4.1.1

• Veblen good


  When a good becomes more popular when price increases
• Giffen good


  When a mon luxury gold demand increases when price does - against law of demand
• derived goods


  Goods that are demanded from the demand of another related good or service
• How does the market allocate resources?

  Based on supply, demand, and price mechanism
• What are the advantages of a free market economy?

  • Efficiency: Best value products are in demand
  • Entrepreneurship: Rewards for good ideas encourage innovation
  • Choice: Increased consumer choice without government restrictions
• What are the disadvantages of a free market economy?

  • Inequalities: Large income differences can be unfair
  • Non-profitable goods may not be produced
  • Monopolies: Market dominance can be abused
• Who decides resource allocation in a command economy?

  The government
• What are the advantages of a command economy?

  • Maximize welfare: Prevent inequality and redistribute income
  • Low unemployment: Government provides jobs and salaries
  • Prevent monopolies: Government controls market dominance
• What are the disadvantages of a command economy?

  • Poor decision-making: Lack of information leads to mistakes
  • Restricted choice: Limited consumer options
  • Lack of risk-taking and efficiency: No profit incentive
• How do governments intervene in market failures?

  By changing laws or offering tax breaks
• What is a mixed economy?

  When both government and markets allocate resources