Question 1

Market systems can be evaluated as efficient or inefficient, but not as fair or unfair.

Accepted Answer

A) True 
 B)False

Question 2

In order for the price system to have satisfied the exacting requirements for efficiency,

Accepted Answer

A)  MU must equal MC for each and every commodity. 
B)  the average cost of producing each good must be equal to its MU. 
C)  the maximum possible of total economic profit must be produced. 
D)  every consumer's MU will be equal to marginal physical product 
A)  MU must equal MC for each and every commodity. 
B)  the average cost of producing each good must be equal to its MU. 
C)  the maximum possible of total economic profit must be produced. 
D)  every consumer's MU will be equal to marginal physical product

Question 3

Which of the following functions is not performed by prices in a free market?

Accepted Answer

A)  guiding the allocation of resources 
B)  conveying information about the marginal cost of production 
C)  making the distribution of income more equitable 
D)  replacing the need for governmental supervision of production 
A)  guiding the allocation of resources 
B)  conveying information about the marginal cost of production 
C)  making the distribution of income more equitable 
D)  replacing the need for governmental supervision of production

Question 4

In an efficient market, a scarce good generally has a ____ than a less-scarce good.

Accepted Answer

A)  higher price 
B)  higher total utility to consumers 
C)  more even distribution across income classes 
D)  lower price in off-peak periods 
A)  higher price 
B)  higher total utility to consumers 
C)  more even distribution across income classes 
D)  lower price in off-peak periods

Question 5

Most economists support the idea of peak-load pricing on the grounds of

Accepted Answer

A)  fairness in income distribution. 
B)  efficiency in input usage. 
C)  equality of opportunity. 
D)  efficiency in output allocation. 
A)  fairness in income distribution. 
B)  efficiency in input usage. 
C)  equality of opportunity. 
D)  efficiency in output allocation.

Question 6

Which of the following statements is correct?

Accepted Answer

A)  Low prices may not always be in the public interest. 
B)  If prices on scarce resources are set "too low," consumers will receive the "wrong" signals and be encouraged to consume more, thus squandering resources. 
C)  Raising prices on scarce resources is generally politically unpopular. 
D)  All of the above are correct. 
A)  Low prices may not always be in the public interest. 
B)  If prices on scarce resources are set "too low," consumers will receive the "wrong" signals and be encouraged to consume more, thus squandering resources. 
C)  Raising prices on scarce resources is generally politically unpopular. 
D)  All of the above are correct.

Question 7

If the marginal utility of apples exceeds the marginal cost of producing apples, then in a free market production of apples will ____, with the likely result that marginal utility will ____.

Accepted Answer

A)  rise; fall 
B)  rise; rise 
C)  rise; rise. 
D)  fall; fall 
A)  rise; fall 
B)  rise; rise 
C)  rise; rise. 
D)  fall; fall

Question 8

In a market economy, goods are allocated to

Accepted Answer

A)  all potential uses. 
B)  all citizens on an equal basis. 
C)  citizens with political power. 
D)  citizens with both the desire and the willingness to pay for the goods. 
A)  all potential uses. 
B)  all citizens on an equal basis. 
C)  citizens with political power. 
D)  citizens with both the desire and the willingness to pay for the goods.

Question 9

In a market system, prices are used to coordinate economic activity.

Accepted Answer

A) True 
 B)False

Question 10

Some years ago New York City imposed rent controls in an effort to provide housing at "fair" prices for as many people as possible.The result was a serious shortage of housing and deterioration of existing rental properties.How would an economist have described the result in terms of economic efficiency?

Accepted Answer

Keeping the prices low discouraged the c

Question 11

Under a system of laissez faire, output selection is determined by consumers' wants.

Accepted Answer

A) True 
 B)False

Question 12

Higher prices can discourage use/consumption, which in turn may better allocate scarce resources.

Accepted Answer

A) True 
 B)False

Question 13

When the price of a good is below its equilibrium level under perfect competition,

Accepted Answer

A)  consumers would benefit from an expansion of output. 
B)  some consumers are earning larger consumer's surpluses than they would in equilibrium. 
C)  the market is not operating at maximum efficiency. 
D)  All of the above are correct. 
A)  consumers would benefit from an expansion of output. 
B)  some consumers are earning larger consumer's surpluses than they would in equilibrium. 
C)  the market is not operating at maximum efficiency. 
D)  All of the above are correct.

