Question 1

With a monopoly, the consumer's surplus is lower than it would be with a perfectly competitive industry.

Accepted Answer

A) True 
 B)False

Question 2

Price increases always reduce economic efficiency.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following carries out the distribution process by rationing goods on the basis of preferences and relative incomes?

Accepted Answer

A)  Administered system 
B)  Government 
C)  Price system 
D)  Central planning 
A)  Administered system 
B)  Government 
C)  Price system 
D)  Central planning

Question 4

In a planned economy,

Accepted Answer

A)  prices are used to coordinate economic activity. 
B)  central planners set production targets and tell producers how to produce. 
C)  high prices discourage use of the most scarce resources. 
D)  central planners allow the price to determine distribution of a product. 
A)  prices are used to coordinate economic activity. 
B)  central planners set production targets and tell producers how to produce. 
C)  high prices discourage use of the most scarce resources. 
D)  central planners allow the price to determine distribution of a product.

Question 5

In a laissez-faire system, the price mechanism dictates the production planning decisions.

Accepted Answer

A) True 
 B)False

Question 6

A Pareto optimal allocation of resources is one in which any change to benefit one person would come at the expense of hurting another.Another word for Pareto optimal is

Accepted Answer

A)  unfair. 
B)  fair. 
C)  efficient. 
D)  inefficient. 
A)  unfair. 
B)  fair. 
C)  efficient. 
D)  inefficient.

Question 7

Using prices to promote efficiency in the utilization of bridges,

Accepted Answer

A)  higher prices should be charged for the use of the most crowded bridges. 
B)  lower prices should be charged for the use of the uncrowded bridges. 
C)  traffic would be equalized among the bridges where space is a scarce resource. 
D)  All of the above are correct. 
A)  higher prices should be charged for the use of the most crowded bridges. 
B)  lower prices should be charged for the use of the uncrowded bridges. 
C)  traffic would be equalized among the bridges where space is a scarce resource. 
D)  All of the above are correct.

Question 8

The task of deciding which consumer gets each of the goods produced in a free-market economy is solved by

Accepted Answer

A)  the price system. 
B)  the industries which produce the goods. 
C)  the central planners. 
D)  citizens with political power. 
A)  the price system. 
B)  the industries which produce the goods. 
C)  the central planners. 
D)  citizens with political power.

Question 9

The laissez-faire free-market system is

Accepted Answer

A)  an ideal of perfection. 
B)  one that leaves no room for improvement. 
C)  unmatched by any other system for allocative efficiency. 
D)  All of the above are correct. 
A)  an ideal of perfection. 
B)  one that leaves no room for improvement. 
C)  unmatched by any other system for allocative efficiency. 
D)  All of the above are correct.

Question 10

The issue of fairness versus efficiency arises

Accepted Answer

A)  only in a command economy. 
B)  only in a market economy. 
C)  in neither a command nor a market economy. 
D)  in both a command and a market economy. 
A)  only in a command economy. 
B)  only in a market economy. 
C)  in neither a command nor a market economy. 
D)  in both a command and a market economy.

Question 11

Society might argue that there are cases in which it is appropriate to resist price increases in situations where scarcity is serious.Included would be the case of

Accepted Answer

A)  unrestrained monopoly that would otherwise succeed in gouging the public. 
B)  taxes imposed on products capriciously and inappropriately. 
C)  rising prices falling so heavily on the poor that rationing becomes preferable. 
D)  All of the above are correct. 
A)  unrestrained monopoly that would otherwise succeed in gouging the public. 
B)  taxes imposed on products capriciously and inappropriately. 
C)  rising prices falling so heavily on the poor that rationing becomes preferable. 
D)  All of the above are correct.

Question 12

In a planned economy the concept of efficiency is

Accepted Answer

A)  more important than in a market economy. 
B)  less important than in a market economy. 
C)  not important at all. 
D)  as important as in a market economy. 
A)  more important than in a market economy. 
B)  less important than in a market economy. 
C)  not important at all. 
D)  as important as in a market economy.

