Question 1

Centrally planned economies do not use the price system for anything.

Accepted Answer

A) True 
 B)False

Question 2

"Peak pricing" involves setting lower prices at peak times so that people can afford a good or service.

Accepted Answer

A) True 
 B)False

Question 3

Prices influence the distribution of income by making the distribution fairer.

Accepted Answer

A) True 
 B)False

Question 4

Under laissez faire, the allocation of scarce resources among the different industries

Accepted Answer

A)  is possible only with government tax and subsidy policies. 
B)  is accomplished by the price system. 
C)  requires a considerable amount of central planning. 
D)  is the result of consumer planning. 
A)  is possible only with government tax and subsidy policies. 
B)  is accomplished by the price system. 
C)  requires a considerable amount of central planning. 
D)  is the result of consumer planning.

Question 5

If the poor cannot afford proper medical treatment, an economist, for reasons of efficiency, would favor

Accepted Answer

A)  giving the poor added income to spend as they see fit. 
B)  paying doctors bonuses to treat the poor. 
C)  paying the medical bills of the poor. 
D)  giving the poor "medical stamps." 
A)  giving the poor added income to spend as they see fit. 
B)  paying doctors bonuses to treat the poor. 
C)  paying the medical bills of the poor. 
D)  giving the poor "medical stamps."

Question 6

The introduction of a tax in a perfectly competitive marketplace that is originally in equilibrium will lower total surplus.

Accepted Answer

A) True 
 B)False

Question 7

The invisible hand enforces the tendency toward

Accepted Answer

A)  MR = MU. 
B)  MC = P = MU. 
C)  MC = MPP = P. 
D)  MRP = MPP = P. 
A)  MR = MU. 
B)  MC = P = MU. 
C)  MC = MPP = P. 
D)  MRP = MPP = P.

Question 8

"Peak pricing" can often improve economic efficiency.

Accepted Answer

A) True 
 B)False

Question 9

When the invisible hand is at work,

Accepted Answer

A)  the price system will sometimes give incorrect cost signals to consumers. 
B)  the price system will allocate resources based only on consumer need. 
C)  all prices will be set equal to marginal costs. 
D)  there will be some shortages and surpluses that cannot be avoided. 
A)  the price system will sometimes give incorrect cost signals to consumers. 
B)  the price system will allocate resources based only on consumer need. 
C)  all prices will be set equal to marginal costs. 
D)  there will be some shortages and surpluses that cannot be avoided.

Question 10

Assuming one can derive a correct input-output table, are there still any reasons to prefer the market to central planning?

Accepted Answer

The market reflects consumer choice.The

Question 11

What is the rule for efficient output selection and how does the competitive market achieve it?

Accepted Answer

The rule is MC = MU.In competition, MC =

Question 12

An efficient distribution of goods requires that

Accepted Answer

A)  everyone gets an equal share of each good. 
B)  marginal cost equal marginal utility for the last unit produced. 
C)  each person derives the same total utility from the good. 
D)  since tastes differ, every person pays a different price in accordance with different marginal utilities. 
A)  everyone gets an equal share of each good. 
B)  marginal cost equal marginal utility for the last unit produced. 
C)  each person derives the same total utility from the good. 
D)  since tastes differ, every person pays a different price in accordance with different marginal utilities.

Question 13

In a free market, economic activity is coordinated by

Accepted Answer

A)  central planners. 
B)  prices. 
C)  costs. 
D)  majority rule. 
A)  central planners. 
B)  prices. 
C)  costs. 
D)  majority rule.

Question 14

The rule for efficient output selection is stated as MC = MU.Explain how the rule results in economic efficiency.

Accepted Answer

Efficiency in output selection requires

Question 15

Figure 14-2
  
-As we move down the production possibilities schedule in Figure 14-2, each successive point is

Accepted Answer

A)  less efficient. 
B)  more efficient. 
C)  equally efficient. 
D)  more or less efficient; we cannot tell which. 
A)  less efficient. 
B)  more efficient. 
C)  equally efficient. 
D)  more or less efficient; we cannot tell which.

