Question 1

Any increase in efficiency increases only profits of producers, with no increase in output.

Accepted Answer

A) True 
 B)False

Question 2

With a monopoly, the total surplus is lower than it would be with a perfectly competitive industry.

Accepted Answer

A) True 
 B)False

Question 3

In a laissez-faire system, the price mechanism dictates the production planning decisions.

Accepted Answer

A) True 
 B)False

Question 4

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

Accepted Answer

A) Occam's razor. 
B) the prisoner's dilemma. 
C) the invisible hand. 
D) the benefit principle. 
A) Occam's razor. 
B) the prisoner's dilemma. 
C) the invisible hand. 
D) the benefit principle.

Question 5

If the marginal utility of a product exceeds its MC, we would want, on efficiency grounds, to

Accepted Answer

A) increase production. 
B) decrease production. 
C) leave production constant. 
D) One cannot tell without knowing the price. 
A) increase production. 
B) decrease production. 
C) leave production constant. 
D) One cannot tell without knowing the price.

Question 6

Input-output analysis is commonly used in production decisions.

Accepted Answer

A) True 
 B)False

Question 7

The saying "the lower the price, the better" may not always be correct for an economy's public interest because

Accepted Answer

A) people should have to pay for what they want. 
B) people will overuse something they perceive as being cheaper than the utility they receive for it. 
C) the government can no longer afford to provide all the goods and services it provides because it is slowly going broke. 
D) cheaper prices will make people buy less of other things. 
A) people should have to pay for what they want. 
B) people will overuse something they perceive as being cheaper than the utility they receive for it. 
C) the government can no longer afford to provide all the goods and services it provides because it is slowly going broke. 
D) cheaper prices will make people buy less of other things.

Question 8

Figure 14-2
  
-As we move down the production possibilities schedule in Figure 14-2, each successive point is

Accepted Answer

A) less efficient. 
B) more efficient. 
C) equally efficient. 
D) more or less efficient; we cannot tell which. 
A) less efficient. 
B) more efficient. 
C) equally efficient. 
D) more or less efficient; we cannot tell which.

Question 9

Prohibiting price increases in situations of true scarcity

Accepted Answer

A) prevents the market mechanism from reallocating resources more efficiently. 
B) discourages production. 
C) may lead to extreme shortages of vitally needed products. 
D) All of the above are correct. 
A) prevents the market mechanism from reallocating resources more efficiently. 
B) discourages production. 
C) may lead to extreme shortages of vitally needed products. 
D) All of the above are correct.

Question 10

Prices are useful in coordinating society's economic planning because

Accepted Answer

A) they convey information about which goods are scarce and which are plentiful. 
B) economies based on price systems are more flexible than centrally planned economies. 
C) economies based on price systems are more likely than centrally planned economies to minimize the cost of producing society's output. 
D) All of the above are correct. 
A) they convey information about which goods are scarce and which are plentiful. 
B) economies based on price systems are more flexible than centrally planned economies. 
C) economies based on price systems are more likely than centrally planned economies to minimize the cost of producing society's output. 
D) All of the above are correct.

Question 11

Is a benevolent command economy likely to achieve greater efficiency than a purely competitive market system?
 Explain.

Accepted Answer

No.The market system, by itself, will te

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

The slope of a typical production possibilities frontier reflects the fact that

Accepted Answer

A) some systems of market organization are more efficient than others. 
B) the invisible hand always functions smoothly in a market system without government intervention. 
C) when resources are allocated efficiently, it's impossible to produce more of anything without producing less of something else. 
D) production is only possible when resources are allocated efficiently. 
A) some systems of market organization are more efficient than others. 
B) the invisible hand always functions smoothly in a market system without government intervention. 
C) when resources are allocated efficiently, it's impossible to produce more of anything without producing less of something else. 
D) production is only possible when resources are allocated efficiently.

Question 15

Scarcity is illustrated graphically by a production possibilities frontier.

Accepted Answer

A) True 
 B)False

Question 16

Figure 14-1
  
-In Figure 14-1, a change in consumer tastes favoring calculators will lead to which movement?

Accepted Answer

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

Question 17

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 18

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

Accepted Answer

Under laissez-faire it is the price syst

Question 19

Marxists and leaders of communist economies actually often admire the market mechanism for its

Accepted Answer

A) efficiency in allocation of resources. 
B) fairness in distribution of output. 
C) maximization of net benefits for consumers. 
D) effectiveness in achieving high rates of growth. 
A) efficiency in allocation of resources. 
B) fairness in distribution of output. 
C) maximization of net benefits for consumers. 
D) effectiveness in achieving high rates of growth.

Question 20

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.

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

Any increase in efficiency increases only profits of producers, with no increase in output.

With a monopoly, the total surplus is lower than it would be with a perfectly competitive industry.

In a laissez-faire system, the price mechanism dictates the production planning decisions.

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

If the marginal utility of a product exceeds its MC, we would want, on efficiency grounds, to

Input-output analysis is commonly used in production decisions.

The saying "the lower the price, the better" may not always be correct for an economy's public interest because

Figure 14-2 -As we move down the production possibilities schedule in Figure 14-2, each successive point is

Prohibiting price increases in situations of true scarcity

Prices are useful in coordinating society's economic planning because

Is a benevolent command economy likely to achieve greater efficiency than a purely competitive market system? Explain.

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

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

The slope of a typical production possibilities frontier reflects the fact that

Scarcity is illustrated graphically by a production possibilities frontier.

Figure 14-1 -In Figure 14-1, a change in consumer tastes favoring calculators will lead to which movement?

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

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

Marxists and leaders of communist economies actually often admire the market mechanism for its

An example of peak pricing is charging

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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