Author Question: Refer to Table 2-6. What is James's opportunity cost of making a tricycle? A) 2 tricycles B) 3/4 ... (Read 29 times)

Tirant22 · **on:** Jun 29, 2018

Refer to Table 2-6. What is James's opportunity cost of making a tricycle?

A) 2 tricycles B) 3/4 of a wagon C) 1/2 of a wagon D) 1/2 of a tricycle

Question 2

Why are social institutions such as firms, markets, property rights, and money necessary?

What will be an ideal response?

swimkari · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

C

Answer to Question 2

These social institutions factors necessary for a decentralized economy to coordinate production. Firms are necessary to allow people to specialize. Without firms, specialization would be limited because a person would need to specialize in the entire production of a good or service. With firms people are able to specialize in producing particular bits of a good or service. For a society to enjoy the fruits of specialization and trade, the individuals who comprise that society must voluntarily desire to specialize in the first place. Discovering trade opportunities after a person has specialized in his or her comparative advantage in production is what allows that person to gain from his or her own specialization efforts. Trading opportunities can only take place if a market exists where people observe prices to discover available trade opportunities. Money is necessary to allow low-cost trading in markets. Without money, goods would need to be directly exchanged for other goods, a difficult and unwieldy situation. Finally people must enjoy social recognition of and government protection of property rights to have confidence that their commitments to trade arrangements will be respected by everyone in the market.