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Macroeconomics (BECN150) Chap002 Answers - Solution

Sandra Watson
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Humber College

Macroeconomics (BECN150)

2-1 Contrast how a market system and a command economy try to cope with economic scarcity.

2-2 How does self-interest help achieve society’s economic goals? Why are there such a wide variety
of desired goods and services in a market system? In what way are entrepreneurs and businesses
at the helm of the economy, but commanded by consumers?

2-3 Why is private property, and the protection of property rights, so critical to the success of the
market system?

2-4 What are the advantages of using capital in the production process? What is meant by the term
“division of labor”? What are the advantages of specialization in the use of human and material
resources? Explain why exchange is the necessary consequence of specialization.

2-5 What problem does barter entail? Indicate the economic significance of money as a medium of
exchange. What is meant by the statement: “We want money only to part with it”?

2-6 Evaluate and explain the following statements:

2-7 In the 1990s thousands of “dot-com” companies emerged with great fanfare to take advantage of
the Internet and new information technologies. A few, like Yahoo, eBay, and Amazon, have
generally thrived and prospered, but many others struggled and eventually failed. Explain these
varied outcomes in terms of how the market system answers the question “What goods and
services will be produced?”

2-8 With current technology, suppose a firm is producing 400 loaves of banana bread daily. Also,
assume that the least-cost combination of resources in producing those loaves 5 units of labor, 7
units of land, 2 units of capital, and 1 unit of entrepreneurial ability, selling at prices of $40,
$60, $60, and $20, respectively. If the firm can sell these 400 loaves at $2 per unit, will it
continue to produce banana bread? If this firm’s situation is typical for the other makers of
banana bread, will resources flow to, or away from, this bakery good?

2-9 Some large hardware stores such as Home Depot boast of carrying as many as 20,000 different
products in each store. What motivated the producers of those products to make them and offer
them for sale? How did producers decide on the best combinations of resources to use? Who
made these resources available, and why? Who decides whether these particular hardware
products should continue to get produced and offered for sale?

2-10 What is meant by the term “creative destruction”? How does the emergence of MP3 (iPod)
technology relate to this idea?



Macroeconomics (BECN150) Chap002 Answers - Solution

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