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

A factory in a centrally planned economy produces 1,000 left shoes and no right shoes.No corresponding factory produces only right shoes.This outcome is an example of inefficiency in

Production planning without the market mechanism is very efficiently handled by central planners.

Under a pure system of laissez faire, the government would not do which of the following?

Figure 14-2 -In Figure 14-2, which of the points are efficient allocations of resources?

"Peak pricing" can often improve economic efficiency.

In many cities, the price of summer pops concerts has risen.In Charlotte, North Carolina, and Columbus, Ohio, for example, concerts that were once free now cost $5.If there are only fixed costs and no variable costs nor marginal costs in an orchestra concert, what is the efficient price? Explain the reason why some people will find the efficient price unfair.

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

Higher prices can discourage use/consumption, which in turn may better allocate scarce resources.

Politicians and citizens may often choose policies that reduce economic efficiency because they are perceived as "fairer."

Under laissez faire, the allocation of resources among different products depends on

If MU = MC = P, an economist can judge with certainty that the distribution of output is

In a free-market economy, the pricing mechanism always operates to

Price decreases always increase economic efficiency.

Which type of economic system will produce the highest degree of allocative efficiency?

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

Input-output analysis is a technique used to solve complicated market equations.

Before a market allocation of goods on the production possibilities curve can be judged efficient, one must evaluate "what" goods the market produced.

Which of the following holds true in a market when the invisible hand functions properly?

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

An efficient allocation of resources is demonstrated by a point