Question 1

Central planning is an efficient method for making coordination decisions.

Accepted Answer

A) True 
 B)False

Question 2

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 extracting funds from 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 responses are correct. 
A) unrestrained monopoly that would otherwise succeed in extracting funds from 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 responses are correct.

Question 3

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 4

Efficient allocation of resources makes everyone better off.

Accepted Answer

A) True 
 B)False

Question 5

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 responses 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 responses are correct.

Question 6

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 7

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

Accepted Answer

A) True 
 B)False

Question 8

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 9

What is the rule for efficient output selection and how does the competitive market achieve it?

Accepted Answer

The rule is MC = MU. In competition, MC

Question 10

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 11

Free markets produce relatively high levels of efficiency but low rates of growth.

Accepted Answer

A) True 
 B)False

Question 12

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. Sa

Question 13

Higher prices

Accepted Answer

A) are always against the public interest. 
B) may sometimes serve the public interest. 
C) should never be allowed. 
D) occur automatically for abundant goods. 
A) are always against the public interest. 
B) may sometimes serve the public interest. 
C) should never be allowed. 
D) occur automatically for abundant goods.

Question 14

The producer's surplus is equal to the difference between how much the seller can charge for a product and how much the consumer is willing to purchase it for.

Accepted Answer

A) True 
 B)False

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

An example of peak pricing is charging

Accepted Answer

A) more for long-distance phone calls in the daytime. 
B) less for electricity at night. 
C) more for public transportation in rush hours. 
D) All of the above are true. 
A) more for long-distance phone calls in the daytime. 
B) less for electricity at night. 
C) more for public transportation in rush hours. 
D) All of the above are true.

Question 17

When the invisible hand is at work,

Accepted Answer

A) the price system will sometimes give incorrect cost signals to consumers. 
B) the price system will allocate resources based only on consumer need. 
C) all prices will be set equal to marginal costs. 
D) there will be some shortages and surpluses that cannot be avoided. 
A) the price system will sometimes give incorrect cost signals to consumers. 
B) the price system will allocate resources based only on consumer need. 
C) all prices will be set equal to marginal costs. 
D) there will be some shortages and surpluses that cannot be avoided.

Question 18

If MU = MC = P, an economist can judge with certainty that the distribution of output is

Accepted Answer

A) fair. 
B) equal. 
C) unbiased. 
D) efficient. 
A) fair. 
B) equal. 
C) unbiased. 
D) efficient.

Question 19

High prices do not occur in laissez-faire markets.

Accepted Answer

A) True 
 B)False

Question 20

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

Accepted Answer

A) True 
 B)False

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

Central planning is an efficient method for making coordination decisions.

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

The free-market system coordinates output decisions by pushing

Efficient allocation of resources makes everyone better off.

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

An efficient allocation of resources exists if

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

When the price of the product falls

What is the rule for efficient output selection and how does the competitive market achieve it?

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

Free markets produce relatively high levels of efficiency but low rates of growth.

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.

Higher prices

The producer's surplus is equal to the difference between how much the seller can charge for a product and how much the consumer is willing to purchase it for.

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

An example of peak pricing is charging

When the invisible hand is at work,

If MU = MC = P, an economist can judge with certainty that the distribution of output is

High prices do not occur in laissez-faire markets.

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

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

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

Externalities, Externaliteis, the Environment, and Natural Resources

Taxation and Resource Allocation

Pricing the Factors of Production

Labor and Entrepreneurship: the Human Inputs

Poverty, Inequality, and Discrimination

International Trade and Comparative Advantage

Contemporary Issues in the Us Economy

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