Question 1

Scarcity limits the volume of goods that an economic system can produce, but does not limit the production of services.

Accepted Answer

A) True 
 B)False

Question 2

Prohibiting price increases in situations of true scarcity could best be described as

Accepted Answer

A)  interfering with the "law" of supply and demand. 
B)  thwarting the "law" of increasing returns to scale. 
C)  violating the "law" of increasing cost. 
D)  interfering with the "law" of diminishing marginal utility. 
A)  interfering with the "law" of supply and demand. 
B)  thwarting the "law" of increasing returns to scale. 
C)  violating the "law" of increasing cost. 
D)  interfering with the "law" of diminishing marginal utility.

Question 3

In an idealized laissez-faire world, the distribution of products is

Accepted Answer

A)  the most efficient. 
B)  the most fair. 
C)  purely random. 
D)  unpredictable. 
A)  the most efficient. 
B)  the most fair. 
C)  purely random. 
D)  unpredictable.

Question 4

The producer's surplus is equal to the difference between how much the seller can charge for a product and how much the consumer is willing to purchase it for.

Accepted Answer

A) True 
 B)False

Question 5

The price mechanism solves the "for whom" problem by assigning high prices to goods in high demand and letting customers choose whether to purchase them.

Accepted Answer

A) True 
 B)False

Question 6

At the equilibrium point in a perfectly competitive industry, the total surplus (the sum of the consumer surplus and producer surplus) will be at its maximum.

Accepted Answer

A) True 
 B)False

Question 7

The price system rations goods among consumers in such a way that

Accepted Answer

A)  all are treated equally. 
B)  all needs are satisfied. 
C)  the rich are favored. 
D)  important needs are satisfied first. 
A)  all are treated equally. 
B)  all needs are satisfied. 
C)  the rich are favored. 
D)  important needs are satisfied first.

Question 8

Under a pure system of laissez faire, the government would not do which of the following?

Accepted Answer

A)  prosecute criminals 
B)  provide national defense 
C)  punish those involved in conspiracies to fix prices 
D)  establish minimum wages 
A)  prosecute criminals 
B)  provide national defense 
C)  punish those involved in conspiracies to fix prices 
D)  establish minimum wages

Question 9

Which type of economic system will produce the highest degree of allocative efficiency?

Accepted Answer

A)  a perfectly competitive market system 
B)  a purely command economic system 
C)  a market system with limited price controls and price ceilings 
D)  a command system with limited market activity for non-essentials 
A)  a perfectly competitive market system 
B)  a purely command economic system 
C)  a market system with limited price controls and price ceilings 
D)  a command system with limited market activity for non-essentials

Question 10

Efficiency in the choice of outputs requires that marginal cost be equal to marginal revenue and nothing else.

Accepted Answer

A) True 
 B)False

Question 11

The production possibilities frontier illustrates

Accepted Answer

A)  the fundamental fact of scarcity. 
B)  the opportunity cost of acquiring more of one good. 
C)  maximum output utilizing all resources efficiently. 
D)  All of the above are correct. 
A)  the fundamental fact of scarcity. 
B)  the opportunity cost of acquiring more of one good. 
C)  maximum output utilizing all resources efficiently. 
D)  All of the above are correct.

Question 12

Prices set too low can actually be against the public interest.

Accepted Answer

A) True 
 B)False

Question 13

Efficient allocation of resources makes everyone better off.

Accepted Answer

A) True 
 B)False

Question 14

Mutually beneficial trade is impossible when different persons have different preferences about goods and services.

Accepted Answer

A) True 
 B)False

Question 15

For economic efficiency, which of the following conditions should be met?

Accepted Answer

A)  Scarcer goods should have lower prices. 
B)  More abundant goods should have lower prices. 
C)  More abundant goods should have higher prices. 
D)  All goods should have equal prices. 
A)  Scarcer goods should have lower prices. 
B)  More abundant goods should have lower prices. 
C)  More abundant goods should have higher prices. 
D)  All goods should have equal prices.

Question 16

The questions of what to produce, how to produce, and for whom are answered by

Accepted Answer

A)  free-market economies. 
B)  economies that are a mixture of planning and markets. 
C)  command economies. 
D)  all economic systems in some manner. 
A)  free-market economies. 
B)  economies that are a mixture of planning and markets. 
C)  command economies. 
D)  all economic systems in some manner.

