When the price of a good falls, consumers buy a larger quantity ...

[robinn137]

When the price of a good falls, consumers buy a larger quantity because of the ________ effect and the ________ effect.
 
  A) normal; inferior B) substitution; income
  C) substitute; complement D) supply; demand

Question 2

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?

[k2629]

Answer to Question 1

B

Answer to Question 2

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.