Eljon Rrodhe

2601912

PS2 answers

1-) Having an economy that is totally controlled by the markets could create severe disadvantages for
the consumers of a society. The markets are controlled by highly skilled and educated individuals who
dedicate their lives to a certain extent to maximize the profits of their firms. As such, if we assume that
those individuals’ only goal is to maximize profits, they would implement strategies that would minimize
the open supply cap for the goal to maximize prices, they could collaborate with each other to make
pricing strategies that would be beneficial for themselves but not for the consumers.

As much as free markets are important for a healthy economy, total freedom would only reward the
most skilled and the most efficient workers who benefit directly to the revenue of firms while putting
disadvantaged and less skilled individuals who don’t have major power and control in a state of total
dependence on the major firms’ upper chairman/shareholders.

2-) Capitalism would attempt to foster individualism, as capitalism’s rewards to the individuals who are
individualists and allocate most of their resources to the goal of creating personal wealth are enormous.

3-)

a) A market failure is when the market’s outcomes aren’t of a positive effect on society.
Ex: A wrong policy of giving out loans by the banks caused a housing crash.
b) Positive externalities are the positive effects on society caused by an agreement between two
parties.
Ex: After an investor funded a healthcare sector company the medical bills decreased
substantially
c) Negative externalities are the negative effects on society caused by an agreement between two
parties.
Ex: Because of the equity liquidation in the EV sector several EV manufacturers have gone
bankrupt thus causing an increase in vehicles that run on fossil fuels, therefore causing an
increase in global warming.
d) Public goods are goods that the use of an individual does not limit the usage by others.
Ex: A park
e) Demerit goods and activities are the goods and activities that the government tries to minimize
the usage of.
Ex: The government’s war on drugs

f) Merit goods and activities are goods and activities that the government tries to increase the
usage of.
Ex: The government trying to incentivize the usage of bikes by creating bike lanes
g) Equilibrium when both the consumers and the suppliers exchange the same quantities of
demand and supply respectively.
Ex: The consumers buy the quantity they demanded, and the suppliers sell everything that they
have produced.
 h) Excess Supply occurs when there is more supply than the quantity demanded.
Ex: The prices for Gucci suits have gone up and Prada trending right now so nobody buys Gucci
anymore, thus Gucci is not able to sell its inventory.
i) Excess demand is when there is more demand than supply thus resulting in a shortage
Ex: A drought caused grain production to decrease thus the suppliers aren’t able to satisfy the
demands of consumers

4-)

The factor market is the place where Firms and Households meet to exchange the factors of
production like property, labor, and so on.

The Product/Goods market is the Firms and Households meet to exchange commodities.

Households and Firms also take part in import and export.

5-)

a) Demand decreased
b) Supply increases
c) Supply decreases
6-)

a)

The demand decreases as the price increases, thus yes, it is in accordance with the law of
demand principle.
b) She will accept the six-month plan for the price of 20₺ a month
c) She will not accept the six-month plan for the price of 70₺ a month.

7-)

a) The market demand:

A- 22
B- 21
C- 20
D- 18
E- 11
F- 4
G- 3
H- 2
b)

c) Demand goes down as price goes up thus yes, the graph is in accordance to the law of demand
principle

8-)f

The demand increases as the price increases thus yes, the graph is in accordance to the principle of
supply law