2.2 The role of markets in allocating resources

Which is not a basic principle of a market system

• competition

• voluntary exchange

• socialism

• self-interest

Which of the following does not follow with the basic principles of market systems?

• People are driven by their desire to make a profit

• competition is discouraged

• people feel best when they freely trade for what they want

• innovation is encouraged

Private property rights

• Should not be enforced by the government
• Are protected under the constitution
• Do not exist in capitalist markets
• Are optional for success in the market

What is a benefit of the market system?

• Competition ensures choice for consumers.

• Prices equal supply costs

• Unemployment is kept to a minimum

• Wage differentials are small

What is an advantage of a market economy?

• an absence of poverty

• consumer sovereignty

• full employment

• firms have monopoly power

In a market system, what encourages firms to keep their costs low?

• competition

• subsidies

• taxation

• rules and regulations

What encourages firms to produce what consumers demand?

• the desire to keep revenue low

• the chance to make high profit

• the chance to keep cost of production high

• the desire to attract firms in the industry

Who decide what to produce, how to produce and for whom to produce?

• government

• producers

• consumers

• producers and consumers

In a market economy, there is limited government intervention.

• True

• False

A market economic system is one where resources are owned and controlled by private sector

• False

• True