Question 1

Why is the consumer the king (or queen) in a market system?

Accepted Answer

Consumers exert their preferences in a market system through their dollar votes or their purchases.When there is sufficient demand for a product by consumers, businesses that produce those products can make a normal profit.By shifting their purchases, consumers dictate to firms the types and quantities of products they desire.Businesses must respond to the wishes of consumers.When they fail to meet the desires of consumers, they make losses and eventually will cease to exist.

Question 2

Assume that a firm finds that its profits will be maximized (or losses minimized) when it produces $50 worth of product X.Each of these techniques shown in the following table will produce exactly $50 worth of X.   (a) Which method is most efficient? Why?
(b) Given the above prices, will the firm adopt a new method, which involves 2 units of land, 2 of labour, 4 of capital, and 8 of entrepreneurial ability?
(c) Suppose the price of labour falls to $1 without any other prices changing.Which of the methods will the firm now choose? Why?

Accepted Answer

(a) Method #2 is most efficient because it uses relatively more of the least expensive resource, and relatively less of the more expensive resources.
(b) Yes, it is now the least-cost method.
(c) It will choose #3 because it uses relatively more of labour, which is now much less expensive, and the total cost of each method now makes #3 the least-cost combination.

Question 3

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

Accepted Answer

As consumers increase their demand for certain products, those product prices will rise and increase profitability.Producers will be induced to increase their production by hiring more workers and other factors of production.

Question 4

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).

Accepted Answer

(a) Goods and services; (b) Co

Question 5

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

Accepted Answer

Command economies are based on central p

Question 6

List two problems that have contributed to the decline of command systems on a national scale.

Accepted Answer

As a means of organizing national econom

Question 7

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

Accepted Answer

Imperial Oil, Bombardier, and Air Canada

Question 8

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

Accepted Answer

Households sell their resources to firms

Question 9

What conditions are necessary for economic competition to exist?

Accepted Answer

Competition requires the presence of lar

Question 10

What factors determine who will get the output?

Accepted Answer

Individuals are able to choose what they

Question 11

Assume that a firm can produce product A, product B, or product C with the resources it currently employs.These resources cost the firm a total of $100 per week, this cost is per resource.Assume, for the purposes of this problem, that the firm's costs cannot be changed.The market prices and the quantities of A, B, and C these resources can produce are given below.   (a) Compute the firm's profit when it produces A, B, or C and enter these data in the table.
(b) Which product will the firm produce?
(c) Suppose the quantity of product B the firm was able to produce with the same amount of inputs now rose to 25.Which product will the firm now produce?
(d) As a result of the rise in quantity of product B to 25 that each firm can produce, what will happen to the number of firms producing product B?

Accepted Answer

(a) Profit for A will be -$40 (loss); fo

Question 12

What are the so-called Five Fundamental Questions that every economy must answer?

Accepted Answer

Every economy must respond to five funda

Question 13

Describe the three major virtues of a market system.

Accepted Answer

First, the market system promotes effici

Question 14

List nine characteristics of the market system.

Accepted Answer

The nine characteristics discussed in th

Question 15

Suppose Tom, Dick, and Harry live in a barter economy.Tom produces wine, Dick bakes bread, and Harry makes cheese.Tom wants some bread to go with his wine and is willing to trade 1 litre of wine for two loaves of bread.Dick wants some cheese to go with his bread and is willing to trade one loaf of bread for one-half kilogram of cheese.Harry doesn't want bread, but wants some wine to go with his cheese and is willing to trade cheese for one litre of wine.It is not possible for all three of them to meet together at one time.(a) Explain how this situation illustrates the difficulty with a barter economy.(b) Devise a money system using rubies where four rubies are equivalent in value to one litre of wine.In other words tell how much bread and cheese would be worth in terms of rubies in this economy.In this system, how much cheese must Harry sell in order to buy one litre of wine?

Accepted Answer

(a) The lack of coincidence of wants is

Question 16

What roles do freedom of enterprise and freedom of choice play in capitalism? How important are they to the operation of a competitive market economy?

Accepted Answer

In capitalism, two essential freedoms ar

Question 17

How does the use of money differ from the use of barter in the exchange of goods and services?

Accepted Answer

Barter requires a coincidence of wants.I

Question 18

Describe all the advantages a money economy has over a barter economy?

Accepted Answer

Trade is difficult with barter because i

Question 19

Explain the two different motives that firms have for choosing the lowest-cost production methods to produce goods and services?

Accepted Answer

maximize i

Question 20

What are the economic advantages of the division of labour?

Accepted Answer

Specialization enables individuals to ta

Exam 2: A: - The Market System and the Circular Flow

Why is the consumer the king (or queen) in a market system?

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

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.

List two problems that have contributed to the decline of command systems on a national scale.

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

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

What conditions are necessary for economic competition to exist?

What factors determine who will get the output?

What are the so-called Five Fundamental Questions that every economy must answer?

Describe the three major virtues of a market system.

List nine characteristics of the market system.

What roles do freedom of enterprise and freedom of choice play in capitalism? How important are they to the operation of a competitive market economy?

How does the use of money differ from the use of barter in the exchange of goods and services?

Describe all the advantages a money economy has over a barter economy?

Explain the two different motives that firms have for choosing the lowest-cost production methods to produce goods and services?

What are the economic advantages of the division of labour?

B: Limits, Alternatives, and Choices

A: - Limits, Alternatives, and Choices

B: The Market System and the Circular Flow

B: Demand, Supply, and Market Equilibrium

A: - Demand, Supply, and Market Equilibrium

B: Market Failures: Public Goods and Externalities

A: - Market Failures: Public Goods and Externalities

B: Governments Role and Government Failure

A: Governments Role and Government Failure

B: an Introduction to Macroeconomics

A: an Introduction to Macroeconomics

B: Measuring the Economys Output

A: Measuring the Economys Output

B: Economic Growth

A: Economic Growth

B: Business Cycles, Unemployment, and Inflation

A: Business Cycles, Unemployment, and Inflation

B: Basic Macroeconomic Relationships

A: Basic Macroeconomic Relationships

B: The Aggregate Expenditures Model

A: The Aggregate Expenditures Model

B: Aggregate Demand and Aggregate Supply

A: Aggregate Demand and Aggregate Supply

B: Fiscal Policy, Deficits, Surpluses, and Debt

A: Fiscal Policy, Deficits, Surpluses, and Debt

B: Money, Banking, and Money Creation

A: Money, Banking, and Money Creation

B: Interest Rates and Monetary Policy

A: Interest Rates and Monetary Policy

C: Financial Economics

A: Long-Run Macroeconomic Adjustments

B: Long-Run Macroeconomic Adjustments

A: International Trade

B: International Trade

A: The Balance of Payments and Exchange Rates

B: The Balance of Payments and Exchange Rates

The Economics of Developing Countries

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