconomics Characteristics of the Market System F. Reliance on technology and capital goods Competition, freedom of choice, self-interest, and the potential of profits provide the incentive for capital accumulation (investment). Advanced technology and capital goods uses the more efficient roundabout method of technology. G. Specialization Division of labor allows workers to specialize. People can take advantage of differences in abilities and skills. People with identical skills may still benefit from specialization and improving certain skills. Specialization saves time involved in shifting from one task to another. Geographic specialization: Regional and international specialization take advantage of localized resources. 55 Principles of Microeconomics Characteristics of the Market System H. Use of money as a medium of exchange Money substitutes for barter, which requires a coincidence of wants. (I may want what you produce but you may not want to exchange for what I have.) Willingness to accept money in place of goods permits 3-way trades (or multilateral trades). See Figure 4-1 and examples in text. Floridians give money to Nebraskans for wheat who give money to Idahoans for potatoes who give money to Floridians for oranges. Foreign exchange markets permit Americans, Japanese, Germans, Britons, and Mexicans to complete international exchanges of goods and services. A Detroit autoworker produces crankshafts for Buicks. If the worker were paid in crankshafts, he would have to find grocers, clothing retailers, etc., who would be willing to exchange their products for a crankshaft. It is much more efficient to use money wages than to accept one’s wages in56 Principles of Microeconomics crankshafts! 14 Characteristics of the Market System I. Active, but limited government Although the market system promotes efficiency, it has certain shortcomings (over-production of goods with social costs, underproduction of goods with social benefits, tendency for business to increase monopoly benefits, tendency for business to increase monopoly power, macro instability). The government can increase the overall effectiveness of the market system. MARKET FAILURE AND THE ROLE OF GOVERNMENT Although markets often operate efficiently, sometimes they do not. This phenomenon is known as market failure, which is what happens when markets fail to produce the most efficient outcomes on their own. Sources of market failure: • Pollution • Public goods • Imperfect information • Imperfect competition 57 Principles of Microeconomics Principles of Microeconomics 58 MARKET FAILURE AND THE ROLE OF GOVERNMENT GOVERNMENT The government uses the legal system—police, courts, and prisons—to enforce property rights. The government has two additional roles to play in a market economy: • Establishing rules for market exchange and using its police power to enforce the rules. • Reducing economic uncertainty and providing for people who have lost a job, have poor health, or experience other unforeseen difficulties and accidents. MARKET MARKET FAILURE AND THE ROLE OF GOVERNMENT GOVERNMENT Government Enforces the Rules of Exchange The government uses antitrust policy to foster competition by (a) breaking up monopolies, (b) preventing firms from colluding to fix prices, and (c) preventing firms that produce competing products from ti fi th merging into a single firm. Government Can Reduce Economic Uncertainty 59 Principles of Microeconomics Principles of Microeconomics 60 15 The The Market System at Work A. The market system is made up of millions of individual decision makers who make trillions of decisions, all of which are attempting to maximize their individual or business self-interest. B. The market is a mechanism by which consumers and producers can come together to respond to each other’s desires and wants in an efficient way. C. Four fundamental questions must be answered by all economic systems. What goods and services will to be produced? How will these goods and services be produced? Who will get the goods and services? How will the system accommodate change? 61 Principles of Microeconomics The The Market System at Work D. What will be produced? In order to be profitable, businesses must respond to consumers’ (individuals, other businesses, and the government) wants and desires. When businesses allocate resources in a way that is responsive, they will be profitable and allocative efficiency will be achieved. Accounting profits are total revenue minus total accounting costs. In economics, the return to the entrepreneur is treated just like the return to the worker, i.e., it is an economic cost and must be received wo eco cos be if the entrepreneur is going to continue to produce in that industry. Normal profits are the return to the entrepreneur that is necessary for him or her to continue to produce that product. Any revenue received beyond normal profits is pure or economic profit. If producers in an industry are receiving pure or economic profits, additional producers will move into the industry, the industry supply will increase, and the price will decrease thus squeezing out the economic profits. If producers in an industry are experiencing economic losses, some of these producers will exit the industry, the industry supply will 62 decrease, and the price Pwill increase, thus eliminating the economic rinciples of Microeconomics losses. The Market System at Work System Consumer Sovereignty Consumer sovereignty is the key to determining the types and quantities of the various products that will be produced. In an effort to stimulate demand and respond to market trends and conditions, McDonald’s has introduced a number of new menu items over the years. The success and failure of these new items illustrates the important role of the consumer in determining items illustrates the important role of the consumer in determining what will be produced. Businesses are not really “free” to produce what they wish. They must match their production choices with consumer choices or face losses and eventual bankruptcy. Profit-seeking firms must consider the allocation of the “dollar votes” when they make their production decisions. Resource demand is a “derived” demand, i.e., it depends on the demand for the products produced by the resource. 