Question 1

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 2

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) All of these options are 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) All of these options are desirable in promoting efficient use of scarce road space.

Question 3

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 4

Lower prices are always better for society.

Accepted Answer

A) True 
 B)False

Question 5

Figure 11-2
​  
-An efficient allocation of resources exists if

Accepted Answer

A) one group of people can get more of the things they want without someone else having to give up anything. 
B) no one can get more of the things he or she wants without someone else having to give up something. 
C) the economy operates at any point under the production possibilities frontier. 
D) the economy is operating at any point above the production possibilities frontier. 
A) one group of people can get more of the things they want without someone else having to give up anything. 
B) no one can get more of the things he or she wants without someone else having to give up something. 
C) the economy operates at any point under the production possibilities frontier. 
D) the economy is operating at any point above the production possibilities frontier.

Question 6

Price decreases always increase economic efficiency.

Accepted Answer

A) True 
 B)False

Question 7

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 8

Total surplus is

Accepted Answer

A) the sum of consumer's surplus plus producer's surplus. 
B) the consumer's surplus minus the producer's surplus. 
C) the product price minus the sum of consumer's surplus and producer's surplus. 
D) consumer surplus minus marginal utility of the produce. 
A) the sum of consumer's surplus plus producer's surplus. 
B) the consumer's surplus minus the producer's surplus. 
C) the product price minus the sum of consumer's surplus and producer's surplus. 
D) consumer surplus minus marginal utility of the produce.

Question 9

In a free-market system, producers will react to an increase in demand when

Accepted Answer

A) the price goes up. 
B) the government announces the increased demand. 
C) their costs increase. 
D) the free press publishes news of the increased demand. 
A) the price goes up. 
B) the government announces the increased demand. 
C) their costs increase. 
D) the free press publishes news of the increased demand.

Question 10

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 11

In a free-market economy, prices coordinate society's decisions about

Accepted Answer

A) how and for whom to produce. 
B) what, how, and for whom to produce. 
C) how and for whom to produce but not how much to produce. 
D) how much and for whom to produce but not how to produce. 
A) how and for whom to produce. 
B) what, how, and for whom to produce. 
C) how and for whom to produce but not how much to produce. 
D) how much and for whom to produce but not how to produce.

Question 12

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 13

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

Accepted Answer

Under laissez-faire, it is the price sys

Question 14

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 15

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 16

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 17

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 18

Figure 11-2
​  
-Using the information in Figure 11-2, which point or points represents an inefficient allocation of resources?

Accepted Answer

A) A 
B) B 
C) A and D 
D) D 
A) A 
B) B 
C) A and D 
D) D

Question 19

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 these responses 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 these responses are true.

Question 20

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

Accepted Answer

A) True 
 B)False

Exam 11: The Case for Free Markets: the Price System

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

Which of the following statements concerning efficiency is correct?

The invisible hand enforces the tendency toward

Lower prices are always better for society.

Figure 11-2 ​ -An efficient allocation of resources exists if

Price decreases always increase economic efficiency.

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

Total surplus is

In a free-market system, producers will react to an increase in demand when

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

In a free-market economy, prices coordinate society's decisions about

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.

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

In a planned economy, the concept of efficiency is

The selection of particular products' production processes

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

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

Figure 11-2 ​ -Using the information in Figure 11-2, which point or points represents an inefficient allocation of resources?

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

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

What Is Economics

The Economony: 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

The Financial Markets 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: Antitrust and Regulation

The Shortcomings of Free Markets

The Economics of 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

Contemporary Issues in the Useconomy

Filters

Figure 11-2 -An efficient allocation of resources exists if

Figure 11-2 -Using the information in Figure 11-2, which point or points represents an inefficient allocation of resources?