Microecon C1 Q2

Incentives matter because

people respond to incentives

incentives

rewards, punishments, marginal benefits, costs

trade can make everyone better off because of

voluntary exchange and both sides win

markets are usually a good way to organize economic activity because we need a

mechanism to decide who gets what

centralized planner(command economy)

government decides what and how much is produced

decentralized planner (market economy)

resources are allocated through individuals and firms as they interact in markets

economists like decentralized planner because

its effeciency and that markets create the right incentives(prices)

effeciency

getting the most benefit from scarce resources

why is the government still important in an economy?

sometimes improves market outcomes

first thing that the government can do to improve market outcomes

create and protect property rights

second thing that the government can do to improve market outcomes

fix market failures

A country’s standard of living is closely tied to its

productivity