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1. What are the basics for the production and consumption of goods and services?

The protection and consumption of goods and services takes place on the basics of voluntary exchange and not on the basis of command.

2. What good does Friedman use as an example of voluntary exchange?

Friedman uses the story of the lead pencil to illustrate the functioning of voluntary exchange.

3. What is the concept of the invisible hand?

The concept of the invisible hand, formulated by Adam Smith, says that each member of society acts in his own best interests and in doing so, results in everybody being made better off.

4. What are the three functions of prices?

Prices have three functions. They serve to transmit information, they provide incentives to act, and they determine the distribution of output.

5. What happens if there in interference with prices?

Government interference with prices results in the wrong signals being sent. The result is a misallocation of resources with either overproduction or underproduction of the good or service.

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