Question 13

Fixed prices in a free-market economy can increase efficiency.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following is least likely to be an example of peak/off-peak pricing?

Accepted Answer

A)  breakfast cereals 
B)  hotels 
C)  wireless service 
D)  electricity 
A)  breakfast cereals 
B)  hotels 
C)  wireless service 
D)  electricity

Question 15

When the price of the product falls

Accepted Answer

A)  consumer's surplus remains the same. 
B)  producers' surplus increases. 
C)  consumer's surplus falls. 
D)  producer's surplus falls. 
A)  consumer's surplus remains the same. 
B)  producers' surplus increases. 
C)  consumer's surplus falls. 
D)  producer's surplus falls.

Question 16

The free-market system coordinates output decisions by pushing

Accepted Answer

A)  up price when there is a shortage. 
B)  down price when quantity demanded exceeds quantity supplied. 
C)  up price when there is a surplus. 
D)  up price when quantity supplied exceeds quantity demanded. 
A)  up price when there is a shortage. 
B)  down price when quantity demanded exceeds quantity supplied. 
C)  up price when there is a surplus. 
D)  up price when quantity supplied exceeds quantity demanded.

Question 17

Efficiency in output requires which of the following?

Accepted Answer

A)  MC = MRP. 
B)  MC = MFC. 
C)  MC = MU. 
D)  MC = AVC. 
A)  MC = MRP. 
B)  MC = MFC. 
C)  MC = MU. 
D)  MC = AVC.

Question 18

The saying "the lower the price, the better" may not always be correct for an economy's public interest because

Accepted Answer

A)  people should have to pay for what they want. 
B)  people will overuse something they perceive as being cheaper than the utility they receive for it. 
C)  the government can no longer afford to provide all the goods and services it provides because it is slowly going broke. 
D)  cheaper prices will make people buy less of other things. 
A)  people should have to pay for what they want. 
B)  people will overuse something they perceive as being cheaper than the utility they receive for it. 
C)  the government can no longer afford to provide all the goods and services it provides because it is slowly going broke. 
D)  cheaper prices will make people buy less of other things.

Question 19

In a free-market economy, the pricing mechanism always operates to

Accepted Answer

A)  produce an equitable distribution of income. 
B)  provide an efficient allocation of resources. 
C)  correct any inequality in distribution of output. 
D)  equate consumers' desires with ability to pay. 
A)  produce an equitable distribution of income. 
B)  provide an efficient allocation of resources. 
C)  correct any inequality in distribution of output. 
D)  equate consumers' desires with ability to pay.

Question 20

The metaphor used to describe the working of the price system to achieve efficiency in a free market is

Accepted Answer

A)  Occam's razor. 
B)  the prisoner's dilemma. 
C)  the invisible hand. 
D)  the benefit principle. 
A)  Occam's razor. 
B)  the prisoner's dilemma. 
C)  the invisible hand. 
D)  the benefit principle.

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

With a monopoly, the consumer's surplus is lower than it would be with a perfectly competitive industry.

Price increases always reduce economic efficiency.

Which of the following carries out the distribution process by rationing goods on the basis of preferences and relative incomes?

In a planned economy,

In a laissez-faire system, the price mechanism dictates the production planning decisions.

A Pareto optimal allocation of resources is one in which any change to benefit one person would come at the expense of hurting another.Another word for Pareto optimal is

Using prices to promote efficiency in the utilization of bridges,

The task of deciding which consumer gets each of the goods produced in a free-market economy is solved by

The laissez-faire free-market system is

The issue of fairness versus efficiency arises

Society might argue that there are cases in which it is appropriate to resist price increases in situations where scarcity is serious.Included would be the case of

In a planned economy the concept of efficiency is

Fixed prices in a free-market economy can increase efficiency.

Which of the following is least likely to be an example of peak/off-peak pricing?

When the price of the product falls

The free-market system coordinates output decisions by pushing

Efficiency in output requires which of the following?

The saying "the lower the price, the better" may not always be correct for an economy's public interest because

In a free-market economy, the pricing mechanism always operates to

The metaphor used to describe the working of the price system to achieve efficiency in a free market is

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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