Deck 11: The Case for Free Markets: the Price System

Question 1

Each point on a production possibilities frontier represents an efficient allocation of resources in an economy at one point in time.

Answer 1

False

Question 2

Economists believe having higher prices for scarcer resources promotes efficiency.

Answer 2

True

Question 3

There is only one efficient allocation of resources in an economy at one point in time.

Answer 3

False

Question 4

Production at points beyond the production possibilities frontier cannot be attained unless there is an increase in resources or an improvement in technology.

Question 5

Efficient allocation of resources makes everyone better off.

Question 6

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

Question 7

Economics tells us which resource allocations are preferable.

Question 8

Price decreases always increase economic efficiency.

Question 9

Higher prices for scarcer resources can improve the efficiency of an economy.

Question 10

Lower prices are always better for society.

Question 11

Lower prices are a signal of the scarcity of a resource.

Question 12

Laissez-faire refers to a program of minimal interference in the market system.

Question 13

In a market system, the working of the price system only results in the distribution of income.

Question 14

Scarcity is illustrated graphically by a production possibilities frontier.

Question 15

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

Question 16

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

Question 17

Prices set too low can actually be against the public interest.

Question 18

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

Question 19

Price increases always reduce economic efficiency.

Question 20

In a market system, prices are used to coordinate economic activity.

Question 21

At the equilibrium point in a perfectly competitive industry, the total surplus (the sum of the consumer surplus and producer surplus)will be at its maximum.

Question 22

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

Question 23

Central planning is an efficient method for making coordination decisions.

Question 24

The "invisible hand" refers to the control that government must exercise over a market economy.

Question 25

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

Question 26

Any increase in efficiency increases output available for distribution.

Question 27

Distribution is a major question to be answered by any economic system.

Question 28

Command economies strictly rely on sophisticated input-output analysis to allocate resources.

Question 29

A weakness of the price system is that it completely fails to take account consumer preferences in the distribution of goods and services.

Question 30

Command economies are able to achieve greater allocative efficiency than market economies.

Question 31

Laissez-faire is a policy that espouses central planning.

Question 32

Under a system of laissez-faire, output selection is determined by consumers' wants.

Question 33

The laissez-faire system relies on the price mechanism to allocate resources.

Question 34

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

Question 35

High prices do not occur in laissez-faire markets.

Question 36

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

Question 37

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

Question 38

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.

Question 39

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

Question 40

Central planning systems were used in the former Soviet Union but since this union dissolved no other nations now use this allocation process.

Question 41

Mutually beneficial trade is possible because of differing marginal utilities.

Question 42

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

Question 43

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

Question 44

If the allocation of resources is efficient, then a market economy will maximize the difference between total utility and total cost.

Question 45

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

Question 46

The allocation of resources is efficient under an idealized free market system.

Question 47

Total surplus is the sum of producer's surplus and consumer's surplus.

Question 48

Efficiency in the choice of outputs requires that marginal cost be equal to marginal revenue and nothing else.

Question 49

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

Question 50

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

Question 51

A consumer who buys any amount of a good will realize a positive consumer's surplus from that good.

Question 52

For a rational consumer, the consumer's surplus will never be a negative number.

Question 53

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

Question 54

Under perfect competition, if marginal cost is below price, then a producer can benefit from increasing his or her output.

Question 55

Mutually beneficial trade is impossible when different persons have different preferences about goods and services.

Question 56

Under perfect competition, the lure of profits makes producers try to equate marginal cost and price.

Question 57

The producer's surplus is equal to the difference between how much the seller can charge for a product and how much the consumer is willing to purchase it for.

Question 58

To be efficient, outputs should be produced that minimize total cost.

Question 59

When total surplus is maximized, then this implies that the output level will be produced where MC = MU.

Question 60

The introduction of a tax in a perfectly competitive marketplace that is originally in equilibrium will only affect consumer's surplus and not producer's surplus.

Question 61

Uncoordinated decisions in perfect competition lead to mass confusion and inefficiency.

Question 62

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

Question 63

Prices influence the distribution of income by making the distribution fairer.

Question 64

Economists can objectively evaluate the desirability of the distribution of income.

Question 65

It is in society's best interest that the MC of the last unit produced of a good is equal to its MU.

Question 66

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

Question 67

Allocations that are inefficient are sometimes chosen by policy makers as a way of improving fairness.

Question 68

Whenever MC of the last unit produced of a good is greater than its MU, society can benefit from decreasing the output of that good.

Question 69

For an efficient outcome, MR must exceed MC.

Question 70

"Peak pricing" can often improve economic efficiency.

Question 71

Market systems can be evaluated as efficient or inefficient, but not as fair or unfair.

Question 72

Free markets produce relatively high levels of efficiency but low rates of growth.

Question 73

The perfect competition price system is the most efficient because it equates MC = P = MU.

Question 74

The price system automatically leads to an efficient allocation of inputs among the different production processes.

Question 75

"Peak pricing" can only work effectively if prices remain relatively low for scarce resources.

Question 76

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

Question 77

Free markets produce allocatively efficient outcomes and have no flaws.

Question 78

For any combination or outputs, there is an efficient allocation of income.

Question 79

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

Question 80

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