Deck 14: The Case for Free Markets I: The Price System

Question 1

Central planning is an efficient method for making coordination decisions.

Answer 1

False

Question 2

Price increases always reduce economic efficiency.

Answer 2

False

Question 3

Lower prices are always better for society.

Answer 3

False

Question 4

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

Question 5

Laissez faire is a policy that espouses central planning.

Question 6

Price decreases always increase economic efficiency.

Question 7

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

Question 8

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

Question 9

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

Question 10

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

Question 11

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

Question 12

Efficient allocation of resources makes everyone better off.

Question 13

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

Question 14

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

Question 15

Scarcity is illustrated graphically by a production possibilities frontier.

Question 16

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

Question 17

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

Question 18

Economics tells us which resource allocations are preferable.

Question 19

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

Question 20

Economists believe having higher prices for scarcer resources promotes efficiency.

Question 21

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

Question 22

High prices do not occur in laissez-faire markets.

Question 23

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 24

Any increase in efficiency increases output available for distribution.

Question 25

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

Question 26

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 27

Input-output analysis was developed by Wassily Leontief.

Question 28

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

Question 29

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

Question 30

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 31

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

Question 32

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

Question 33

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

Question 34

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

Question 35

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

Question 36

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

Question 37

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

Question 38

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

Question 39

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

Question 40

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

Question 41

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

Question 42

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

Question 43

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

Question 44

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

Question 45

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

Question 46

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

Question 47

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

Question 48

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

Question 49

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

Question 50

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

Question 51

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

Question 52

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

Question 53

For an efficient outcome, MR must exceed MC.

Question 54

Mutually beneficial trade is possible because of differing marginal utilities.

Question 55

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

Question 56

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

Question 57

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

Question 58

Economists can evaluate the desirability of the distribution of income.

Question 59

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

Question 60

"Peak pricing" can often improve economic efficiency.

Question 61

The existence of a universal law of scarcity creates pressures on societies to

A) use their resources according to government plans.
B) economize in the use of their resources.
C) allocate their resources equitably.
D) exploit their resources.

Question 62

Free markets produce allocatively efficient outcomes and have no flaws.

Question 63

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

Question 64

What does the production possibility curve imply about the resource allocation?

A) Only some points on the curve are efficient.
B) All points on the curve are equally efficient.
C) A point which lies below the curve is more efficient.
D) A point which lies above the curve is readily achievable.

Question 65

Figure 14-2

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

A) A, B, and C
B) B and C only
C) C and B and D
D) B only

Question 66

The production possibilities frontier illustrates

A) the constant rate of technological progress.
B) the fundamental concept of scarcity.
C) the rapid growth of the U.S.economy.
D) that guns always trade for butter.

Question 67

Figure 14-2

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

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

Question 68

Centrally planned economies do not use the price system for anything.

Question 69

An efficient allocation of resources exists if

A) one group of people can get more of the things they want without someone else having to give up anything.
B) no one can get more of the things he wants without someone else having to give up something.
C) the economy operates at any point under the production possibilities frontier.
D) the economy is operating at any point above the production possibilities frontier.

Question 70

Figure 14-2

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

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

Question 71

An efficient allocation of resources is demonstrated by a point

A) above the production possibilities frontier.
B) below the production possibilities frontier.
C) on the production possibilities frontier.
D) near the middle of the production possibilities frontier.

Question 72

Figure 14-1

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

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

Question 73

Figure 14-1

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

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

Question 74

The nation listed below whose economy comes closest to a centrally planned economy is

A) People's Republic of China.
B) Japan.
C) United Kingdom.
D) United States.

Question 75

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

A) a perfectly competitive market system
B) a purely command economic system
C) a market system with limited price controls and price ceilings
D) a command system with limited market activity for non-essentials

Question 76

The necessity for choice, in economics, arises from

A) high incomes and many goods.
B) scarcity of economic means for satisfying economic wants.
C) scarcity of time and knowledge, and numerous similar goods.
D) All of the above are correct.

Question 77

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

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 78

The graphical device that illustrates the concept of scarce resources being efficiently utilized in the economy is a(n)

A) budget line.
B) indifference curve.
C) production possibilities frontier.
D) marginal cost curve.

Question 79

The nation listed below whose economy currently comes closest to a free market is

A) North Korea.
B) Germany.
C) People's Republic of China.
D) Cuba.

Question 80

Figure 14-1

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

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