3. Why do we expect a market-based economy to be closer to allocatively efficient than a command economy? What disadvantages do market economies have compared to command economies? How do most countries respond to the fact that market economies have some advantages over command economies and command economies have some advantages over market economies? -Because a command economy is based on the forces of supply and demand, it is expected that a market-based economy will be more efficient than a command economy. How resources are distributed depends on how these two forces interact. In a planned economy, the government makes all the choices about how the resources are distributed. -When compared to command economies, market economies have a number of drawbacks. The first is that market economies are vulnerable to the growth business cycle, which can cause economic chaos. Another is that companies operating in a market economy might use unethical or harmful environmental practices in an effort to increase profits. Market economies may also lead to income inequality because some people may become extremely wealthy while others continue to live in poverty. -The majority of nations have a mixed economy, which is an economy that includes some government-owned or controlled industry and/or services along with private property and economic freedom. 4. Marie has a weekly budget of $24, which she likes to spend on magazines and pies. a. If the price of a magazine is $4 each, what is the maximum number of magazines she could buy in a week? b. If the price of a pie is $12, what is the maximum number of pies she could buy in a week? -2 1. Suppose you have a team of two workers: one is a baker and one is a chef. Your baker is talented but is inexperienced. Your chef is not only an elite chef but is also faster at baking. a. If your kitchen specialized according to absolute advantage, who would do the cooking? Who would do the baking? When the kitchen is being specialized according to absolute advantage, the Chef would do both the baking and the cooking. - b. If your kitchen specialized according to comparative advantage, who would do the cooking? Who would do the baking? The Chef and the Baker would each perform their own specific task in the kitchen when it is specialized based on comparative advantage. meaning that the chef will do the cooking and the baker will do the baking. c. Which approach above is more efficient? Explain your answer. Because it is based on the theory of opportunity costs, the absolute advantage approach is more effective. When the kitchen is specialized according to comparative advantage, the output will be higher than when the kitchen is specialized according to absolute advantage. since everyone is doing their part, it is more time effective no matter the speed or experience. 2. Evan goes out drinking every Thursday night, even though he tends to show up late for work and hung over on Friday. a. Why might Evan's friends consider this behavior irrational? Evan's friends may consider this behavior irrational because he is risking his job by arriving late and hungover. b. Why might an economist consider Evan's behavior economically rational? - Evan's actions may be viewed as economically rational by an economist because they allow him to decompress and relieve stress. 3. Why do we expect a market-based economy to be closer to allocatively efficient than a command economy? What disadvantages do market economies have compared to command economies? How do most countries respond to the fact that market economies have some advantages over command economies and command economies have some advantages over market economies? -Because a command economy is based on the forces of supply and demand, it is expected that a market-based economy will be more efficient than a command economy. How resources are distributed depends on how these two forces interact. In a planned economy, the government makes all the choices about how the resources are distributed.

3. Why do we expect a market-based economy to be closer to allocatively efficient than a command economy? What disadvantages do market economies have compared to command economies? How do most countries respond to the fact that market economies have some advantages over command economies and command economies have some advantages over market economies? -Because a command economy is based on the forces of supply and demand, it is expected that a market-based economy will be more efficient than a command economy. How resources are distributed depends on how these two forces interact. In a planned economy, the government makes all the choices about how the resources are distributed. -When compared to command economies, market economies have a number of drawbacks. The first is that market economies are vulnerable to the growth business cycle, which can cause economic chaos. Another is that companies operating in a market economy might use unethical or harmful environmental practices in an effort to increase profits. Market economies may also lead to income inequality because some people may become extremely wealthy while others continue to live in poverty. -The majority of nations have a mixed economy, which is an economy that includes some government-owned or controlled industry and/or services along with private property and economic freedom. 4. Marie has a weekly budget of $24, which she likes to spend on magazines and pies. a. If the price of a magazine is $4 each, what is the maximum number of magazines she could buy in a week? b. If the price of a pie is $12, what is the maximum number of pies she could buy in a week? -2 1. Suppose you have a team of two workers: one is a baker and one is a chef. Your baker is talented but is inexperienced. Your chef is not only an elite chef but is also faster at baking. a. If your kitchen specialized according to absolute advantage, who would do the cooking? Who would do the baking? When the kitchen is being specialized according to absolute advantage, the Chef would do both the baking and the cooking. - b. If your kitchen specialized according to comparative advantage, who would do the cooking? Who would do the baking? The Chef and the Baker would each perform their own specific task in the kitchen when it is specialized based on comparative advantage. meaning that the chef will do the cooking and the baker will do the baking. c. Which approach above is more efficient? Explain your answer. Because it is based on the theory of opportunity costs, the absolute advantage approach is more effective. When the kitchen is specialized according to comparative advantage, the output will be higher than when the kitchen is specialized according to absolute advantage. since everyone is doing their part, it is more time effective no matter the speed or experience. 2. Evan goes out drinking every Thursday night, even though he tends to show up late for work and hung over on Friday. a. Why might Evan's friends consider this behavior irrational? Evan's friends may consider this behavior irrational because he is risking his job by arriving late and hungover. b. Why might an economist consider Evan's behavior economically rational? - Evan's actions may be viewed as economically rational by an economist because they allow him to decompress and relieve stress. 3. Why do we expect a market-based economy to be closer to allocatively efficient than a command economy? What disadvantages do market economies have compared to command economies? How do most countries respond to the fact that market economies have some advantages over command economies and command economies have some advantages over market economies? -Because a command economy is based on the forces of supply and demand, it is expected that a market-based economy will be more efficient than a command economy. How resources are distributed depends on how these two forces interact. In a planned economy, the government makes all the choices about how the resources are distributed.

Principles of Microeconomics

7th Edition

ISBN:9781305156050

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter22: Frontiers Of Microeconomics

Section: Chapter Questions

Problem 6PA

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