Question 14

Prices serve the public interest by

Accepted Answer

A)  making resource owners wealthy. 
B)  rationing scarce resources. 
C)  keeping poor people from purchasing more than they can afford. 
D)  forcing the government to participate in the market. 
A)  making resource owners wealthy. 
B)  rationing scarce resources. 
C)  keeping poor people from purchasing more than they can afford. 
D)  forcing the government to participate in the market.

Question 15

If both the MU and MC of flower pots is $1.50 and the MU and MC of coffee cups is $2, then economic efficiency would require

Accepted Answer

A)  increased production of flower pots. 
B)  increased production of coffee cups. 
C)  the price of coffee cups to exceed the price of flower pots. 
D)  the price of flower pots to exceed the price of coffee cups. 
A)  increased production of flower pots. 
B)  increased production of coffee cups. 
C)  the price of coffee cups to exceed the price of flower pots. 
D)  the price of flower pots to exceed the price of coffee cups.

Question 16

Prices

Accepted Answer

A)  solve the problem of distribution of products among consumers. 
B)  act as rationing devices. 
C)  under laissez faire produce an efficient allocation of resources. 
D)  do all of the above. 
A)  solve the problem of distribution of products among consumers. 
B)  act as rationing devices. 
C)  under laissez faire produce an efficient allocation of resources. 
D)  do all of the above.

Question 17

Before a market allocation of goods on the production possibilities curve can be judged efficient, one must evaluate "what" goods the market produced.

Accepted Answer

A) True 
 B)False

Question 18

For a rational consumer, the consumer's surplus will never be a negative number.

Accepted Answer

A) True 
 B)False

Question 19

The term "laissez faire" was given to a system of free markets by

Accepted Answer

A)  twentieth-century American economists. 
B)  a seventeenth-century Scottish economist. 
C)  eighteenth-century French economists. 
D)  nineteenth-century Italian economists. 
A)  twentieth-century American economists. 
B)  a seventeenth-century Scottish economist. 
C)  eighteenth-century French economists. 
D)  nineteenth-century Italian economists.

Question 20

The degree to which an economic system approaches a market economy depends on the degree to which

Accepted Answer

A)  economic choices are made through the free interaction of buyers and sellers in the marketplace. 
B)  there are monopolies in the marketplace. 
C)  people have a high standard of living. 
D)  advanced technology is used. 
A)  economic choices are made through the free interaction of buyers and sellers in the marketplace. 
B)  there are monopolies in the marketplace. 
C)  people have a high standard of living. 
D)  advanced technology is used.

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

Market systems can be evaluated as efficient or inefficient, but not as fair or unfair.

In order for the price system to have satisfied the exacting requirements for efficiency,

Which of the following functions is not performed by prices in a free market?

In an efficient market, a scarce good generally has a ____ than a less-scarce good.

Most economists support the idea of peak-load pricing on the grounds of

Which of the following statements is correct?

If the marginal utility of apples exceeds the marginal cost of producing apples, then in a free market production of apples will ____, with the likely result that marginal utility will ____.

In a market economy, goods are allocated to

In a market system, prices are used to coordinate economic activity.

Under a system of laissez faire, output selection is determined by consumers' wants.

Higher prices can discourage use/consumption, which in turn may better allocate scarce resources.

When the price of a good is below its equilibrium level under perfect competition,

Prices serve the public interest by

If both the MU and MC of flower pots is $1.50 and the MU and MC of coffee cups is $2, then economic efficiency would require

Prices

Before a market allocation of goods on the production possibilities curve can be judged efficient, one must evaluate "what" goods the market produced.

For a rational consumer, the consumer's surplus will never be a negative number.

The term "laissez faire" was given to a system of free markets by

The degree to which an economic system approaches a market economy depends on the degree to which

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

Filters

If the marginal utility of apples exceeds the marginal cost of producing apples, then in a free market production of apples will , with the likely result that marginal utility will .