63 Principles of Microeconomics The The Market System at Work E. How will the goods and services be produced? The market system encourages and rewards those producers who are achieving productive efficiency, i.e., least-cost production. Least-cost production techniques include locating firms in the optimum location considering resource prices, resource productivity, transportation costs, available technology, and resource prices in general. The most efficient technique will be the one that produces a given amount of output with the smallest input of scarce resources when both inputs and outputs are measured in dollars and cents. 64 Principles of Microeconomics 16 The The Market System at Work F. Who will get the goods and services? The answer to this question is directly related to how the income is distributed among individuals and households and the tastes and preferences of consumers. Products go to those who are willing and able to pay for them. The productivity of the resources, the relative supply of particular resources, and the ownership of the resources will determine the income of individuals and households. The resource markets, which determine income, are linked to this decision. 65 Principles of Microeconomics The The Market System at Work System G. How will the system accommodate change? Accommodating changes in consumer tastes and the guiding function of prices: An increase in demand for some products will lead to higher prices in those markets. A decrease in demand for other products will lead to lower prices in those markets. Increased demand leads to higher prices that induce greater quantities of output. The opposite is true for a decrease in demand. Higher prices lead to more profits and new firms enter the market. Lower prices lead to losses and firms leaving the industry. The market system promotes technological improvements and capital accumulation. An entrepreneur or firm that introduces a popular new product will be rewarded with increased revenue and profits. New technologies that reduce production costs, and thus the price, will spread throughout the industry as a result of competition. Creative destruction occurs when new products and production methods destroy the market positions of firms that are not able66 or willing to adjust. Principles of Microeconomics COMPETITION AND THE INVISIBLE HAND Competition Competition and the “Invisible Hand” A. Competition is the mechanism of control for the market system. It not only guarantees that industry responds to consumer wants, but it also forces firms to adopt the most efficient production techniques production techniques. The Case for the Market System Efficiency Incentives Freedom 67 Principles of Microeconomics B. Adam Smith talked of the “invisible hand” which promotes public interest through a market system where the primary motivation is self-interest. By attempting to maximize profits, firms will also be producing the goods and services most wanted by society. 68 Principles of Microeconomics 17 Competition Competition and the “Invisible Hand” Markets coordinate economic activity and changes in prices (products and resources) signal that changes have occurred within particular markets. A simple example of product X and product Y can be used. Assume an increase in the demand for X. This change will lead to an increase in the price of X, an increase in the profitability of X, an increase in the quantity supplied of X, an increase in the demand for the resources used to produce X, and an increase in the prices of the those resources. Because of a limit in consumer income, the demand for Y is assumed to decrease followed by all of the changes that will occur in response to the decrease in the demand of Y. After all of these changes have occurred, explain how the transferable resources will move from Y to X. This illustrates the concepts of the “invisible hand” and allocative efficiency. 69 Principles of Microeconomics Principles of Microeconomics Which of Which of the following is a distinguishing feature of a command system? A. A. private ownership of all capital B. B. central planning C. wide-spread dispersion of economic power wide-spread D. heavy reliance on markets 70 Which of the following is a distinguishing feature of a command system? Which of Which of the following is a distinguishing feature of a market system? system? A. public ownership of all capital B. B. central planning C. wide-spread C. wide-spread private ownership of capital D. a circular flow of goods, resources, and money circular flow of goods resources and money A. A. private ownership of all capital B. B. central planning C. wide-spread dispersion of economic power wide-spread D. D. heavy reliance on markets 71 Principles of Microeconomics Principles of Microeconomics 72 18 Which Which of the following is a distinguishing feature of a market system? The market The market system's answer to the fundamental question "What will be produced?" is fundamental question essentially: essentially: A. public ownership of all capital B. B. central planning C. wide-spread C. wide-spread private ownership of capital D. D. a circular flow of goods, resources, and money A. "Goods and services that are profitable." B. "Low cost goods and services." C. "Goods and service that can be produced using