GOVT 350 Ferdon Test 2 Questions
and Answers 2026 Updated.
What represents the dynamics of the free market system? - Answer Energy and vitality
represents the dynamics of competition in a free market. A free market also requires voluntary
exchange, through which millions cooperate
What represents the economic motivation of the free market system? - Answer The Nature
of the Profit Motive: Incentive to Produce
Competition is in contrast and conflict with what other approach to the creation of goods and
services in the market? - Answer Coercive Interference
Be able to discuss two characteristics of competition in a free market - Answer (1) buyers
and sellers acting independently APART FROM COERCION
(2) the object of the a producer is to provide more and better goods and services to
CONSUMERS
(3) the only PEACEFUL MEANS of allocating scarce resources
(4) always COMMUNICATES; make me a better offer before I buy/work/sell to you
Be able to explain one reason why competition in a free market exists. - Answer (1)
consequence of economic scarcity
(2) occurs in the absence of central economic planning
What is the relationship between competition and scarcity? - Answer Competition happens
because of scarcity. Increases occur on the demand side when the demand is low -> More
producers are drawn into the market to supply the demand -> scarcity is overcome when supply
meets demand
How does the free market inspire the wise use of SCARCE RESOURCES and therefore, promote
stewardship? - Answer Because of scarcity, it results in a more efficient use of capital and
labor (stewardship)
What sort of mechanism of exchange does the free market require? - Answer A free market
requires voluntary exchange
How is the free-market system (invisible hand) a tremendous obstacle to complete state control
(iron fist)? - Answer Complete state control diminishes market freedom because the gov
controls the means of production and nationalizes industry (complete state control destroys
private property)
, What is 'profit,' and its relationship to the market system? In other words, what is its
relationship to the factors of production and demand? This question also requires you explain
why producers are inspired and motivated to enter the market. - Answer Producers are
inspired and motived to enter into the market to make a profit. Profit guides the factors of
production in accordance with demand
What is the general role of prices in a free market system? - Answer if an exchange between
two parties is voluntary, it will not take place unless both believe they will benefit from it
How does voluntary exchange facilitate cooperation in the market? - Answer Cooperation is
highly relational, voluntary and spontaneous, while command is coercive and controlled
How does the price system overcome scarcity? - Answer The price system operates as a
signaling system to producers and consumers to distribute and exchange scarce resources for
the most efficient uses
How do prices reflect supply and demand? - Answer Prices are information signals
transmitted through voluntary market interactions, which communicate to suppliers to either
increase production to meet consumer demand, or to decrease production given excess supply
How does government intrusion distort market information? - Answer When government
intervenes, information is distorted, and both consumers and producers are incentivized to
redirect their economic activity in contrary ways.
What are the ways government distorts market information? - Answer Information
disruptions are induced by TAXES and SUBSIDIES, as well as various forms of PRICE CONTROLS
which include wage caps
What are the three functions of the price system in a free market economy? - Answer (1)
transmit information
(2) incentive
(3) distribution of income
How do Prices transmit information? - Answer Prices tell producers what to produce; supply
and demand for goods, services, and labor
How do Prices incentivise? - Answer Prices encourage the adoption of cost efficient methods
and productive uses of resources
and Answers 2026 Updated.
What represents the dynamics of the free market system? - Answer Energy and vitality
represents the dynamics of competition in a free market. A free market also requires voluntary
exchange, through which millions cooperate
What represents the economic motivation of the free market system? - Answer The Nature
of the Profit Motive: Incentive to Produce
Competition is in contrast and conflict with what other approach to the creation of goods and
services in the market? - Answer Coercive Interference
Be able to discuss two characteristics of competition in a free market - Answer (1) buyers
and sellers acting independently APART FROM COERCION
(2) the object of the a producer is to provide more and better goods and services to
CONSUMERS
(3) the only PEACEFUL MEANS of allocating scarce resources
(4) always COMMUNICATES; make me a better offer before I buy/work/sell to you
Be able to explain one reason why competition in a free market exists. - Answer (1)
consequence of economic scarcity
(2) occurs in the absence of central economic planning
What is the relationship between competition and scarcity? - Answer Competition happens
because of scarcity. Increases occur on the demand side when the demand is low -> More
producers are drawn into the market to supply the demand -> scarcity is overcome when supply
meets demand
How does the free market inspire the wise use of SCARCE RESOURCES and therefore, promote
stewardship? - Answer Because of scarcity, it results in a more efficient use of capital and
labor (stewardship)
What sort of mechanism of exchange does the free market require? - Answer A free market
requires voluntary exchange
How is the free-market system (invisible hand) a tremendous obstacle to complete state control
(iron fist)? - Answer Complete state control diminishes market freedom because the gov
controls the means of production and nationalizes industry (complete state control destroys
private property)
, What is 'profit,' and its relationship to the market system? In other words, what is its
relationship to the factors of production and demand? This question also requires you explain
why producers are inspired and motivated to enter the market. - Answer Producers are
inspired and motived to enter into the market to make a profit. Profit guides the factors of
production in accordance with demand
What is the general role of prices in a free market system? - Answer if an exchange between
two parties is voluntary, it will not take place unless both believe they will benefit from it
How does voluntary exchange facilitate cooperation in the market? - Answer Cooperation is
highly relational, voluntary and spontaneous, while command is coercive and controlled
How does the price system overcome scarcity? - Answer The price system operates as a
signaling system to producers and consumers to distribute and exchange scarce resources for
the most efficient uses
How do prices reflect supply and demand? - Answer Prices are information signals
transmitted through voluntary market interactions, which communicate to suppliers to either
increase production to meet consumer demand, or to decrease production given excess supply
How does government intrusion distort market information? - Answer When government
intervenes, information is distorted, and both consumers and producers are incentivized to
redirect their economic activity in contrary ways.
What are the ways government distorts market information? - Answer Information
disruptions are induced by TAXES and SUBSIDIES, as well as various forms of PRICE CONTROLS
which include wage caps
What are the three functions of the price system in a free market economy? - Answer (1)
transmit information
(2) incentive
(3) distribution of income
How do Prices transmit information? - Answer Prices tell producers what to produce; supply
and demand for goods, services, and labor
How do Prices incentivise? - Answer Prices encourage the adoption of cost efficient methods
and productive uses of resources
