Holt 7525-9 S15_IT

Answers for Chapter 2
Fill-in-the-blanks: 1. Consumer’s 5. increasing opportunity
2. Producer’s 6. growth
3. externality 7. output, resource
4. production possibilities
Multiple Choice: 1. a. 10. c. 19. c.
2. d. 11. d. 20. b.
3. c. 12. a. 21. d.
4. c. 13. d. 22. b.
5. b. 14. d. 23. a.
6. c. 15. a. 24. a.
7. b. 16. b. 25. b.
8. b. 17. d. 26. c.
9. d. 18. d.
Problems:
1. The two general sources of economic growth are:
a. An increase in the quantity of resources.
b. An advance in technology.
2. According to the capitalist vision, government is inherently inefficient and should be limited.
Government cannot possess as much information as the millions of individual decision makers
in the private market. Nor can government coordinate the competing desires of the millions of
individual decision makers as well as prices determined in free markets. Nor is the
government motivated to secure the self-interest of the millions of individual decision makers.
Government may be more responsive to special-interest groups than to concerns about the
general welfare. Since the outcome reached in the market is generally efficient, any
government intervention is likely to reduce economic efficiency.
3. According to the socialist vision, market prices are often manipulated by powerful businesses.
Big businesses often face few competitors and may cooperate with their competitors to
manipulate prices and consumer demand. The government should be willing to use price
controls to ensure that prices are fair for all.
4. In a market economy, the “for whom to produce” question is determined by the distribution of
income. The distribution of income is determined by the markets for resources.
Answers to Think Like an Economist:
If the current system is capitalism, it is likely that Professor Dissident’s book will be published.
The publishing companies will be owned by private individuals, with a goal of profit-maximization.
Even if a publishing company disagrees with Professor Dissident’s opinion, it will want to publish
any book that is likely to appeal to a large number of readers, in order to maximize profits.
If the current system is socialism, it is not likely that Professor Dissident’s book will be published.
Though the publishing companies will be owned by “the people”, they will be controlled by the
government. It is not in the best interest of the government to publish Professor Dissident’s book.
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Trade and Economic Systems 2 - 16