Question 1

The basic forces driving the "invisible hand" are

Accepted Answer

A) government and business. 
B) information and computer technology. 
C) competition and self-interest. 
D) cooperation and altruism. 
A) government and business. 
B) information and computer technology. 
C) competition and self-interest. 
D) cooperation and altruism.

Question 2

Figure 14-2
  
-In Figure 14-2, which movement would represent an improvement for all individuals?

Accepted Answer

A) A to B 
B) C to AC 
C) D to B 
D) A to D 
A) A to B 
B) C to AC 
C) D to B 
D) A to D

Question 3

Assuming one can derive a correct input-output table, are there still any reasons to prefer the market to central planning?

Accepted Answer

The market reflects consumer choice.The

Question 4

To equalize traffic on transportation routes, a pricing arrangement called "peak, off-peak pricing" would most likely be proposed by

Accepted Answer

A) economists. 
B) politicians. 
C) regulators. 
D) the general public. 
A) economists. 
B) politicians. 
C) regulators. 
D) the general public.

Question 5

Which of the following functions is not performed by prices in a free market?

Accepted Answer

A) guiding the allocation of resources 
B) conveying information about the marginal cost of production 
C) making the distribution of income more equitable 
D) replacing the need for governmental supervision of production 
A) guiding the allocation of resources 
B) conveying information about the marginal cost of production 
C) making the distribution of income more equitable 
D) replacing the need for governmental supervision of production

Question 6

Figure 14-1
  
-In Figure 14-1, 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 7

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

Accepted Answer

A) selecting outputs. 
B) selecting inputs. 
C) distributing outputs. 
D) All of the above are correct. 
A) selecting outputs. 
B) selecting inputs. 
C) distributing outputs. 
D) All of the above are correct.

Question 8

If the marginal cost of producing steel exceeds the marginal utility of using steel, then for economic efficiency,

Accepted Answer

A) the price of steel should fall. 
B) society should produce less steel. 
C) the price of goods made with steel should fall. 
D) society should direct resources toward steel production and away from the production of other goods. 
A) the price of steel should fall. 
B) society should produce less steel. 
C) the price of goods made with steel should fall. 
D) society should direct resources toward steel production and away from the production of other goods.

Question 9

What is the order in which an economy tries to solve the issue of resource allocation?

Accepted Answer

A) Production planning, distribution, and output selection. 
B) Output selection, production planning, and distribution. 
C) Production planning, output selection, and distribution. 
D) Distribution, production planning, and output selection. 
A) Production planning, distribution, and output selection. 
B) Output selection, production planning, and distribution. 
C) Production planning, output selection, and distribution. 
D) Distribution, production planning, and output selection.

Question 10

Efficiency in output requires which of the following?

Accepted Answer

A) MC = MRP. 
B) MC = MFC. 
C) MC = MU. 
D) MC = AVC. 
A) MC = MRP. 
B) MC = MFC. 
C) MC = MU. 
D) MC = AVC.

Question 11

In a free-market economy, prices coordinate society's decisions about

Accepted Answer

A) how and for whom to produce. 
B) what, how, and for whom to produce. 
C) how and for whom to produce but not how much to produce. 
D) how much and for whom to produce but not how to produce. 
A) how and for whom to produce. 
B) what, how, and for whom to produce. 
C) how and for whom to produce but not how much to produce. 
D) how much and for whom to produce but not how to produce.

Question 12

How does a free-market system address the output selection task?

Accepted Answer

A free-market system decides what should

Question 13

The price mechanism solves the "for whom" problem by assigning high prices to goods in high demand and letting customers choose whether to purchase them.

Accepted Answer

A) True 
 B)False

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

An unplanned economy operating under laissez faire

Accepted Answer

A) allocates resources by market supply and demand. 
B) cannot respond to basic questions about production and distribution. 
C) shows breakdowns with frequent surpluses and shortages. 
D) allocates goods and services under government subsidy. 
A) allocates resources by market supply and demand. 
B) cannot respond to basic questions about production and distribution. 
C) shows breakdowns with frequent surpluses and shortages. 
D) allocates goods and services under government subsidy.

Question 16

Politicians always agree with economists about the most efficient way of doing things.

Accepted Answer

A) True 
 B)False

Question 17

There are only two people in the world (Adam and Eve) and only one good (apples).Adam has four apples and a total utility in money terms from apple consumption of $16; Eve has four apples and a total utility from apple consumption of $20.Which of the following statements must be true?

Accepted Answer

A) Eve's marginal utility from consuming her fourth apple must be greater than Adam's marginal utility from consuming his fourth apple. 
B) The total utility of society will rise if Adam gives Eve one apple. 
C) If Adam and Eve each always has a positive marginal utility from consuming apples, the total utility of society can only be increased by an increase in the total number of apples available for consumption. 
D) Adam's average utility from consuming apples is greater than Eve's average utility from consuming apples. 
A) Eve's marginal utility from consuming her fourth apple must be greater than Adam's marginal utility from consuming his fourth apple. 
B) The total utility of society will rise if Adam gives Eve one apple. 
C) If Adam and Eve each always has a positive marginal utility from consuming apples, the total utility of society can only be increased by an increase in the total number of apples available for consumption. 
D) Adam's average utility from consuming apples is greater than Eve's average utility from consuming apples.

Question 18

Higher prices

Accepted Answer

A) are always against the public interest. 
B) may sometimes serve the public interest. 
C) should never be allowed. 
D) occur automatically for abundant goods. 
A) are always against the public interest. 
B) may sometimes serve the public interest. 
C) should never be allowed. 
D) occur automatically for abundant goods.

Question 19

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 20

Figure 14-5
  
-Figure 14-5 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 P

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

The basic forces driving the "invisible hand" are

Figure 14-2 -In Figure 14-2, which movement would represent an improvement for all individuals?

Assuming one can derive a correct input-output table, are there still any reasons to prefer the market to central planning?

To equalize traffic on transportation routes, a pricing arrangement called "peak, off-peak pricing" would most likely be proposed by

Which of the following functions is not performed by prices in a free market?

Figure 14-1 -In Figure 14-1, a technological breakdown in calculator production would cause which movement?

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

If the marginal cost of producing steel exceeds the marginal utility of using steel, then for economic efficiency,

What is the order in which an economy tries to solve the issue of resource allocation?

Efficiency in output requires which of the following?

In a free-market economy, prices coordinate society's decisions about

How does a free-market system address the output selection task?

The price mechanism solves the "for whom" problem by assigning high prices to goods in high demand and letting customers choose whether to purchase them.

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

An unplanned economy operating under laissez faire

Politicians always agree with economists about the most efficient way of doing things.

There are only two people in the world (Adam and Eve) and only one good (apples).Adam has four apples and a total utility in money terms from apple consumption of $16; Eve has four apples and a total utility from apple consumption of $20.Which of the following statements must be true?

Higher prices

In a planned economy,

Figure 14-5 -Figure 14-5 contains a production possibilities frontier for wheat and milk production.Explain why Point C is not a point where resources are being used efficiently.

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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