Ch. 13 and 14: Market Economy and Market Failure

Provide one advantage of a market economy.

• Consumers are sovereign

• There is no poverty.

• Firms have a lot of market power.

• All people are employed.

What encourages firms to produce what consumers demand?

• The chance to earn a high profit

• The chance to experience high unit costs of production

• The desire to attract new firms into the industry

• The desire to keep revenue as low as possible

In this diagram, how is allocative efficiency experienced?

• Price: fall

  Demand: fall

  Supply: rise

• Price: fall

  Demand: rise

  Supply: fall

• Price: rise

  Demand: fall

  Supply: rise

• Price: rise

  Demand: rise

  Supply: fall

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

• Competition

• Government regulations

• Subsidies

• Taxation

Which movement in the diagram shows an increase in productive efficiency?

• A to B

• B to C

• C to D

• A to D

What is the "private sector"? Select all that apply.

• composed of individual firms

• composed of government firms

• providing goods and services for everyone is the main objective

• earning a profit is the main objective

What is the "public sector"? Select all that applies

• composed of individual firms

• providing goods and services for everyone is the main objective

• earning a profit is the main objective

• composed of government firms

How are consumers sovereign in a market economy? Select all that apply.

• they keep the price low by buying the most affordable products

• they produce products that are needed by everyone

• they determine what is

  produced

• they can increase a product's price by buying more of it

What is the role of profit in a market economy? Select all that apply.

• it's an incentive that firms get when they listen to customers

• it drives efficiency among firms

• Consumers' demands are met

• it gives firms an opportunity to expand their bsuiness

What argument can be used to say that prices in a market economy may be low?

• because there may be a high level of

  competition

• because customers are always right

• because producers will use quality materials

• because customers like second-hand products