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GOVT 350 Ferdon Test 2
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GOVT 350 Ferdon Test 2
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GOVT 350 Ferdon Test 2What represents the dynamics of the free market system? - ANS-Energy and vitality
represents the dynamics of competition in a free market. A free market also requires
voluntary exchange, through which millions cooperate
What represents the economic motivation of the free market system? - ANS-The Nature
of the Profit Motive: Incentive to Produce
Competition is in contrast and conflict with what other approach to the creation of goods
and services in the market? - ANS-Coercive Interference
Be able to discuss two characteristics of competition in a free market - ANS-(1) buyers
and sellers acting independently APART FROM COERCION
(2) the object of the a producer is to provide more and better goods and services to
CONSUMERS
(3) the only PEACEFUL MEANS of allocating scarce resources
(4) always COMMUNICATES; make me a better offer before I buy/work/sell to you
Be able to explain one reason why competition in a free market exists. - ANS-(1)
consequence of economic scarcity
(2) occurs in the absence of central economic planning
What is the relationship between competition and scarcity? - ANS-Competition happens
because of scarcity. Increases occur on the demand side when the demand is low ->
More producers are drawn into the market to supply the demand -> scarcity is overcome
when supply meets demand
How does the free market inspire the wise use of SCARCE RESOURCES and
therefore, promote stewardship? - ANS-Because of scarcity, it results in a more efficient
use of capital and labor (stewardship)
What sort of mechanism of exchange does the free market require? - ANS-A free
market requires voluntary exchange
How is the free-market system (invisible hand) a tremendous obstacle to complete state
control (iron fist)? - ANS-Complete state control diminishes market freedom because
the gov controls the means of production and nationalizes industry (complete state
control destroys private property)
, What is 'profit,' and its relationship to the market system? In other words, what is its
relationship to the factors of production and demand? This question also requires you
explain why producers are inspired and motivated to enter the market. - ANS-Producers
are inspired and motived to enter into the market to make a profit. Profit guides the
factors of production in accordance with demand
What is the general role of prices in a free market system? - ANS-if an exchange
between two parties is voluntary, it will not take place unless both believe they will
benefit from it
How does voluntary exchange facilitate cooperation in the market? - ANS-Cooperation
is highly relational, voluntary and spontaneous, while command is coercive and
controlled
How does the price system overcome scarcity? - ANS-The price system operates as a
signaling system to producers and consumers to distribute and exchange scarce
resources for the most efficient uses
How do prices reflect supply and demand? - ANS-Prices 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
How does government intrusion distort market information? - ANS-When government
intervenes, information is distorted, and both consumers and producers are incentivized
to redirect their economic activity in contrary ways.
What are the ways government distorts market information? - ANS-Information
disruptions are induced by TAXES and SUBSIDIES, as well as various forms of PRICE
CONTROLS which include wage caps
What are the three functions of the price system in a free market economy? - ANS-(1)
transmit information
(2) incentive
(3) distribution of income
How do Prices transmit information? - ANS-Prices tell producers what to produce;
supply and demand for goods, services, and labor
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