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

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 ____.

Scarcity limits the volume of goods that an economic system can produce but does not limit the production of services.

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

In an effort to prepare for war, the Defense Department is required by Congress to stockpile helium, once used to provide lift for blimps (phased out in the 1960s). About 100 years of total U.S. usage of helium is in storage. The Pentagon agrees to buy helium from producers at a price above what would otherwise prevail in the marketplace. Is this likely to result in efficiency? Explain.

The laissez-faire free-market system is

The metaphor used to describe the working of the price system to achieve efficiency in a free market is

The invisible hand enforces the tendency toward

Central planners in command economies

The idea of the invisible hand was introduced by

When all prices are set equal to marginal costs,

In a market economy, goods are allocated to

Prices influence the distribution of income by making the distribution fairer.

Figure 11-1 ​ In Figure 11-1, a change in consumer tastes favoring calculators will lead to which movement?

Free-market economies have led to

"Peak pricing" involves setting lower prices at peak times so that people can afford a good or service.

Economics tells us which resource allocations are preferable.

A weakness of the price system is that it completely fails to take account consumer preferences in the distribution of goods and services.

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

In a laissez-faire economy, the price system plays a key role in

In an idealized laissez-faire world, the distribution of products is