Deck 6: The Market System: Functions, Structure, and Institutions

Question 1

The idea that in the market system, consumers ultimately decide which goods and services firms will produce is known as

A) socialism.
B) monopolistic competition.
C) consumer sovereignty.
D) institutional competition.

Answer 1

consumer sovereignty.

Question 2

Which of the following is not an example of a market?

A) Amazon.com
B) a neighborhood yard sale
C) a flea market
D) All of the above are examples of markets.

Answer 2

All of the above are examples of markets.

Question 3

Economists refer to the ideal combination of the price a firm should charge and the quantity a firm should produce as

A) profit maximization.
B) maximized production.
C) perfect competition.
D) optimus prime.

Answer 3

profit maximization.

Question 4

A market in which there are many sellers who all sell an identical product is called

A) perfect competition.
B) monopolistic competition.
C) monopoly.
D) oligopoly.

Question 5

A market dominated by a few large sellers who sell identical or differentiated products is called

A) perfect competition.
B) monopolistic competition.
C) monopoly.
D) oligopoly.

Question 6

In a monopoly market, there is (are) ________ seller(s).

A) one
B) a few
C) many
D) very many

Question 7

In an oligopoly market, there is (are) ________ seller(s).

A) one
B) a few
C) many
D) very many

Question 8

The brewing industry is dominated by a small number of very large producers who sell a differentiated product. The market structure that best fits the brewing industry is probably

A) perfect competition.
B) monopolistic competition.
C) monopoly.
D) oligopoly.

Question 9

The United States Postal Service (USPS) is the only organization allowed to deliver first-class mail in the United States. The market structure that best fits the USPS is probably

A) perfect competition.
B) monopolistic competition.
C) monopoly.
D) oligopoly.

Question 10

The wheat growing industry consists of very many farmers producing identical products. The market structure that best fits the wheat growing industry is probably

A) perfect competition.
B) monopolistic competition.
C) monopoly.
D) oligopoly.

Question 11

Markets are forums where buyers and sellers conduct transactions.

Question 12

A market structure where many sellers offer differentiated products is called perfect competition.

Question 13

The tobacco industry is an example of an oligopoly market structure.

Question 14

There is no single market structure where firms offer either differentiated or identical products.

Question 15

Explain why there is an active market for cola-flavored soft drinks in the United States but there is not an active market for sauerkraut-flavored soft drinks.

Question 16

What are the differences between the four market structures in terms of the number of sellers in the market and the types of products produced?

Question 17

If markets are left to their own devices, the ________ a good or service is desired by buyers, the ________ its price will be.

A) more; higher
B) more; lower
C) less; higher
D) less; more unstable

Question 18

If consumers suddenly have a greater desire for energy drinks, the price of energy drinks will likely ________ and producers will ________ production.

A) increase; decrease
B) increase; increase
C) decrease; decrease
D) decrease; increase

Question 19

If consumers suddenly decide they no longer want to purchase hybrid vehicles, the price of hybrid vehicles will likely ________ and producers will ________ production.

A) increase; decrease
B) increase; increase
C) decrease; decrease
D) decrease; increase

Question 20

The ________ a good or service is, the ________ its price is likely to be.

A) more scarce; higher
B) more scarce; lower
C) more available; higher
D) more available; more unstable

Question 21

A sudden discovery of a new, massive source of uranium in New Mexico will likely cause the price of uranium to ________, which will ________ the quantity of uranium demanded by consumers.

A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease

Question 22

A sudden massive reduction in the availability of chocolate will likely cause the price of chocolate to ________, which will ________ the quantity of chocolate demanded by consumers.

A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease

Question 23

Goods that are very useful and highly desired are likely to be

A) expensive if they are relatively abundant.
B) inexpensive if they are relatively abundant.
C) inexpensive if they are relatively rare.
D) expensive no matter if they are relatively abundant or rare.

Question 24

As the cost of resources goes up, producers ________ production, which drives prices ________.

A) increase; up
B) increase; down
C) decrease; up
D) decrease; down

Question 25

In the U.S. economy, the quantity of donuts produced each day is determined by the

A) U.S. Food and Drug Administration.
B) U.S. Department of Health and Human Services.
C) Donut Association of America.
D) individual decisions of thousands of donut makers.

Question 26

Prices are a critical component of the market system.

Question 27

Goods that are very useful and highly desired are likely to be relatively expensive, no matter how scarce or abundant they are.

Question 28

Prices serve as a key means of communication between buyers and sellers.

Question 29

Prices help coordinate all phases of production so producers have the right quantities of resources they need, in the right place, to operate.

Question 30

What are the four key functions of prices in the market system?

Question 31

Coal is very useful in the production of electricity. Red beryl, although not generally considered as very useful, is a beautiful gemstone found in the mountains of Utah, and has been described as 1,000 times more valuable than gold. Explain why red beryl costs so much more than coal.

Question 32

By reducing prices, competition encourages ________ transactions, which generates ________ cooperative surplus.

