Reading/Study Guide - Chapter 2 - The Market System and the Circular Flow

Answer the following:

List the main characteristics of a market economy and a command economy:

Explain why the United States is a mixed economy:

Money (using a medium of exchange) vs. barter: Which is more efficient? Why?

Explain the concept of consumer sovereignty and “dollar votes”:

Explain the role of self-interest and “invisible hand” in promoting economic efficiency in a market system:

Why do command systems have coordination and incentive problems?

Draw a well labeled circular flow diagram: