Define the following terms and explain why they are important in the study of economics.
a. Efficient allocation
b. Laissez-faire
c. Peak pricing
d. Input-output analysis
e. Coordination tasks
What will be an ideal response?
a. An efficient allocation of resources is one that takes advantage of every opportunity to make some individuals better off in their own estimation while not worsening the lot of anyone else. Economists seek efficiency as a means of increasing total satisfaction.b. Laissez-faire refers to a program of minimal interference with the workings of the market system. It means that people should be left alone in carrying out their economic affairs. Under the proper circumstances, a laissez-faire system can lead to economic efficiency.c. Peak pricing is the practice of setting price differently in response to changes in demand over the course of a day, such as rush hour tolls for commuters, or different telephone rates. Peak pricing can increase economic efficiency.d. Input-output analysis is a technical tool used to track the uses of resources in different industries, recognizing the interdependencies of industries upon the output of other industries. Invented by Wassily Leontief, the method is too complex to be used in an economy with thousands of inputs and outputs.e. The coordination tasks of any economy are output selection (how much of each good or service should it produce?), production planning (what inputs should be used to produce each good or service?), and distribution (how should the resulting output be distributed?). Market economies rely on markets to make these decisions; planned economies rely on planning authorities to make the decisions.
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