Contrast how a market system and a command economy try to cope with economic scarcity.

#1. Contrast how a market system and a command economy try to cope with economic scarcity. LO2.1
#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? LO2.2
#6. Evaluate and explain the following statements: LO2.2
a. The market system is a profit-and-loss system.
b. Competition is the disciplinarian of the market economy.
EXAMPLE: 1. T, 2. F, 3. ETC
1. The entrepreneur s sole function is to combine other resources (land, labor, and capital) in the production of some good or service.
2. Products and services are scarce because resources are scarce.
3. The process by which capital goods are accumulated is known as investment.
4. Economics is the social science concerned with the best use of scarce resources to achieve
maximum satisfaction of economic wants.
5. Macroeconomics is concerned with the study of the nationwide market for specific goods like
6. The budget line shows the various incomes that an individual can earn from different jobs.
7. The quantity or supply of land resources available to a nation is pretty much fixed and cannot
increase over time.
8. A reduction in the unemployment rate will cause the nation s production possibilities curve to
shift outward.
9. An increase in immigration would shift the production possibilities curve to the left.
10. A linear relationship only refers to one whose graph is either vertical or horizontal.
11. Market economies use capital goods because they improve productive efficiency.
12. Money functions as a medium of exchange by eliminating the need for a coincidence of wants.
13. Consumer sovereignty means that legislation now protects the rights of consumers to dispose of
their incomes as they see fit.
14. The wants of consumers are expressed in the product market with dollar votes.
15. The invisible hand refers to the many indirect controls that the federal government imposes in a
market system.
16. Surpluses drive market prices up; shortages drive them down.
17. If demand increases and supply simultaneously decreases, equilibrium price will rise.
18. The rationing function of prices refers to the fact that government must distribute any surplus goods that may be left in a competitive market.
19. An increase in quantity supplied might be caused by an increase in resource costs.
20. An increase in demand accompanied by an increase in supply will increase the equilibrium
quantity, but the effect on equilibrium price will be indeterminate.

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