1. What are the five factors of production? Is one factor more important than the others? If so, which one? Why?

The five factors of production are labor, capital, entrepreneurs, physical resources, and information resources. All five factors are crucial. However, their relative importance depends on the product and the industry. In the software development business, for example, skilled labor and information resources are especially important, but the business couldn’t survive without capital and physical resources (computers), and it wouldn’t have been launched without an entrepreneur. 

2. What are input and output markets? How are they related?

Input market: Market in which resources flow to firms from supplier households. Resources include labor, capital (e.g. some households invest in mutual funds, which in turn purchase stock, which in turn provide capital for companies), entrepreneurs, information (e.g. consumer buying patterns). Output market: Market in which firms supply goods and services in response to demand from households. 

3. What is a demand curve? A supply curve? What is the term for the point at which they intersect?

The curve that describes the range of possible prices that a buyer will pay for a range of possible quantities demanded by a buyer is the demand curve. The curve that describes the range of price that a seller can charge for a range of quantities supplied by the seller is called the supply curve. The point where the demand curve and the supply curve intersect is the point at which the intentions of buyers and sellers coincide. The price at this point is known as the equilibrium price.

4. Explain the differences between the four degrees of competition and give an example of each. (Do not use the examples given in the text.)

· Pure competition: many competitors, easy entry into the industry, identical or commodity goods, no control over price on the part of individual firms. Examples: steel, grain, nails.

· Monopolistic competition: many competitors (but fewer than pure competition), limited barriers to entry, similar goods and services, some control over price on the part of individual firms. Examples: cosmetics, fast food.

· Oligopoly: few competitors, high barriers to entry, similar or different goods and services, some control over price on the part of individual firms. Examples: personal computers, movie studios.

· Monopoly: no competitors, entry controlled by government, no directly competing goods and services, considerable control over price. Examples: mail delivery, national defense.

5. In recent years, many countries have moved from planned economies to market economies. Why do you think this has occurred? Can you envision a situation that would cause a resurgence of planned economies? 

The failure of communism—both politically and economically—has led to an increase in the number of mixed and market economies. Answers will vary as to what would cause a resurgence of planned economies, but the factors might include a failure of capitalism to effectively distribute society’s resources, or an unbearable level of crime and corruption.