Question 1

Any increase in efficiency increases only profits of producers, with no increase in output.

Accepted Answer

A) True 
 B)False

Question 2

If the MU of half gallon of milk is $3.50 and the MU of gallon of milk is $3.25, and they both sell for the same price, we would expect consumers to

Accepted Answer

A)  increase their purchases of gallons of milk. 
B)  increase their purchases of half gallons of milk. 
C)  not change their purchasing habits. 
D)  buy only gallons of milk. 
A)  increase their purchases of gallons of milk. 
B)  increase their purchases of half gallons of milk. 
C)  not change their purchasing habits. 
D)  buy only gallons of milk.

Question 3

What is the order in which an economy tries to solve the issue of resource allocation?

Accepted Answer

A)  Production planning, distribution, and output selection. 
B)  Output selection, production planning, and distribution. 
C)  Production planning, output selection, and distribution. 
D)  Distribution, production planning, and output selection. 
A)  Production planning, distribution, and output selection. 
B)  Output selection, production planning, and distribution. 
C)  Production planning, output selection, and distribution. 
D)  Distribution, production planning, and output selection.

Question 4

How does the task of production planning happen in a laissez-faire economy?

Accepted Answer

Under laissez-faire it is the price syst

Question 5

Government-imposed limits on price movements are likely to

Accepted Answer

A)  increase economic efficiency. 
B)  decrease economic efficiency. 
C)  leave economic efficiency unchanged. 
D)  promote economic growth in the economy. 
A)  increase economic efficiency. 
B)  decrease economic efficiency. 
C)  leave economic efficiency unchanged. 
D)  promote economic growth in the economy.

Question 6

Laissez faire is a policy that espouses central planning.

Accepted Answer

A) True 
 B)False

Question 7

Points below the production possibilities frontier are inefficient because it is possible to make someone better off without making anyone else worse off.

Accepted Answer

A) True 
 B)False

Question 8

High prices do not occur in laissez-faire markets.

Accepted Answer

A) True 
 B)False

Question 9

Uncoordinated decisions in perfect competition lead to mass confusion and inefficiency.

Accepted Answer

A) True 
 B)False

Question 10

When a shortage occurs in the market for a good, quantity

Accepted Answer

A)  demanded exceeds quantity supplied and the market mechanism pushes the price up, which in turn encourages more production and less consumption. 
B)  supplied exceeds quantity demanded and the price falls, which encourages more production and less consumption. 
C)  demanded exceeds quantity supplied and the market mechanism pushes the price down, which encourages more production and less consumption. 
D)  supplied exceeds quantity demanded and the price rises, which encourages more production and less consumption. 
A)  demanded exceeds quantity supplied and the market mechanism pushes the price up, which in turn encourages more production and less consumption. 
B)  supplied exceeds quantity demanded and the price falls, which encourages more production and less consumption. 
C)  demanded exceeds quantity supplied and the market mechanism pushes the price down, which encourages more production and less consumption. 
D)  supplied exceeds quantity demanded and the price rises, which encourages more production and less consumption.

Question 11

Input-output analysis is rarely used because

Accepted Answer

A)  it requires tremendously complex calculations. 
B)  it requires large amounts of data. 
C)  market economies can instead rely on the price mechanism to organize production. 
D)  All of the above are correct. 
A)  it requires tremendously complex calculations. 
B)  it requires large amounts of data. 
C)  market economies can instead rely on the price mechanism to organize production. 
D)  All of the above are correct.

Question 12

Milk costs $2 and the last unit provides $4 in marginal utility.Cheese costs $4 and the last unit provides $2 in marginal utility.Is this an efficient allocation of resources? If so, why? If not, why not?

Accepted Answer

Allocation is inefficient.Milk is provid

Question 13

Figure 14-1
  
-In Figure 14-1, a change in consumer tastes favoring calculators will lead to which movement?

