Question 1

Is an efficient market allocation fair?
 Explain.

Accepted Answer

It is not generally possible to define f

Question 2

The laissez-faire free-market system is

Accepted Answer

A) an ideal of perfection. 
B) one that leaves no room for improvement. 
C) unmatched by any other system for allocative efficiency. 
D) All of the above are correct. 
A) an ideal of perfection. 
B) one that leaves no room for improvement. 
C) unmatched by any other system for allocative efficiency. 
D) All of the above are correct.

Question 3

Inefficient allocation of resources occurs when

Accepted Answer

A) no one can be made better off without having someone else give up something. 
B) it is possible to make some people better off without making others worse off. 
C) society is operating at a point high on the production possibilities frontier. 
D) society is operating at a point low on the production possibilities frontier. 
A) no one can be made better off without having someone else give up something. 
B) it is possible to make some people better off without making others worse off. 
C) society is operating at a point high on the production possibilities frontier. 
D) society is operating at a point low on the production possibilities frontier.

Question 4

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 5

The price system takes into account consumer preferences in the distribution of goods and services.

Accepted Answer

A) True 
 B)False

Question 6

The distribution process performed by the price system is not as efficient as the distribution process of central planners.

Accepted Answer

A) True 
 B)False

Question 7

Government-imposed limits on price movements are likely to

Accepted Answer

A) increase economic efficiency. 
B) decrease economic efficiency. 
C) leave economic efficiency unchanged. 
D) promote economic growth in the economy. 
A) increase economic efficiency. 
B) decrease economic efficiency. 
C) leave economic efficiency unchanged. 
D) promote economic growth in the economy.

Question 8

When an economy operates efficiently,

Accepted Answer

A) the MRPs of every input into the production of a good are equal. 
B) marginal utility equals marginal cost for every good. 
C) the price of a good equals the sum of the marginal physical products of its inputs. 
D) All of the above are correct. 
A) the MRPs of every input into the production of a good are equal. 
B) marginal utility equals marginal cost for every good. 
C) the price of a good equals the sum of the marginal physical products of its inputs. 
D) All of the above are correct.

Question 9

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 10

Differentiate between consumer's surplus and producer's surplus.For a rational consumer, consumer's surplus will never be a negative number.Why?

Accepted Answer

The consumer's surplus from a purchase i

Question 11

Higher efficiency in the economy can be reached if prices are held low by law.

Accepted Answer

A) True 
 B)False

Question 12

Price increases always reduce economic efficiency.

Accepted Answer

A) True 
 B)False

Question 13

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 gouging 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 above are correct. 
A) unrestrained monopoly that would otherwise succeed in gouging 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 above are correct.

Question 14

Under laissez faire, output selection is determined by

Accepted Answer

A) consumer preferences. 
B) production costs. 
C) firms' desires to make profits. 
D) All of the above are correct. 
A) consumer preferences. 
B) production costs. 
C) firms' desires to make profits. 
D) All of the above are correct.

Question 15

If the marginal utility of a gallon of milk to consumers is $2.50 and the MC of producing the gallon of milk is $1.50, then

Accepted Answer

A) the value of the resources used up in producing one more gallon of milk would be $1 less than the money value of the additional gallon to consumers. 
B) society could be made better off by expanding the output of milk. 
C) resources are not being used most efficiently. 
D) All of the above are true. 
A) the value of the resources used up in producing one more gallon of milk would be $1 less than the money value of the additional gallon to consumers. 
B) society could be made better off by expanding the output of milk. 
C) resources are not being used most efficiently. 
D) All of the above are true.

Question 16

It is true that the distribution process carried out by the price system

Accepted Answer

A) accomplishes the task more efficiently than central planners would. 
B) favors the rich. 
C) is superior to other rationing mechanisms because it is able to pay attention to individual consumer preferences. 
D) All of the above are true. 
A) accomplishes the task more efficiently than central planners would. 
B) favors the rich. 
C) is superior to other rationing mechanisms because it is able to pay attention to individual consumer preferences. 
D) All of the above are true.

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

In a free-market system, producers will react to an increase in demand when

Accepted Answer

A) the price goes up. 
B) the government announces the increased demand. 
C) their costs increase. 
D) the free press publishes news of the increased demand. 
A) the price goes up. 
B) the government announces the increased demand. 
C) their costs increase. 
D) the free press publishes news of the increased demand.

Question 19

Prices

Accepted Answer

A) solve the problem of distribution of products among consumers. 
B) act as rationing devices. 
C) under laissez faire produce an efficient allocation of resources. 
D) do all of the above. 
A) solve the problem of distribution of products among consumers. 
B) act as rationing devices. 
C) under laissez faire produce an efficient allocation of resources. 
D) do all of the above.

Question 20

The coordination task of dividing products among consumers is a problem of

Accepted Answer

A) output selection. 
B) production planning. 
C) distribution. 
D) market segmentation. 
A) output selection. 
B) production planning. 
C) distribution. 
D) market segmentation.

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

Is an efficient market allocation fair? Explain.

The laissez-faire free-market system is

Inefficient allocation of resources occurs when

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

The price system takes into account consumer preferences in the distribution of goods and services.

The distribution process performed by the price system is not as efficient as the distribution process of central planners.

Government-imposed limits on price movements are likely to

When an economy operates efficiently,

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

Differentiate between consumer's surplus and producer's surplus.For a rational consumer, consumer's surplus will never be a negative number.Why?

Higher efficiency in the economy can be reached if prices are held low by law.

Price increases always reduce economic efficiency.

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

Under laissez faire, output selection is determined by

If the marginal utility of a gallon of milk to consumers is $2.50 and the MC of producing the gallon of milk is $1.50, then

It is true that the distribution process carried out by the price system

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

In a free-market system, producers will react to an increase in demand when

Prices

The coordination task of dividing products among consumers is a problem of

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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