1. What does the term economizing problem mean for an individual and for society? As part of your answer, include the four economic resources and the opportunity cost in your answer. Also define by example (one sentence each) the following: "other things equal" assumption, productive and allocative efficiences and consumer sovereignty.
2. Explain how the market system provides a strong incentive for technological advance and creative destruction. Within your answer, provide 3 virtues of the market system. How does the circular flow model fit into this discussion. Please be specific and use examples.
The market system provides strong incentives for technological advance and creative destruction because of the importance of the profit motive in that system. Firms try their hardest to make the things that people want. This promotes technological advance and creative destruction. Let us look at how this works with reference to the three main virtues of market systems.
Efficiency. Market systems direct resources to the goods and services that people want to buy. This promotes technological advance because it allocates resources to those firms that are making new technologies that people want. It promotes creative destruction because it can replace firms with new firms that are better at giving people what they want.
Incentives. Market systems give people and firms the incentive to make new technologies because those technologies can allow the people and firms to make profit. The market also encourages creative destruction because it encourages innovations which lead to profit.
Freedom. Market systems allow for technological advance and creative destruction because they give people the freedom to do what they want with their property. This allows people to use their property to make new kinds of technology and new firms.