Accepted Answer

A)  A to C 
B)  A to D 
C)  A to B 
D)  A to E 
A)  A to C 
B)  A to D 
C)  A to B 
D)  A to E

Question 14

MC and MU are set equal to one another in a market economy because

Accepted Answer

A)  producers and consumers are free to communicate with one another. 
B)  producers and consumers both respond to the same price. 
C)  consumers must accept the prices set by producers. 
D)  producers must accept the price set by consumers. 
A)  producers and consumers are free to communicate with one another. 
B)  producers and consumers both respond to the same price. 
C)  consumers must accept the prices set by producers. 
D)  producers must accept the price set by consumers.

Question 15

Figure 14-1
  
-In Figure 14-1, a technological breakdown in calculator production would cause which movement?

Accepted Answer

A)  B to E 
B)  B to C 
C)  B to D 
D)  A to D 
A)  B to E 
B)  B to C 
C)  B to D 
D)  A to D

Question 16

In a competitive market economy, a resource in short supply will be allocated

Accepted Answer

A)  so that each firm gets enough to keep producing some portion of its output. 
B)  according to how much each firm purchased before the shortage. 
C)  to those firms that can make the most profitable use of it. 
D)  by government fiat. 
A)  so that each firm gets enough to keep producing some portion of its output. 
B)  according to how much each firm purchased before the shortage. 
C)  to those firms that can make the most profitable use of it. 
D)  by government fiat.

Question 17

Prohibiting price increases in situations of true scarcity

Accepted Answer

A)  prevents the market mechanism from reallocating resources more efficiently. 
B)  discourages production. 
C)  may lead to extreme shortages of vitally needed products. 
D)  All of the above are correct. 
A)  prevents the market mechanism from reallocating resources more efficiently. 
B)  discourages production. 
C)  may lead to extreme shortages of vitally needed products. 
D)  All of the above are correct.

Question 18

Under perfect competition, the market mechanism, without any government regulation, is capable of

Accepted Answer

A)  allocating resources efficiently. 
B)  solving equity problems. 
C)  making the average cost of labor equal to the average cost of all commodities. 
D)  making more income available to the poor. 
A)  allocating resources efficiently. 
B)  solving equity problems. 
C)  making the average cost of labor equal to the average cost of all commodities. 
D)  making more income available to the poor.

Question 19

Distribution is a major question to be answered by any economic system.

Accepted Answer

A) True 
 B)False

Question 20

In the case of the production of electronic calculators, introduced in the United States in the 1960s,

Accepted Answer

A)  a technological breakthrough reduced the input quantities needed to produce them. 
B)  quantity demanded increased significantly as prices fell. 
C)  production costs fell with advances in technology. 
D)  All of the above are correct. 
A)  a technological breakthrough reduced the input quantities needed to produce them. 
B)  quantity demanded increased significantly as prices fell. 
C)  production costs fell with advances in technology. 
D)  All of the above are correct.

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

Any increase in efficiency increases only profits of producers, with no increase in output.

If the MU of half gallon of milk is $3.50 and the MU of gallon of milk is $3.25, and they both sell for the same price, we would expect consumers to

What is the order in which an economy tries to solve the issue of resource allocation?

How does the task of production planning happen in a laissez-faire economy?

Government-imposed limits on price movements are likely to

Laissez faire is a policy that espouses central planning.

Points below the production possibilities frontier are inefficient because it is possible to make someone better off without making anyone else worse off.

High prices do not occur in laissez-faire markets.

Uncoordinated decisions in perfect competition lead to mass confusion and inefficiency.

When a shortage occurs in the market for a good, quantity

Input-output analysis is rarely used because

Milk costs $2 and the last unit provides $4 in marginal utility.Cheese costs $4 and the last unit provides $2 in marginal utility.Is this an efficient allocation of resources? If so, why? If not, why not?

Figure 14-1 -In Figure 14-1, a change in consumer tastes favoring calculators will lead to which movement?

MC and MU are set equal to one another in a market economy because

Figure 14-1 -In Figure 14-1, a technological breakdown in calculator production would cause which movement?

In a competitive market economy, a resource in short supply will be allocated

Prohibiting price increases in situations of true scarcity

Under perfect competition, the market mechanism, without any government regulation, is capable of

Distribution is a major question to be answered by any economic system.

In the case of the production of electronic calculators, introduced in the United States in the 1960s,

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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