DeVry University, Chicago

ECON ECON312

chapter 4

1)Why is the right of private property an essential characteristic of a market system?

2. What role does freedom play in capitalism? How important is it to the operation of a competitive market economy?

3.  Explain the importance of self-interest in the operation of a market system.

4.  What is the importance of competition in relation to self-interest in a market system?

5. What are the economic advantages of specialization?

6. Suppose Tom, Dick, and Harry live in a barter economy. Tom produces wine, Dick bakes bread, and Harry makes cheese. Tom wants some bread to go with his wine and is willing to trade 1 gallon of wine for two loaves of bread. Dick wants some cheese to go with his bread and is willing to trade one loaf of bread for one-half pound of cheese. Harry doesn’t want bread, but wants some wine to go with his cheese and is willing to trade cheese for one gallon of wine. It is not possible for all three of them to meet together at one time.

7. Distinguish between normal and economic profits.

8. Assume that a firm can produce product A, product B, or product C with the resources it currently employs. These resources cost the firm a total of $100 per week. Assume, for the purposes of this problem, that the firm’s costs cannot be changed. The market prices and the quantities of A, B, and C these resources can produce are given as follows.

Product Market price            Output                           Profit A    $14.00                                                            10                                 $        B    9.0011                    

C    .50 300                                       

1. 1. Compute the firm’s profit when it produces A, B, or C and enter these data in the table.
   2. Which product will the firm produce?
   3. If the price of A rose to $16, which product will the firm produce?
   4. If the firm produces A at a price of $16, what would tend to happen to the number of firms producing product A?