Question

unit 3b: government and economics

1. what determines prices in a market economy?

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1. name one advantage of a market economy.

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student instructions: circle or mark the letter that represents the answer that correctly responds to the question or completes the statement:

1. which statement best compares a market economy and a command economy?

a both rely on traditions to make decisions about goods and services
b. in a market economy, individuals make decisions; in a command economy, the government does.
c. both allow businesses to set prices freely.
d. in both systems, trade and production never change.

Explanation:

• Question 4: In a market economy, the interaction of supply and demand determines prices. When demand for a good or service is high relative to its supply, prices tend to rise. Conversely, when supply is high relative to demand, prices tend to fall.
• Question 5: One advantage of a market economy is that it encourages innovation. Since businesses compete for consumers' money, they are motivated to create new and better products, improve production processes, and offer more value - added services.
• Question 6:
• Option A: This is incorrect. Traditional economies rely on traditions to make decisions about goods and services, not market or command economies.
• Option B: In a market economy, individuals (consumers and producers) make decisions based on their own self - interest. In a command economy, the government makes decisions about production, distribution, and pricing. This option is correct.
• Option C: In a command economy, the government often controls prices, so this option is wrong.
• Option D: Both market and command economies can change over time. For example, in a market economy, new technologies can change production and trade patterns. In a command economy, government policies can change. So this option is incorrect.

Answer:

1. In a market economy, prices are determined by the interaction of supply and demand.
2. One advantage of a market economy is that it encourages innovation.
3. B. In a market economy, individuals make decisions; in a command economy, the government does.