Deck 3: Economic Institutions

Question 1

The three primary forms of business are sole proprietorships,partnerships,and corporations.You are contemplating starting a business.For each of the following proposals,explain which of the three types of businesses would be most appropriate.In each case describe the advantages and disadvantages of your choice.
(a)You are a music lover and are disgusted with the selection of compact discs available at the stores near your college.So,you decide to open up a store selling new and used compact discs.
(b)After a late night cram session,you and your roommate are in need of some pizza,but no restaurants are open.You decide to open an all night pizza parlor.
(c)You have an idea that will make you a billionaire before you graduate from college: a pizza delivery service - from any restaurant to any dorm.In order to make your revenue goal a reality,a local venture capital firm has informed you that you will need to nationally franchise your operation.

Answer 1

(a)The clear choice here would be to open up a sole proprietorship.It's quick and you get to be your own boss.However,it may be hard to get funding to stock your store,and if the store goes bankrupt,you face unlimited liability.(b)Since you and your roommate intend to split both the pizza cooking duties and the profits,you likely will want to form a partnership.Of course,there are some risks: you might have a hard time getting funding,and you could really get sick of your roommate.And you are both fully responsible for paying the debts of the partnership.(c)In order to create a nationally franchised delivery service,you will probably decide to form a corporation.This increases your ability to get funds and limits your personal liability.However,it means that you will likely need to hire an accountant and worry about whether all your franchisees are doing a good job so as to maintain the good reputation of your company.And your corporation will be subject to corporate income taxes.(LO4)

Question 2

What is the central tool of coordination in a market economy?

Answer 2

The central tool of coordination in a market economy is the market (i.e.,price adjustments).

Question 3

Define consumer sovereignty.How does consumer sovereignty help determine what businesses produce? How do businesses influence consumer sovereignty?

Answer 3

Consumer sovereignty means that the wishes of consumers ultimately determine what will be produced.Unless someone wants to buy the good or service that a business is producing,the business will not be able to stay open for very long.In this sense consumers and their desires or needs determine what businesses will produce.However businesses try to influence consumers by creating needs or desires via advertising.(LO5)

Question 4

How does theoretical socialism differ from theoretical capitalism? How does it differ from socialism as it was practiced? Why are these terms no longer useful in describing today's economic systems?

Question 5

Define feudalism and mercantilism,and describe the differences and similarities between them.

Question 6

How does socialism as it was practiced differ from socialism in theory?

Question 7

How do global economic issues differ from national policy issues? How has the international economic community dealt with this difference?

Question 8

What are the six major roles that the government plays in the economy? Give an example of each.

Question 9

Briefly explain the difference between socialism and capitalism.

Question 10

How does the factor market differ from the goods market?

Question 11

List the advantages and disadvantages of the three primary forms of business in the United States.

Question 12

Explain why the terms market,capitalist,or socialist economies are no longer appropriate to differentiate between today's economic systems.

Question 13

Briefly explain how the U.S.economic system has evolved from the early 1900s to today.

Question 14

The U.S.economy may be thought of as consisting of three large groups.What are they? How does each group interact with the others? How does the factor market differ from the goods market? What major aspect of a modern market economy is omitted from this picture?

Question 15

What role did the Industrial Revolution play in the transformation from mercantilism to capitalism?

Question 16

What is a market economy and why is it essential that government play a role in such an economy?

Question 17

If a market economy is to succeed by relying on private property rights and market forces,there is an essential role for government to play in the economic system.What is it? and explain why it is essential.

Question 18

Define a market economy

Question 19

Briefly explain why socialist economic systems thwarted market forces.

Question 20

Which economic system depends primarily on tradition to answer the "What to produce?" question? Which economic system depends on government planners to make that decision? Which economic system depends on the market to make that decision?

Question 21

What is e-commerce? List the different classifications of e-commerce,and give an example of each.

Question 22

What is a "nudge"?

Question 23

Suppose you were placed in charge of a state-run economy.What type of information would you want and how would you use it in deciding what goods to produce,how much of them to produce,and what prices to charge for them?

Question 24

What the default option bias? Why is it important to governments and businesses?

Question 25

Explain the impact of e-commerce on the economy.

Question 26

List four ways in which the decisions of households are important to the economy.

Question 27

There are three primary forms of businesses in the United States.List them and provide an example of each form.