round-about round-about production." production." D. "Goods and services that possess lasting value." and services that possess lasting value 73 Principles of Microeconomics Principles of Microeconomics 74 The market The market system's answer to the fundamental question "What will be produced?" is fundamental question essentially: essentially: The market The market system's answer to the fundamental question "How will the goods and services services be produced?" is essentially: A. "Goods and services that are profitable." B. "Low cost goods and services." C. "Goods and service that can be produced using round-about round-about production." production." D. "Goods and services that possess lasting value." and services that possess lasting value. A. "With as much machinery as possible." Answer choice here B. B. "Using the latest technology." C. C. "By exploiting labor." D. "At least-cost production." least- 75 Principles of Microeconomics Principles of Microeconomics 76 19 The market The market system's answer to the fundamental question "How will the goods and services services be produced?" is essentially: The market The market system's answer to the fundamental question "Who will get the goods and services?" services?" is essentially: A. "With as much machinery as possible." Answer choice here B. B. "Using the latest technology." C. C. "By exploiting labor." D. "At least-cost production." least- A. A. "Those willing and able to pay for them." B. B. "Those who physically produced them." Answer choice here C. C. "Those who most need them." D. D. "Those who get utility from them." 77 Principles of Microeconomics Principles of Microeconomics 78 The market The market system's answer to the fundamental question "Who will get the goods and services?" services?" is essentially: The market The market system's answer to the fundamental question "How will the system accommodate accommodate change?" is essentially: A. A. "Those willing and able to pay for them." B. B. "Those who physically produced them." Answer choice here C. C. "Those who most need them." D. "Those who get utility from them." A. "Through government leadership and direction." B. "Through the guiding function of prices and the incentive function of "Through profits." profits." C. "Through training and retraining programs." D. "Through random trial and error." random trial and error. 79 Principles of Microeconomics Principles of Microeconomics 80 20 The market The market system's answer to the fundamental question "How will the system accommodate accommodate change?" is essentially: The The competitive market system: A. "Through government leadership and direction." B. "Through the guiding function of prices and the incentive function of "Through profits." profits." C. "Through training and retraining programs." D. "Through random trial and error." A. encourages innovation because government provides tax breaks and encourages innovation government provides breaks subsidies to those who develop new products or new productive techniques. B. discourages innovation B. discourages innovation because it is difficult to acquire additional it difficult capital in the form of new machinery and equipment. C. discourages innovation because firms want to get all the profits discourages innovation firms to possible from existing machinery and equipment. D. encourages innovation D. encourages innovation because successful innovators are rewarded successful with economic profits. 81 Principles of Microeconomics Principles of Microeconomics 82 The competitive market system: The advent of DVDs threatens to eventually demolish the market for videocassettes. advent This This is an example of: A. encourages innovation because government provides tax breaks and encourages innovation government provides breaks subsidies to those who develop new products or new productive techniques. B. discourages innovation B. discourages innovation because it is difficult to acquire additional it difficult capital in the form of new machinery and equipment. C. discourages innovation because firms want to get all the profits discourages innovation firms to possible from existing machinery and equipment. D. encourages innovation D. encourages innovation because successful innovators are rewarded successful with economic profits. A. A. creative destruction. B. derived demand. C. capital accumulation. D. D. the difference between normal and economic profits. 83 Principles of Microeconomics Principles of Microeconomics 84 21 The advent The advent of DVDs threatens to eventually demolish the market for videocassettes. This This is an example of: In In the simple circular flow model: A. A. creative destruction. B. derived demand. C. capital accumulation. D. D. the difference between normal and economic profits. A. B. B. C. C. D. D. households are buyers of resources. households businesses are sellers of final products. businesses households are sellers of final products. households there are real flows of goods, services, and resources, but not money there flows. flows. 85 Principles of Microeconomics Principles of Microeconomics 86 Sources In In the simple circular flow model: A. B. B. C. C. D. D. households are buyers of resources. households businesses are sellers of final products. businesses households are sellers of final products. households there are real flows of goods, services, and resources, but not money there flows. flows. McConnell and Stanley Brue, Microeconomics, 16th edition, 2006. R. Glenn Hubbard and Anthony P. O'Brien, Microeconomics,1st edition 2006. N. Gregory Mankiw, Principles of Microeconomics, Gregory Mankiw Principles of Microeconomics 3rd edition, 2004. 87 Principles of Microeconomics Principles of Microeconomics 88 22 ...
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