“c02DecisionMakingInMarkets_PrintPDF” — 2022/5/25 — 13:13 — page 79 — #13
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Weblinks The market economy What is a market economy?
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2.3 Quick quiz
2.3 Exercise
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2.3 Exercise
(2 marks) (5 marks)
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1. Describe the key features of Australia’s contemporary market economy. 2. Classify which of the three basic economic questions each of the following decisions best represents:
To which of the three basic economic questions does this decision mostly relate? Briefly justify.
Decision
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a. How should a hospital produce its health services?
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b. Should a farmer produce wheat or lamb?
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c. How much should a well-known tennis player be paid?
d. Should a mining company produce iron ore or coal? e. Should the government pay a subsidy or cash bonus to Tasmanian companies?
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3. There are not enough resources to produce everything we want, so society has to choose which wants will be satisfied. In Australia, this is generally done using markets and the price system. For instance, when the relative price of a product moves up or down due to changes in demand relative to supply, this signals to producers or owners of resources, how resources should be used or allocated. a. Assume you use resources to produce strawberries and the market price fell relative to that for raspberries. In general terms, explain what this tells you about the type of product consumers want produced. (2 marks) b. If the price of strawberries went up against raspberries, in general terms explain what type of product the market is telling you to produce. (2 marks) c. By responding to these price signals outline the likely effect on allocative efficiency and the satisfaction of people’s wants. (1 mark)
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TOPIC 2 Decision making in markets
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