Question 1

A consumer who buys any amount of a good will realize a positive consumer's surplus from that good.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following is concerned with the distribution part of resource allocation?

Accepted Answer

A) An economy decides to produce equal quantities wheat, rice, and clothes. 
B) An economy decides to use 25 percent of the available capital for producing clothes. 
C) An economy decides to ration 40 percent of its output to low income groups. 
D) An economy decides to use more labor for producing wheat and rice. 
A) An economy decides to produce equal quantities wheat, rice, and clothes. 
B) An economy decides to use 25 percent of the available capital for producing clothes. 
C) An economy decides to ration 40 percent of its output to low income groups. 
D) An economy decides to use more labor for producing wheat and rice.

Question 3

Under a laissez-faire system,

Accepted Answer

A) government coordinates with firms to determine output and prices for goods and services. 
B) input-output analysis is used by planning agencies to determine output levels. 
C) the demand and supply process determines output and prices of goods and services. 
D) firms coordinate with each other to determine output and price levels for goods and services. 
A) government coordinates with firms to determine output and prices for goods and services. 
B) input-output analysis is used by planning agencies to determine output levels. 
C) the demand and supply process determines output and prices of goods and services. 
D) firms coordinate with each other to determine output and price levels for goods and services.

Question 4

Total surplus is the sum of producer's surplus and consumer's surplus.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following holds true in a market when the invisible hand functions properly?

Accepted Answer

A) MC = MU = P 
B) P = MRS 
C) P = MC but not P = MU 
D) P = MU but not P = MC 
A) MC = MU = P 
B) P = MRS 
C) P = MC but not P = MU 
D) P = MU but not P = MC

Question 6

If the marginal utility of a gallon of milk to consumers is $2.50 and the MC of producing the gallon of milk is $1.50, then

Accepted Answer

A) the value of the resources used up in producing one more gallon of milk would be $1 less than the money value of the additional gallon to consumers. 
B) society could be made better off by expanding the output of milk. 
C) resources are not being used most efficiently. 
D) All of the above are true. 
A) the value of the resources used up in producing one more gallon of milk would be $1 less than the money value of the additional gallon to consumers. 
B) society could be made better off by expanding the output of milk. 
C) resources are not being used most efficiently. 
D) All of the above are true.

Question 7

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 8

Higher prices for scarcer resources can improve the efficiency of an economy.

Accepted Answer

A) True 
 B)False

Question 9

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 10

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 11

Mutually beneficial trade is possible because of differing marginal utilities.

Accepted Answer

A) True 
 B)False

Question 12

How does a free-market system address the output selection task?

Accepted Answer

A free-market system decides what should

Question 13

What makes production planning a daunting task for central planners?

Accepted Answer

Because the output required from any one

Question 14

If the allocation of resources is efficient, then a market economy will maximize the difference between total utility and total cost.

Accepted Answer

A) True 
 B)False

Question 15

The perfect competition price system is the most efficient because it equates MC = P = MU.

Accepted Answer

A) True 
 B)False

Question 16

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 17

Jupiter likes moons more than rings and gets marginal utility worth $5 from the last moon, and $2 from the last ring.Saturn prefers rings, getting MU = $3 from the last ring and $1 from moons.Describe a trade that would increase efficiency.

Accepted Answer

Jupiter could trade a ring to Saturn.Sat

Question 18

The allocation of resources is efficient under an idealized free market system.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following industries relies heavily on peak/off-peak pricing?

Accepted Answer

A) Auto manufacturing 
B) Computer software 
C) Airlines 
D) Book publishing 
A) Auto manufacturing 
B) Computer software 
C) Airlines 
D) Book publishing

Question 20

"Peak pricing" can only work effectively if prices remain relatively low for scarce resources.

Accepted Answer

A) True 
 B)False

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

A consumer who buys any amount of a good will realize a positive consumer's surplus from that good.

Which of the following is concerned with the distribution part of resource allocation?

Under a laissez-faire system,

Total surplus is the sum of producer's surplus and consumer's surplus.

Which of the following holds true in a market when the invisible hand functions properly?

If the marginal utility of a gallon of milk to consumers is $2.50 and the MC of producing the gallon of milk is $1.50, then

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

Higher prices for scarcer resources can improve the efficiency of an economy.

In a planned economy,

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

Mutually beneficial trade is possible because of differing marginal utilities.

How does a free-market system address the output selection task?

What makes production planning a daunting task for central planners?

If the allocation of resources is efficient, then a market economy will maximize the difference between total utility and total cost.

The perfect competition price system is the most efficient because it equates MC = P = MU.

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

Jupiter likes moons more than rings and gets marginal utility worth $5 from the last moon, and $2 from the last ring.Saturn prefers rings, getting MU = $3 from the last ring and $1 from moons.Describe a trade that would increase efficiency.

The allocation of resources is efficient under an idealized free market system.

Which of the following industries relies heavily on peak/off-peak pricing?

"Peak pricing" can only work effectively if prices remain relatively low for scarce resources.

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

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