What are the roles of markets and prices in an economy?
What will be an ideal response?
Markets are a means by which scarce resources are allocated. Through them buyers and sellers carry out voluntary exchange. Prices are important in that they provide the incentives to which buyers and sellers respond. A relatively high price for a good will discourage consumption and encourage production of the good. On the other hand, a relatively low price will encourage the consumption and discourage the production of a good.
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When you chose to buy the second cup of coffee instead of the third bagel, which of the following is necessarily CORRECT?
A) The second coffee will give you higher marginal utility. B) The second coffee is cheaper than the third bagel. C) The marginal utility per dollar from the third bagel is less than the marginal utility per dollar from the second coffee. D) Both answers A and C are correct.
The economist Irving Fisher, after whom the Fisher effect is named, explained why interest rates ________ as the expected rate of inflation ________, everything else held constant
A) rise; increases B) rise; stabilizes C) fall; stabilizes D) fall; increases
An autonomous decrease in money demand, other things equal, shifts the ________ curve to the ________
A) IS; right B) IS; left C) LM; left D) LM; right
As of the end of 1994, which of the countries in our survey had the closest match in size between its stock and banking markets?
A) The United Kingdom B) The United States C) Japan D) Germany