Question 17

Free market economies have led to

Accepted Answer

A)  high growth rates but low efficiency. 
B)  high efficiency and low growth rates. 
C)  high growth rates and high efficiency. 
D)  low growth rates and low efficiency. 
A)  high growth rates but low efficiency. 
B)  high efficiency and low growth rates. 
C)  high growth rates and high efficiency. 
D)  low growth rates and low efficiency.

Question 18

It is true that the distribution process carried out by the price system

Accepted Answer

A)  accomplishes the task more efficiently than central planners would. 
B)  favors the rich. 
C)  is superior to other rationing mechanisms because it is able to pay attention to individual consumer preferences. 
D)  All of the above are true. 
A)  accomplishes the task more efficiently than central planners would. 
B)  favors the rich. 
C)  is superior to other rationing mechanisms because it is able to pay attention to individual consumer preferences. 
D)  All of the above are true.

Question 19

The coordination task of any economy that answers the question of how output shall be divided among consumers may best be described as

Accepted Answer

A)  output selection. 
B)  production planning. 
C)  distribution. 
D)  None of the above is correct. 
A)  output selection. 
B)  production planning. 
C)  distribution. 
D)  None of the above is correct.

Question 20

Figure 14-3
  
-In Figure 14-3, if person 1 and person 2 have the indicated quantities of cheese and crackers, and are on the indicated indifference curves, is there the possibility of mutually beneficial trade? Explain.

Accepted Answer

Yes.For person 1, the marginal utility o

Exam 14: The Case for Free Markets I: The Price System

Scarcity limits the volume of goods that an economic system can produce, but does not limit the production of services.

Prohibiting price increases in situations of true scarcity could best be described as

In an idealized laissez-faire world, the distribution of products is

The producer's surplus is equal to the difference between how much the seller can charge for a product and how much the consumer is willing to purchase it for.

The price mechanism solves the "for whom" problem by assigning high prices to goods in high demand and letting customers choose whether to purchase them.

At the equilibrium point in a perfectly competitive industry, the total surplus (the sum of the consumer surplus and producer surplus) will be at its maximum.

The price system rations goods among consumers in such a way that

Under a pure system of laissez faire, the government would not do which of the following?

Which type of economic system will produce the highest degree of allocative efficiency?

Efficiency in the choice of outputs requires that marginal cost be equal to marginal revenue and nothing else.

The production possibilities frontier illustrates

Prices set too low can actually be against the public interest.

Efficient allocation of resources makes everyone better off.

Mutually beneficial trade is impossible when different persons have different preferences about goods and services.

For economic efficiency, which of the following conditions should be met?

The questions of what to produce, how to produce, and for whom are answered by

Free market economies have led to

It is true that the distribution process carried out by the price system

The coordination task of any economy that answers the question of how output shall be divided among consumers may best be described as

Figure 14-3 -In Figure 14-3, if person 1 and person 2 have the indicated quantities of cheese and crackers, and are on the indicated indifference curves, is there the possibility of mutually beneficial trade? Explain.

What Is Economics?

The Economy: Myth and Reality

The Fundamental Economic Problem: Scarcity and Choice

Supply and Demand: An Initial Look

Consumer Choice: Individual and Market Demand

Demand and Elasticity

Production, Inputs, and Cost: Building Blocks for Supply Analysis

Output, Price, and Profit: The Importance of Marginal Analysis

Securities: Business Finance, and the Economy: The Tail that Wags the Dog?

The Firm and the Industry under Perfect Competition

Monopoly

Between Competition and Monopoly

Limiting Market Power: Regulation and Antitrust

The Shortcomings of Free Markets

The Market's Prime Achievement: Innovation and Growth

Externalities, the Environment, and Natural Resources

Taxation and Resource Allocation

Pricing the Factors of Production

Labor and Entrepreneurship: The Human Inputs

Poverty, Inequality, and Discrimination

An Introduction to Macroeconomics

The Goals of Macroeconomic Policy

Economic Growth: Theory and Policy

Aggregate Demand and the Powerful Consumer

Demand-Side Equilibrium: Unemployment or Inflation?

Bringing in the Supply Side: Unemployment and Inflation?

Managing Aggregate Demand: Fiscal Policy

Money and the Banking System

Monetary Policy: Conventional and Unconventional

The Financial Crisis and the Great Recession

The Debate over Monetary and Fiscal Policy

Budget Deficits in the Short and Long Run

The Trade-Off between Inflation and Unemployment

International Trade and Comparative Advantage

The International Monetary System: Order or Disorder?

Exchange Rates and the Macroeconomy

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