FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 2: The Market System and the Circular Flow

Show Answer

Share

---

All types

Filters

Study Flashcards

Question 21

Essay

Review LaterAdd Note

Review Later

One of the characteristics of a modern market economy is an "active,but limited,government." How can the government "help" the economy?

Correct Answer

verified

The market is not always perfect.In some...

View Answer

Show Answer

Question 22

Essay

Review LaterAdd Note

Review Later

Explain what is meant by a command economy.

Correct Answer

verified

The command economy is the opposite extr...

View Answer

Show Answer

Question 23

Essay

Review LaterAdd Note

Describe two types of specialization in production.

Describe the basic features of the circular flow model.

What is meant by the guiding function of prices?

Provide examples of prominent Canadian corporations and describe the unique implications that arise due to the fact that such corporations are independent legal entities?

In the below circular flow diagram,the household and business sectors are labelled with arrows representing the flows of income and output labelled (a)through (f)and the two appropriate markets labelled (g)and (h).Supply the correct descriptive titles for each of these labels (a)through (h).

"Every economy is based on 'planning' of one sort or another." Interpret and explain.

Describe the three major virtues of a market system.

What are the economic advantages of the division of labour?

How does the market system accommodate change in consumer's preferences?

Explain the importance of self-interest in the operation of a market system.

What factors determine who will get the output?

Describe three ways that the division of labour contributes to society's output.

What is the relationship between businesses and households in the circular flow model?

List and describe the three main categories of businesses?

Explain why the market system is an organizing mechanism.

Explain the two different motives that firms have for choosing the lowest-cost production methods to produce goods and services? The first motive is that because inefficiency drives up costs and lowers profits,any firm wishing to will make great efforts to minimize production costs.These efforts will include using the right mix of labour and capital,given the prices and productivity of those resources.They also mean locating production facilities optimally to minimize production and transportation expenses. The second motive is due to competition,consumers strongly prefer low prices and will shift their purchases over to the firms that can produce a quality product at the lowest possible price.Any firm foolish enough to use higher-cost production methods will go bankrupt as it is undersold by its more efficient competitors who can still make a profit when selling at a lower price.In other words,competition eliminates high-cost producers,and so firms are motivated to choose the lowest-cost production methods to produce goods and services.

"Competition is the mechanism that brings order out of potential chaos in a price-directed economy." Explain.