A) more; more
B) more; less
C) less; more
D) less; less

Question 33

The key issue with competition is the role competition plays in eliminating ________ and making the ________ as large as possible.

A) cooperative surplus; profits
B) producer surplus; consumer surplus
C) deadweight losses; cooperative surplus
D) shortages; total revenue

Question 34

Which of the following acts makes it a felony for competing businesses to fix prices?

A) the Sherman Act
B) the Clayton Act
C) the Federal Trade Commission Act
D) the Robinson-Patman Act

Question 35

Price fixing tends to result in ________ prices and ________ society's wealth.

A) higher; increases
B) higher; reduces
C) lower; increases
D) lower; reduces

Question 36

Sandra wants to purchase a Nitro scooter from the only Nitro dealer in town, but the dealer will not sell her the scooter unless she also purchases an extended warranty for $1,000. Sandra does not want to purchase the extended warranty from the dealer because she knows she can purchase the exact same warranty from her insurance company for $500. In this instance, the Nitro dealer appears to be violating one of the provisions of

A) the Sherman Act.
B) the Clayton Act.
C) the Federal Trade Commission Act.
D) the Robinson-Patman Act.

Question 37

Many of India's most talented people move to countries where doing business is easier than in India. Talented people leaving their own countries for countries where doing business is easier or where their job skills are in greater demand is known as

A) fight-or-flight.
B) export exodus.
C) brain drain.
D) in-migration.

Question 38

Laws and courts tend to make markets work ________ and make society ________.

A) less effectively; poorer
B) less effectively; richer
C) more effectively; poorer
D) more effectively; richer

Question 39

When there are many producers of an identical product and you have perfect and free information about what every seller is charging, eventually every merchant will

A) raise the price of the product in hopes that you will purchase the product from them.
B) agree to charge a high price for the product so each will be able to earn high profits.
C) charge the same price for the product, and the price will be just enough to cover costs.
D) discontinue selling the product since there is so much competition.

Question 40

When obtaining information is costly, competition is

A) less effective at forcing prices down.
B) more effective at forcing prices down.
C) only effective at forcing prices up.
D) unable to affect price changes.

Question 41

All of the following are ways in which the government can help insure the quality of information consumers receive except

A) enforcing truth-in-advertising standards.
B) awarding monopolies to political supporters and family members.
C) requiring businesses to undergo audits of their financial conditions.
D) publishing the academic performance of schools.

Question 42

All of the following are ground rules government can establish to help markets function well except

A) competition.
B) honesty.
C) information.
D) collusion.

Question 43

The form of economic organization in which all property is held in common is called

A) communism.
B) capitalism.
C) socialism.
D) utilitarianism.

Question 44

The form of economic organization in which productive resources are privately owned by individuals, and those individuals independently decide what to produce is called

A) communism.
B) capitalism.
C) socialism.
D) utilitarianism.

Question 45

Property rights that protect inventions are called

A) trademarks.
B) copyrights.
C) patents.
D) exclusive franchises.

Question 46

All of the following could be covered by patent protection except

A) a newly discovered Beethoven symphony.
B) a new variety of hybrid rose bush.
C) a hydrogen fuel cell engine.
D) a laser hair-removal device.

Question 47

Property rights that are granted to the creators of original work to produce and sell that work are called

A) trademarks.
B) copyrights.
C) patents.
D) exclusive franchises.

Question 48

Which of the following would not be covered by copyrights?

A) a movie script
B) a comic book
C) a poem
D) a prescription drug

Question 49

When the Pilgrims first arrived in North America, they established communal ownership of all pastures and of all agricultural production. As is common with communal ownership, this communal ownership by the Pilgrims resulted in

A) underproduction and underconsumption.
B) underproduction and overconsumption.
C) overproduction and underconsumption.
D) overproduction and overconsumption.

Question 50

The government has both encouraged and discouraged the creation of monopolies.

Question 51

Information facilitates exchange by fostering competition.

Question 52

Property rights are limited to tangible items such as land and machinery.

Question 53

Patents and copyrights are granted for a period of 20 years from the date of creation.

Question 54

________ refers to an increase in the total value of the goods and services an economy produces each year.

Question 55

The ground rules, customs, and conventions that govern the behavior of market participants are known as ________.

Question 56

List the four ground rules for a well-functioning market.

Question 57

With respect to property rights and production, explain the differences between the economic organizations known as communism, capitalism, and socialism.

Question 58

Explain the differences between patents and copyrights.

Question 59

Government works to create a competitive marketplace to help foster competition, yet it also awards patents which prevent competition. Why are both competition and the patent system essential to creating a large economic pie?

Question 60

Scenario 6.1: Tasha and Gloria are friends who each produce beaded headbands. Each can choose to work somewhat hard and expend $10 worth of effort, or can work extremely hard and expend $15 worth of effort. If either works somewhat hard, she can produce headbands that sell for a total of $22. If either works extremely hard, she can produce headbands which sell for a total of $30. Both Tasha and Gloria are equally good at making beaded headbands.

