Discussion Questions (1, 3, 9) 1. Contrast how a market system and a command economy try to cope with economic scarcity.
A market system allows for the private ownership of resources and coordinates economic activity through market prices. It act in their own self-interest and seek to satisfaction or profit through their own decisions regarding consumption or production. The result is competition and widely dispersed economic power.
The command economy is characterized by public ownership of nearly all property resources and economic decisions are made through central planning. The planning board, appointed by the government determines production goals for each enterprise. The division of output between capital and consumer goods is centrally decided based on the board’s long-term priorities 3. Why is private property, and the protection of property rights, so critical to the success in the market system? How do property rights encourage cooperation?
Answer: Protection of private property is the source of capitalism. Without it, there would be no clear owners/sellers no defined buyers and without both, the market system does not exist.
It encourages because voluntary exchange only occurs when both parties expect to gain from the transaction. The buyer and seller cannot simply take what they want. They have to work together.
9. In a sentence, describe the meaning of the phrase “invisible hand.” Answer: Market prices act as an “invisible hand,” coordinating an economy by rationing what is scarce and providing incentives to produce the most desired goods and services.

Review (1, 2, 3) 1. Decide whether each of the following descriptions most closely corresponds to being part of the command system, a market system or laisse-faire system. A. Command System: A woman who wants to start a flower shop finds she cannot