PartII2010 - 1 Common Sense Economics: What Everyone Should...

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1 Compliments of CommonSenseEconomics.com © 2010 Common Sense Economics: What Everyone Should Know About Wealth and Prosperity (Gwartney, Stroup, Lee, and Ferrarini - St. Martin’s Press, © 2010) Reading Guide Part II. Seven Major Sources of Economic Progress Legal System: The Foundation for Economic Progress Is a Legal System That Protects Privately Owned Property and Enforces Contracts in an Evenhanded Manner. 1. Explain the meaning behind the following quote from Tom Bethell: “Property sets up fences, but it also surrounds us with mirrors.” 2. Can the owners of private property do anything they want with the things they own? Why or why not? What does private ownership allow the owner to do? 3. What are the (four) reasons why the incentives provided by property rights promote economic progress? Explain why each provides the owners of assets with a strong incentive to use their resources wisely and engage in actions that benefit others as well as themselves. 4. Why is the evenhanded enforcement of contracts an important source of prosperity? 5. “Private ownership forces resource users to confront the cost of the resources they utilize. Without private ownership, it is difficult to see how the benefits of resource use could be balanced against the costs incurred.” Evaluate this statement. 6. If the ownership of a resource is insecure, how will this affect the value of the resource and the efficiency of its use? Why is legal entitlement of things like real estate, automobiles, scientific discoveries, and intellectual property important? 7. Do you think the world will soon run out of important natural resources such as oil or timber? Why or why not? If the resource is privately owned, what will happen to its price if supply should decline relative to the current use rate? How will this influence the likelihood that the supply of the resource will be exhausted?
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2 Compliments of CommonSenseEconomics.com © 2010 Competitive Markets: Competition Promotes the Efficient Use of Resources and Provides a Continuous Stimulus for Innovative Improvements. 8. What makes a market competitive? Why is competition important? 9. What must a firm do in order to compete effectively? Do firms operating in a competitive market have an incentive to keep cost low and produce goods that consumers value highly relative to cost? Do they have an incentive to innovate and develop improved products? 10. In a competitive market, what happens to firms that fail to provide consumers with desired goods at prices equal to or less than those available from other firms? Is this good or bad? Is there a positive side to business failure? 11. When markets are competitive, what determines whether a new innovative product will be successful?
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This note was uploaded on 10/12/2011 for the course ECON 1113 taught by Professor Staff during the Spring '11 term at Oklahoma State.

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PartII2010 - 1 Common Sense Economics: What Everyone Should...

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