Question 16

Economics can decide

Accepted Answer

A)  the appropriate trade-off between fairness and efficiency. 
B)  which pricing arrangements are fair and which are unfair. 
C)  whether a pricing decision will impose heavy inefficiency costs on society. 
D)  All of the above are correct. 
A)  the appropriate trade-off between fairness and efficiency. 
B)  which pricing arrangements are fair and which are unfair. 
C)  whether a pricing decision will impose heavy inefficiency costs on society. 
D)  All of the above are correct.

Question 17

Under laissez faire, output selection is determined by

Accepted Answer

A)  consumer preferences. 
B)  production costs. 
C)  firms' desires to make profits. 
D)  All of the above are correct. 
A)  consumer preferences. 
B)  production costs. 
C)  firms' desires to make profits. 
D)  All of the above are correct.

Question 18

Which of the following statements concerning efficiency is correct?

Accepted Answer

A)  If a toll road is heavily used so that traffic movement is slowed, the price per vehicle should be reduced since the road is generating more revenue. 
B)  Economists advocate high prices for abundant resources and low prices for scarce resources. 
C)  If a toll road is heavily used and traffic movement is difficult, the price per vehicle should be increased to shift some traffic to less-crowded roads. 
D)  None of the above is desirable in promoting efficient use of scarce road space. 
A)  If a toll road is heavily used so that traffic movement is slowed, the price per vehicle should be reduced since the road is generating more revenue. 
B)  Economists advocate high prices for abundant resources and low prices for scarce resources. 
C)  If a toll road is heavily used and traffic movement is difficult, the price per vehicle should be increased to shift some traffic to less-crowded roads. 
D)  None of the above is desirable in promoting efficient use of scarce road space.

Question 19

The selection of particular products' production processes

Accepted Answer

A)  determines the output of other products made with those inputs at the same time. 
B)  is part of the distribution problem in an economy. 
C)  is accomplished without regard to profit in a laissez-faire economy. 
D)  depends upon plans for distribution of the products. 
A)  determines the output of other products made with those inputs at the same time. 
B)  is part of the distribution problem in an economy. 
C)  is accomplished without regard to profit in a laissez-faire economy. 
D)  depends upon plans for distribution of the products.

Question 20

Inefficient allocation of resources occurs when

Accepted Answer

A)  no one can be made better off without having someone else give up something. 
B)  it is possible to make some people better off without making others worse off. 
C)  society is operating at a point high on the production possibilities frontier. 
D)  society is operating at a point low on the production possibilities frontier. 
A)  no one can be made better off without having someone else give up something. 
B)  it is possible to make some people better off without making others worse off. 
C)  society is operating at a point high on the production possibilities frontier. 
D)  society is operating at a point low on the production possibilities frontier.

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

Centrally planned economies do not use the price system for anything.

"Peak pricing" involves setting lower prices at peak times so that people can afford a good or service.

Prices influence the distribution of income by making the distribution fairer.

Under laissez faire, the allocation of scarce resources among the different industries

If the poor cannot afford proper medical treatment, an economist, for reasons of efficiency, would favor

The introduction of a tax in a perfectly competitive marketplace that is originally in equilibrium will lower total surplus.

The invisible hand enforces the tendency toward

"Peak pricing" can often improve economic efficiency.

When the invisible hand is at work,

Assuming one can derive a correct input-output table, are there still any reasons to prefer the market to central planning?

What is the rule for efficient output selection and how does the competitive market achieve it?

An efficient distribution of goods requires that

In a free market, economic activity is coordinated by

The rule for efficient output selection is stated as MC = MU.Explain how the rule results in economic efficiency.

Figure 14-2 -As we move down the production possibilities schedule in Figure 14-2, each successive point is

Economics can decide

Under laissez faire, output selection is determined by

Which of the following statements concerning efficiency is correct?

The selection of particular products' production processes

Inefficient allocation of resources occurs when

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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