Question 1

Goods are distributed efficiently if everyone gets an equal share of each good.

Accepted Answer

A) True 
 B)False

Question 2

In a competitive economy, the questions of what, how, and for whom to produce tend to be regulated by

Accepted Answer

A) the government. 
B) businessmen. 
C) the price system. 
D) workers. 
A) the government. 
B) businessmen. 
C) the price system. 
D) workers.

Question 3

If both the MU and MC of flower pots is $1.50 and the MU and MC of coffee cups is $2, then economic efficiency would require

Accepted Answer

A) increased production of flower pots. 
B) increased production of coffee cups. 
C) the price of coffee cups to exceed the price of flower pots. 
D) the price of flower pots to exceed the price of coffee cups. 
A) increased production of flower pots. 
B) increased production of coffee cups. 
C) the price of coffee cups to exceed the price of flower pots. 
D) the price of flower pots to exceed the price of coffee cups.

Question 4

The rule for efficient output selection is stated as MC = MU.Explain how the rule results in economic efficiency.

Accepted Answer

Efficiency in output selection requires

Question 5

Free market economies have led to

Accepted Answer

A) high growth rates but low efficiency. 
B) high efficiency and low growth rates. 
C) high growth rates and high efficiency. 
D) low growth rates and low efficiency. 
A) high growth rates but low efficiency. 
B) high efficiency and low growth rates. 
C) high growth rates and high efficiency. 
D) low growth rates and low efficiency.

Question 6

Points below the production possibilities frontier are inefficient because it is possible to make someone better off without making anyone else worse off.

Accepted Answer

A) True 
 B)False

Question 7

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 8

"Fair" outcomes and "efficient" outcomes are always identical.

Accepted Answer

A) True 
 B)False

Question 9

Which of the proposals for education reform is likely to be supported by an economist concerned with efficiency?

Accepted Answer

A) Give families "education stamps" to be spent at the school of their choice. 
B) Assign children to particular schools based on where they live. 
C) Give all schoolchildren the same number of years of education. 
D) Abolish private (i.e., fee-charging) schools. 
A) Give families "education stamps" to be spent at the school of their choice. 
B) Assign children to particular schools based on where they live. 
C) Give all schoolchildren the same number of years of education. 
D) Abolish private (i.e., fee-charging) schools.

Question 10

Prohibiting price increases in situations of true scarcity could best be described as

Accepted Answer

A) interfering with the "law" of supply and demand. 
B) thwarting the "law" of increasing returns to scale. 
C) violating the "law" of increasing cost. 
D) interfering with the "law" of diminishing marginal utility. 
A) interfering with the "law" of supply and demand. 
B) thwarting the "law" of increasing returns to scale. 
C) violating the "law" of increasing cost. 
D) interfering with the "law" of diminishing marginal utility.

Question 11

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 12

After the Arab oil embargoes, there was concern about the impact of higher gas prices on the low-income worker.The government imposed price controls on oil to protect the poor from this situation.Explain the inefficiency of this price ceiling and how taxes, rather than prices, could be used to solve the problem.

Accepted Answer

By preventing the price of gas from risi

Question 13

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 14

Centrally planned economies use free-market systems for their production planning.

Accepted Answer

A) True 
 B)False

Question 15

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 16

Perfect central planning is nearly impossible for all of these reasons except:

Accepted Answer

A) ​production processes between industries are often interdependent. 
B) ​some processes must be decided together, and not individually, because of their interdependence. 
C) ​if the output target for one industry is adjusted, many others must also be adjusted. 
D) ​all of these reasons are correct. 
A) ​production processes between industries are often interdependent. 
B) ​some processes must be decided together, and not individually, because of their interdependence. 
C) ​if the output target for one industry is adjusted, many others must also be adjusted. 
D) ​all of these reasons are correct.

Question 17

Lower prices are always better for society.

Accepted Answer

A) True 
 B)False

Question 18

The task of deciding which consumer gets each of the goods produced in a free-market economy is solved by

Accepted Answer

A) the price system. 
B) the industries which produce the goods. 
C) the central planners. 
D) citizens with political power. 
A) the price system. 
B) the industries which produce the goods. 
C) the central planners. 
D) citizens with political power.

Question 19

To promote economic efficiency, government should

Accepted Answer

A) keep all prices as low as possible. 
B) keep all prices high so that people will save more money. 
C) allow the market to set low prices for abundant goods and high prices for scarce goods. 
D) never interfere with firms' price setting powers. 
A) keep all prices as low as possible. 
B) keep all prices high so that people will save more money. 
C) allow the market to set low prices for abundant goods and high prices for scarce goods. 
D) never interfere with firms' price setting powers.

Question 20

Prices serve the public interest by

Accepted Answer

A) making resource owners wealthy. 
B) rationing scarce resources. 
C) keeping poor people from purchasing more than they can afford. 
D) forcing the government to participate in the market. 
A) making resource owners wealthy. 
B) rationing scarce resources. 
C) keeping poor people from purchasing more than they can afford. 
D) forcing the government to participate in the market.

Exam 14: The Case for Free Markets: the Price System

Goods are distributed efficiently if everyone gets an equal share of each good.

In a competitive economy, the questions of what, how, and for whom to produce tend to be regulated by

If both the MU and MC of flower pots is $1.50 and the MU and MC of coffee cups is $2, then economic efficiency would require

The rule for efficient output selection is stated as MC = MU.Explain how the rule results in economic efficiency.

Free market economies have led to

Points below the production possibilities frontier are inefficient because it is possible to make someone better off without making anyone else worse off.

When the invisible hand is at work,

"Fair" outcomes and "efficient" outcomes are always identical.

Which of the proposals for education reform is likely to be supported by an economist concerned with efficiency?

Prohibiting price increases in situations of true scarcity could best be described as

The selection of particular products' production processes

The free-market system coordinates output decisions by pushing

Centrally planned economies use free-market systems for their production planning.

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

Perfect central planning is nearly impossible for all of these reasons except:

Lower prices are always better for society.

The task of deciding which consumer gets each of the goods produced in a free-market economy is solved by

To promote economic efficiency, government should

Prices serve the public interest by

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

Securities: Business Finance 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: Regulation and Antitrust

The Shortcomings of Free Markets

Externalities, the Environment, and Natural Resources

Taxation and Resource Allocation

Pricing the Factors of Production

Labor and Entrepreneurship: the Human Inputs

Poverty, Inequality, and Discrimination

Is Useconomic Leadership Threatened

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

He 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

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