In a command economy, a planning agency sets prices for various inputs and final goods. In a market economy, supply and demand decide the prices of various goods. In both cases, there is a set of prices operating in the economy
Then why are market economies considered more efficient than planned economies?
Although planning agencies set prices, they cannot always accurately align the interests of buyers and sellers or solve the coordination problem of bringing agents together to trade. Any individual can only know a small fraction of all that is known collectively and so a planning agency cannot replicate the work of the invisible hand. In a market economy on the other hand, the price mechanism ensures that economic agents make trades that are in their best interest and maximize social surplus.
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Suppose a year ago the exchange rate between Mexican pesos and dollars was 13.5 pesos per dollar, and that according to relative PPP the exchange rate was in equilibrium
Furthermore, assume that since then, Mexican inflation has been 12 percent while the U.S. inflation has been 3 percent. If according to relative PPP the peso is now said to be overvalued, what is a possible exchange rate consistent with this assertion? A) 13.5 pesos per dollar. B) 14.72 pesos per dollar. C) 15 pesos per dollar. D) 20 pesos per dollar.
Where it can function, a market for pollution rights can serve to internalize the air-pollution externality
Indicate whether the statement is true or false
The inclusion of external costs in the decision making process determining equilibrium price and quantity leads to
A) lower priced items and increased quantity. B) lower priced items and a decline in quantity. C) higher priced items and increased quantity. D) higher priced items and a decline in quantity.
People like consuming peanut butter and jelly together. The price of peanuts increases. At the same time, we see the price for Jelly rise. This would make the price for peanut butter_____________ and the quantity demanded for peanut butter ____________
a. Uncertain; decreases b. Decreases; increases c. Decreases; uncertain d. Increases; uncertain