Question

1.    Understand the difference between a command, laisse-faire, and market/mixed economy economic system. These systems differ based on 1) who ________ the factors of production and 2) what incentivizes, coordinates, and decides what products are created. In a command system, the ______________ decides on what and how much is produced. In a market system, the _____________ coordinates the decisions of multiple buyers and sellers.

2.    Define the law of supply. The law of supply states __________________________________.

3.    Understand how taxes and subsidies affect supply. How do government taxes and subsidies affect supply?

a.    If the government imposes a tax, supply will _________.

b.    If the government gives a subsidy, supply will __________.

4.    Understand the concepts of price ceiling and price floor.

a.    In a price floor, the government sets a ___________ price for a good creating a __________ of this product.

b.    In a price ceiling, the government sets a ____________ price for a good creating a __________ of this product.

Answer 1

1.

• Who owns the factors of production
• In a command economy, government decides how much is produced
• In market economy, demand and supply forces coordinates the decision of multiple buyers and sellers

2.

Law of supply states that there exists a positive relationship between price of a good and its quantity supplied. It states as price increases, quantity supplied increases

3.

• If government imposes a tax, supply will reduce
• If government gives a subsidy, supply will increase

4.

• On price floor, government sets a maximum price higher than market equilibrium price, creating a surplus
• In price ceiling, government sets a minimum price lower than free market price, creating shortage