Definition of an Economic System

Identifying an Economic Institution in Practice

In a small town, it is a widely held expectation that shop owners should buy their supplies from other local businesses whenever possible, even if it costs slightly more. This practice is not legally required, but businesses that source from outside the community often face social disapproval. Which of the following best describes this community expectation?

The 'rules of the game' that structure economic interactions in a society are exclusively defined by its government-enforced legal system.

An economic institution can be a formal law or an informal social custom that structures economic activity. Which of the following is the best example of an informal economic institution?

Analyze the following examples of 'rules of the game' in an economy and match each one to the correct category of economic institution.

Analyzing an Informal Economic Institution

Analyzing Institutional Interactions in a Modern Market

A society has a long-standing tradition of a 'gift economy' within extended families, where goods and services are exchanged without explicit agreement for immediate or future rewards. How does this tradition function as an economic institution?

A small community relies on a shared, public forest for firewood. In recent years, the rate of tree cutting has exceeded the forest's natural regrowth, threatening its long-term availability. The community leaders are considering different 'rules of the game' to address this problem. Which of the following institutional arrangements would likely be the most effective at ensuring the forest's sustainability while still meeting the community's needs?

A city is experiencing severe traffic congestion during peak commuting hours, leading to lost productivity and increased pollution. City planners are considering several approaches to mitigate this problem. Which of the following proposals represents a change in the economic institutions governing road use to alter commuter behavior?