Author Question: When the price of a good falls, consumers buy a larger quantity because of the ________ effect and ... (Read 241 times)

robinn137

  • Hero Member
  • *****
  • Posts: 544
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

  • Sr. Member
  • ****
  • Posts: 357
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.



Related Topics

Need homework help now?

Ask unlimited questions for free

Ask a Question
 

Did you know?

The average adult has about 21 square feet of skin.

Did you know?

As many as 20% of Americans have been infected by the fungus known as Histoplasmosis. While most people are asymptomatic or only have slight symptoms, infection can progress to a rapid and potentially fatal superinfection.

Did you know?

Parkinson's disease is both chronic and progressive. This means that it persists over a long period of time and that its symptoms grow worse over time.

Did you know?

Blood in the urine can be a sign of a kidney stone, glomerulonephritis, or other kidney problems.

Did you know?

Thyroid conditions may make getting pregnant impossible.

For a complete list of videos, visit our video library