GOVT 350
What represents the dynamics of the free market system? - ANS-Competition resulting
in production (the fruit of labor), and voluntary exchange
Be able to discuss two consequences of competition - ANS-Raises quality of products
and overcomes scarcity
What is the relationship between competition and scarcity? - ANS-Competition is a
consequence of economic scarcity. Competition exists when people want something
which is not readily available. Increases occur on the demand side when the supply is
low or a relative scarcity exists. More producers are now drawn into the market to meet
the demand. Scarcity is overcome when supply meets demand
What is profit and how does it relate to the market system? - ANS-Profit is the incentive
for investment, and rewards result in greater incentives to produce. Object of the market
system is increased production, and competition promotes productivity
What is a 'third party effect' relative to the market system? - ANS-Third party effects:
people not party to your exchange and involuntary exchanges
There is a "market failure" because of "external" and "neighborhood" effects for which it
is not feasible to compensate or charge the people affected
What is the general role of prices in a free market system? - ANS-Price system, also
called price mechanism, operates as a signaling system to producers and consumers to
distribute and exchange scarce resources for the most efficient uses. They are
information signals transmitted through voluntary market interactions which
communicate to suppliers to either increase production to meet consumer demand or to
decrease production given excess supply. Prices will adjust to discharge or dispose of
the surplus or to signal need for greater production output. Prices then interact with
supply and demand and assist in overcoming scarcity and promoting the most efficient
use of scarce resources
How does voluntary exchange facilitate cooperation in the market? - ANS-If an
exchange between two parties is voluntary it will not take place unless both believe they
will benefit from it--goes against the notion that one party can gain only at the expense
of another
What represents the dynamics of the free market system? - ANS-Competition resulting
in production (the fruit of labor), and voluntary exchange
Be able to discuss two consequences of competition - ANS-Raises quality of products
and overcomes scarcity
What is the relationship between competition and scarcity? - ANS-Competition is a
consequence of economic scarcity. Competition exists when people want something
which is not readily available. Increases occur on the demand side when the supply is
low or a relative scarcity exists. More producers are now drawn into the market to meet
the demand. Scarcity is overcome when supply meets demand
What is profit and how does it relate to the market system? - ANS-Profit is the incentive
for investment, and rewards result in greater incentives to produce. Object of the market
system is increased production, and competition promotes productivity
What is a 'third party effect' relative to the market system? - ANS-Third party effects:
people not party to your exchange and involuntary exchanges
There is a "market failure" because of "external" and "neighborhood" effects for which it
is not feasible to compensate or charge the people affected
What is the general role of prices in a free market system? - ANS-Price system, also
called price mechanism, operates as a signaling system to producers and consumers to
distribute and exchange scarce resources for the most efficient uses. They are
information signals transmitted through voluntary market interactions which
communicate to suppliers to either increase production to meet consumer demand or to
decrease production given excess supply. Prices will adjust to discharge or dispose of
the surplus or to signal need for greater production output. Prices then interact with
supply and demand and assist in overcoming scarcity and promoting the most efficient
use of scarce resources
How does voluntary exchange facilitate cooperation in the market? - ANS-If an
exchange between two parties is voluntary it will not take place unless both believe they
will benefit from it--goes against the notion that one party can gain only at the expense
of another
