Fill in the blanks below. [Materials in 0,1 are from Mini lecture 25.} Trade: By allowing individuals to consummate all mutually-benecial trades, the free market system maximizes the surplus of Corn and Pro in the market transactions. The Theory: Under the conditions of no market failures, the free market system also ma simizes the surplus of Sec . The Imr Hand Theory is at work in this case. Limitations of the Theory: By design. the free market system cannot address the issue of I inequality. which has negative implications on freedom and democracy. Thus, even with no market failures. the free market system delivers only one benefit, Eff while ignoring or accentuatlng Income inequality. The Assumptions: The Invisible Hand Theory requires the absence of market failures. Among other things, the theory requires Perfect C Perfect I and You Only Get What You Pay For. The Reality: Instead of having perfect competition, however, the reality is characterized by P Centers. Instead of having perfect information. the reality is characterized by Im Information and Asy Information. Finally, instead of 'you only get what you pay for,' the reality is full of problems related to End: and Pub Goods. The Fight: Conservatives claim that market failures are the exception, rather than the rule. On the other hand, I s offer a long list, claiming that unregulated markets give us not only In but also In (12-1: 9'!\" !" P-PP'F' Common Values: In their ght, both conservatives and liberals invoke the same N ideas of freedom, equality and efciency, but argue about them differently. {N statements are about what it should be, while P statements have to do with what it Is.] The Choice: To choose between the two camps requires normative judgements, involving your viewpoints on what is right, what ls fair and what is important. No economist can tell you what is right, fair and important. The choice is Y Regarding the circular ow model, which of the following statements is true? Labor markets provide for the transfer of money. while product markets provide for the transfer of inputs. Resource markets provide for the exchange of labor, while product markets provide for the exchange of goods and services. Goods markets provide for the transfer of money, while labor markets the transfer of Input. Resource markets provide for the exchange of goods and services. while product markets provide for the exchange of labor. Answer: Regarding the circular flow model, which ofthe following statements is true? Businesses sell goods and buy labor, while households buy goods and sell labor. Businesses buy goods and buy labor, while households sell goods and sell labor. Businesses buy goods and sell labor, while households sell goods and buy labor. Businesses sell goods and sell labor, while households buy goods and buy labor. Answer: The two flows in the circular flow model are the flow of labor, and the ow of money the flow of goods/services, and the ow of labor the flow of goodslservioes and resources, and the flow of money the flow of goodslservioes, and the ow of output Answer: (12-4: F"? i" 02-8: The three major legal forms of business enterprises are sole proprietorship, partnership, and corporation conglomerate, multinational corporation, and partnership private rm, non-profit firm, and tax exempt rm private firm, public firm, and corporation Answer: Which of the business forms below is the most prevalent in terms of embers? Partnerships Sole proprietorships Corporations Answer: Which of the business forms below is the most dominant in terms of total sales revenues? Partnerships Sole proprietorships Corporations Answer: In a market system scarce goods are allocated through the operation of . estimated prices that are determined by consumers and producers acting in their own self- interest market prices that are determined by consumers and producers acting in their own self-interest market prices that are determined by consumers and producers acting in the no blic's interest . fixed prices that are determined by consumers and producers acting in the public interest Answer: Self-Interest helps achieve society's economic goals because . consumers and producers both operate based on society's economic goals as consumers and producers exercise theirfreedom to act in their own self-interest, markets will produce the desired goods atthe lowest possible cost producers know which goods consumers want the most consumers know which goods can be produced at the lowest cost