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Naked Economics Chapter 2 Summary

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CHAPTER 2 READING OUTLINE

1. Highlight the main features of:
1.1. a command economy: The command economy is known a socialism or communism, where the government is who control and ownership all the resources. In this class of economy all the decision is made by a central planning board who means they decide what is produce and how much is charge for what is produce.
1.2. a market economy: The market economy system is a mix of decentralized decision with some government control. With the market economy system, the resources are own for each individual and institutions who direct and coordinate each activity, they are who make each decision in how to administer the resources.
2. State the Five Fundamental Questions faced by any economic system …show more content…

How will the systems accommodate change?
E. How will the systems promote progress?
3. Describe how prices drive the movement of resources in a market system. Participants act in their own self-interest and seek to maximize satisfaction or profit through their own decisions regarding consumption or production. Goods and services are produced and resources are supplied by whoever is willing to do so. The result is competition and widely dispersed economic power.
4. Explain the role of self-interest and the “invisible hand” in promoting economic efficiency. Market prices act as an "invisible hand" coordinating an economy by rationing what are scarce and providing incentives to produce the most desired goods and services.
5. Explain the benefits of specialization and trade. Specialization saves time involved in shifting from one task to another. Geographic specialization takes advantage of localized resources. Specialization will result in a surplus of a specific good being produced.
6. Explain the functions of money in an economy. Money is not a resource because cannot produce and resources they need to be productive. But also money make trades easier and is a great, medium of exchange also without money people would have to

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