-Refer to Scenario 6.1. The dominant strategy is for Tasha to work ________ and for Gloria to work ________.

A) extremely hard; extremely hard
B) extremely hard; somewhat hard
C) somewhat hard; extremely hard
D) somewhat hard; somewhat hard

Question 61

Scenario 6.1: Tasha and Gloria are friends who each produce beaded headbands. Each can choose to work somewhat hard and expend $10 worth of effort, or can work extremely hard and expend $15 worth of effort. If either works somewhat hard, she can produce headbands that sell for a total of $22. If either works extremely hard, she can produce headbands which sell for a total of $30. Both Tasha and Gloria are equally good at making beaded headbands.

-Refer to Scenario 6.1. If both Tasha and Gloria play their dominant strategies, Tasha's net payoff will be ________ and Gloria's net payoff will be ________.

A) $15; $12
B) $15; $15
C) $30; $30
D) $12; $12

Question 62

Scenario 6.1: Tasha and Gloria are friends who each produce beaded headbands. Each can choose to work somewhat hard and expend $10 worth of effort, or can work extremely hard and expend $15 worth of effort. If either works somewhat hard, she can produce headbands that sell for a total of $22. If either works extremely hard, she can produce headbands which sell for a total of $30. Both Tasha and Gloria are equally good at making beaded headbands.

-Refer to Scenario 6.1. The Nash equilibrium occurs where

A) both Tasha and Gloria work extremely hard.
B) both Tasha and Gloria work somewhat hard.
C) Both A and B represent Nash equilibria.
D) There is not a Nash equilibrium in this scenario.

Question 63

Scenario 6.1: Tasha and Gloria are friends who each produce beaded headbands. Each can choose to work somewhat hard and expend $10 worth of effort, or can work extremely hard and expend $15 worth of effort. If either works somewhat hard, she can produce headbands that sell for a total of $22. If either works extremely hard, she can produce headbands which sell for a total of $30. Both Tasha and Gloria are equally good at making beaded headbands.

-Refer to Scenario 6.1. Suppose the friends are forced by government to combine their businesses and share what they make. With this revision to the scenario, the dominant strategy is for Tasha to work ________ and for Gloria to work ________.

A) extremely hard; extremely hard
B) extremely hard; somewhat hard
C) somewhat hard; extremely hard
D) somewhat hard; somewhat hard

Question 64

Scenario 6.1: Tasha and Gloria are friends who each produce beaded headbands. Each can choose to work somewhat hard and expend $10 worth of effort, or can work extremely hard and expend $15 worth of effort. If either works somewhat hard, she can produce headbands that sell for a total of $22. If either works extremely hard, she can produce headbands which sell for a total of $30. Both Tasha and Gloria are equally good at making beaded headbands.

-Refer to Scenario 6.1. Suppose the friends are forced by government to combine their businesses and share what they make. With this revision to the scenario, if both Tasha and Gloria play their dominant strategies, Tasha's net payoff will be ________ and Gloria's net payoff will be ________.

A) $15; $12
B) $15; $15
C) $30; $30
D) $12; $12

Question 65

Scenario 6.1: Tasha and Gloria are friends who each produce beaded headbands. Each can choose to work somewhat hard and expend $10 worth of effort, or can work extremely hard and expend $15 worth of effort. If either works somewhat hard, she can produce headbands that sell for a total of $22. If either works extremely hard, she can produce headbands which sell for a total of $30. Both Tasha and Gloria are equally good at making beaded headbands.

-Refer to Scenario 6.1. Suppose the friends are forced by government to combine their businesses and share what they make. With this revision to the scenario, the Nash equilibrium occurs where

A) both Tasha and Gloria work extremely hard.
B) both Tasha and Gloria work somewhat hard.
C) Both A and B represent Nash equilibria.
D) There is not a Nash equilibrium in this scenario.

Question 66

Property rights connect effort with reward.

Question 67

In a society where government mandates that everyone shares the product of one's hard work with everyone else, people will tend to work harder than they would if they could keep the full product of their work.

Question 68

Balthazar and Artemis are cousins who grow stick cactus in adjacent plots. Each can choose to work somewhat hard and expend $200 worth of effort, or can work extremely hard and expend $300 worth of effort. If either works somewhat hard, he can produce stick cactus that sell for a total of $650. If either works extremely hard, he can produce stick cactus which sell for a total of $800. Both Balthazar and Artemis are equally good at growing stick cactus.
a. What is the dominant strategy for Balthazar and for Artemis?
b. If both play their dominant strategies, what is the net payoff for each cousin?
c. Is there a Nash equilibrium, and if so, what is it?Now assume the cousins are forced by government to combine their plots and share what they make.
d. What is the dominant strategy for Balthazar and for Artemis?
e. If both play their dominant strategies, what is the net payoff for each cousin?
f. Is there a Nash equilibrium, and if so, what is it?
g. How did this change in property rights affect each cousin's incentive to work, and what happens to the economic pie?

Question 69

Explain the effects of communal farming on the incentive for individual farmers to expand their farms, relative to the incentives that exist in a market system.