Question 1

Under a pure system of laissez-faire, the government would not do which of the following?

Accepted Answer

A) Prosecute criminals 
B) Provide national defense 
C) Punish those involved in conspiracies to fix prices 
D) Establish minimum wages 
A) Prosecute criminals 
B) Provide national defense 
C) Punish those involved in conspiracies to fix prices 
D) Establish minimum wages

Question 2

If a production possibilities frontier is a downward sloping straight line, it

Accepted Answer

A) shows that there are no trade-offs in the production process. 
B) shows that resources are not efficiently allocated 
C) shows that production on the frontier implies that it is not possible to produce more of anything without producing less of something else. 
D) shows that resources are unemployed. 
A) shows that there are no trade-offs in the production process. 
B) shows that resources are not efficiently allocated 
C) shows that production on the frontier implies that it is not possible to produce more of anything without producing less of something else. 
D) shows that resources are unemployed.

Question 3

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 4

Whenever MC of the last unit produced of a good is greater than its MU, society can benefit from decreasing the output of that good.

Accepted Answer

A) True 
 B)False

Question 5

Under perfect competition, the lure of profits makes producers try to equate marginal cost and price.

Accepted Answer

A) True 
 B)False

Question 6

Under perfect competition, if marginal cost is below price, then a producer can benefit from increasing his or her output.

Accepted Answer

A) True 
 B)False

Question 7

In a free market, a given unit of an input will be used by the firm that

Accepted Answer

A) earns the largest addition to total profit from the use of that unit of input. 
B) has the lowest marginal cost of producing another unit of output. 
C) sells its output for the highest price. 
D) earns the largest total profit. 
A) earns the largest addition to total profit from the use of that unit of input. 
B) has the lowest marginal cost of producing another unit of output. 
C) sells its output for the highest price. 
D) earns the largest total profit.

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

Figure 11-5 
​ 
   
Figure 11-5 contains a production possibilities frontier for wheat and milk production. Explain why Point C is not a point where resources are being used efficiently.

Accepted Answer

From Point C, it is possible to move to

Question 10

Laissez-faire refers to a situation in which there is ____ with the workings of the market system.

Accepted Answer

A) zero consumer involvement 
B) zero government interference 
C) minimal government interference 
D) complete government interference 
A) zero consumer involvement 
B) zero government interference 
C) minimal government interference 
D) complete government interference

Question 11

Production at points beyond the production possibilities frontier cannot be attained unless there is an increase in resources or an improvement in technology.

Accepted Answer

A) True 
 B)False

Question 12

We observe that the price per ounce of milk in a quart container is higher than the price per ounce in a gallon container. What is the likely reason for this?

Accepted Answer

A) The higher costs of quart containers 
B) The higher costs of production of milk in smaller quantities. 
C) Higher transportation costs for smaller container sizes. 
D) The marginal utility of milk is higher in smaller containers than it is in larger containers. 
A) The higher costs of quart containers 
B) The higher costs of production of milk in smaller quantities. 
C) Higher transportation costs for smaller container sizes. 
D) The marginal utility of milk is higher in smaller containers than it is in larger containers.

Question 13

Figure 11-1 ​
 
In Figure 11-1, a technological breakdown in calculator production would cause which movement?

Accepted Answer

A) B to E 
B) B to C 
C) B to D 
D) A to D 
A) B to E 
B) B to C 
C) B to D 
D) A to D

Question 14

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 15

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 16

In order for a central planner to achieve the invisible-hand type efficiency of a free market, the planner would

Accepted Answer

A) need masses of statistics. 
B) be required to makes enormous calculations. 
C) need to be able to measure a consumer's marginal utility in order to equate MU with MC. 
D) All of the above would be required. 
A) need masses of statistics. 
B) be required to makes enormous calculations. 
C) need to be able to measure a consumer's marginal utility in order to equate MU with MC. 
D) All of the above would be required.

Question 17

Lower prices are a signal of the scarcity of a resource.

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

MC and MU are set equal to one another in a market economy because

Accepted Answer

A) producers and consumers are free to communicate with one another. 
B) producers and consumers both respond to the same price. 
C) consumers must accept the prices set by producers. 
D) producers must accept the price set by consumers. 
A) producers and consumers are free to communicate with one another. 
B) producers and consumers both respond to the same price. 
C) consumers must accept the prices set by producers. 
D) producers must accept the price set by consumers.

Question 20

In many cities, the price of summer pops concerts has risen. In Charlotte, North Carolina, and Columbus, Ohio, for example, concerts that were once free now cost $5. If there are only fixed costs and no variable costs nor marginal costs in an orchestra concert, what is the efficient price? Explain the reason why some people will find the efficient price unfair.

Accepted Answer

If MC = 0, then the performances should

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

Under a pure system of laissez-faire, the government would not do which of the following?

If a production possibilities frontier is a downward sloping straight line, it

In a planned economy,

Whenever MC of the last unit produced of a good is greater than its MU, society can benefit from decreasing the output of that good.

Under perfect competition, the lure of profits makes producers try to equate marginal cost and price.

Under perfect competition, if marginal cost is below price, then a producer can benefit from increasing his or her output.

In a free market, a given unit of an input will be used by the firm that

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

Figure 11-5 ​ Figure 11-5 contains a production possibilities frontier for wheat and milk production. Explain why Point C is not a point where resources are being used efficiently.

Laissez-faire refers to a situation in which there is ____ with the workings of the market system.

Production at points beyond the production possibilities frontier cannot be attained unless there is an increase in resources or an improvement in technology.

We observe that the price per ounce of milk in a quart container is higher than the price per ounce in a gallon container. What is the likely reason for this?

Figure 11-1 ​ In Figure 11-1, a technological breakdown in calculator production would cause which movement?

Which of the following statements concerning efficiency is correct?

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

In order for a central planner to achieve the invisible-hand type efficiency of a free market, the planner would

Lower prices are a signal of the scarcity of a resource.

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

MC and MU are set equal to one another in a market economy because

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

Filters

Figure 11-5 Figure 11-5 contains a production possibilities frontier for wheat and milk production. Explain why Point C is not a point where resources are being used efficiently.

Figure 11-1 In Figure 11-1, a technological breakdown in calculator production would cause which movement?