One of the great lessons of economics is that:
A) higher prices lead to less demand and increased innovation by firms.
B) monopolies may increase efficiency if properly constructed by the government.
C) good institutions channel self-interest toward social prosperity, whereas poor institutions channel self-interest toward social destruction.
D) corruption may increase efficiency if it leads to increased innovation.

Question

Quizplus · Accepted Answer

This statement summarizes the key insight of institutional economics, which emphasizes the importance of institutions (such as laws, regulations, and social norms) in shaping economic behavior and outcomes. Good institutions can align self-interest with the common good, while poor institutions can create perverse incentives and lead to social harm. The other choices are incorrect: A is a simplified version of the law of demand but doesn't capture the complexity of how firms respond to higher prices; B is incorrect as monopolies typically reduce efficiency due to their market power; and D is incorrect as corruption generally reduces economic efficiency by distorting incentives and undermining trust in institutions.

One of the Great Lessons of Economics Is That