CHAPTER 2
The Market System and the Circular Flow
individual products to make them and offer them for sale?
Ho*- did the producers decide on the best combinations of
and
resources to use? Who made those resources available'
*'hv? Who decides whether these particulartrardware produc-s should continue to be produced and offered for sale?
11. \4rhat is meant by the term "creative destrucdon"? How does
idea?
the emergence of mpl (iPod) technology relate to this
12. b asentence, describe the meaning of the phrase "invisible
hand."
13.
- In market
I 43
I
the
economies input availability is a constant concern' Why
difference?
product
14. Distinguish between the resource market and the
,nr.t
"i
in the circular flow model' In what way are busi-
both sellers and buyers in this model?
14/hat are the flows in the circular flow model?
re15. LAST woRD What explains why millions of economic
productively
and
sources tend to get airanged logically
rather than haphazardly and unproductively?
nesses and households
economies, firms rarelyworrJ' about the availability
of inputs to produce their proiucts, whereas in command
Web-Based Questions
1. DIAMoNDS-INTERESTED lN BUYING oNE? Go to the
Internet auction site eBay at wv.'w'ebay'com and select
and Watches and then Loose Diathe category
Jewelry
monds ,-nd'G"*rtorres. How many loose diamonds are
for sale at the moment? Note the wide array of sizes and
prices of the diamonds' In what sense is there competi[ior, ,t torrg the sellers in these markets? How does that
comcompetitio-n influence prices? In what sense is there
influp"tit'ion among bryersi How does that competition
ence prices?
2.
or
BARTER AND THE tRS Bartering occurs when goods
For
services are exchanged without the exchange ofmoney'
some, barter's popularity is that it enables them to
avoid paying tr*i, to the government' How might such
(IRS)'
avoidance oJcur? Does the internet Revenue Service
nontaxable
or
taxable
as
barter
ffeat
www.irs.ustreas.gov/,
income? (T1pe "6arter" in the site's search tool') How is
the value #a barter transaction determined? What are
of
some IRS barter examples? What does the IRS require
the members of so-called barter exchanges?