ScholarMatic: Explanation & Answer
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Which of the following statements is (are) correct?(x)Prices direct economic activity in a market economy by
influencing the actions of buyers and sellers.(y)In a market economy, prices reflect the both the value of a good to society and the cost to society of producing the good.(z)In a market economy decisions are guided by individual self-interest. Hence, there is a strong need for government intervention in the market because individuals that act out of self-interest will make market economies less efficient than command economies.
A.(x), (y) and (z)
B.(x) and (y) only
C.(x) and (z) only
D.(y) and (z) only
E.(x) only
Which of the following statements is (are) correct?(x)An externality is the uncompensated impact ofone person’s actions on the well-being of a bystander.(y)An example of an externality that causes market failureis the case of a copper refinery that does not bear the entire cost of the smoke it emits.(z)If an externality, such as air or water pollution, is present in a market, economic efficiency may beenhanced by government intervention that reduces the presence of the pollution.
A.(x), (y) and (z)
B.(x) and (y) only
C.(x) and (z) only
D.(y) and (z) only
E.(z) only
ScholarMatic: Explanation & Answer
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