Problem 1
Decide whether each of the following descriptions most closely corresponds to being part of a command system, a market system, or a laissex-faire system. a. A woman who wants to start a flower shop finds she cannot do so unless the central government has already decided to allow a flower shop in her area. b. Shops stock and sell the goods their customers want but the government levies a sales tax on Each transaction in order to fund elementary schools, public libraries, and welfare programs for the poor. c. The only taxes levied by the government are to pay for national defense, law enforcement, and a legal system designed to enforce contracts between private citizens.
Problem 2
Match each term with the correct definition. private property, freedom of enterprise, mutually agreeable, freedom of choice, self-interest, competition market. a. An institution that brings buyers and sellers together. b. The right of private persons and firms to obtain, control, employ, dispose of, and bequeath land, capital, and other property. c. The presence in a market of independent buyers and sellers who compete with one another and who are free to enter and exit the market as they each see fit. d. The freedom of firms to obtain economic resources, decide what products to produce with those resources, and sell those products in markets of their choice. e. What each individual or firm believes is best for itself and seeks to obtain. f. Economic transactions willingly undertaken by both the buyer and the seller because each feels that the transaction will make him or her better off. g. The freedom of resource owners to dispose of their resources as they think best; of workers to enter any line of work for which they are qualificd; and of consumers to spend their incomes in whatever way they feel is most appropriate.
Problem 3
True or False: Money must be issued by a government for people to accept it.
Problem 5
Identify each of the following quotes as being an example of either: the coordination problem, the invisible hand, creative destruction, or the incentive problem. a. "If you compare a list of today's most powerful and profitable companies with a similar list from 30 years ago, you will sce lots of new entrics." b. "Managers in the old Soviet Union often sacrificed product quality and varicty because they were being awarded bonuses for quantitative, not qualitative, targets." c. "Each day, central planners in the old Sovict Union were tasked with sctting 27 million prices-correctly." d. "It is not from the bencvolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest".
Problem 6
True or False: Households sell finished products to businesses.
Problem 7
Franklin, John, Henry, and Harry have decided to pool their financial resources and business skills in order to open up and run a coffee shop. They will share any profits or losses that the business generates and will be personally responsible for making good on any debt that their business undertakes. Their business should be classified as a: a. Corporation. b. Sole proprictorship. c. Partnership. d. None of the above.
Problem 8
Ted and Fred are the owners of a gas station. They invested SI50,000 each and pay an employee named Lawrence S35,000 per year. This year revenues are \(\$ 900,000,\) while costs are \(\$ 940,000 .\) Who is legally responsible for bearing the \(\$ 40,000\) loss? a. Lawrence. b. Ted. c. Fred. d. Ted and Fred. c. I awrence, Ted, and Fred.
