Question 1

Which of the following is a result of a market economy?

Accepted Answer

A market economy is characterized by voluntary exchange where parties engage in transactions that benefit both parties. This leads to a self-regulating system where prices adjust to supply and demand, leading to efficient use of resources without the need for external intervention such as environmental protection or equal income distribution.

Question 2

Which of the following is motivated by an efficiency concern?

Accepted Answer

The United Network for Organ Sharing's advocacy for a system to ration scarce kidneys that would favor young patients over old is motivated by an efficiency concern, as it aims to maximize the number of years of life gained from donated organs.

Question 3

Which of the following statements about competition in a market is true?

Accepted Answer

Competition in a market results in firms producing and selling products as long as the marginal benefit to consumers exceeds the marginal cost of production. Firms cannot charge a price greater than the marginal cost of producing the product, as consumers will switch to an alternative supplier if prices are too high, leading to a loss of market share for the firm. However, firms cannot charge a price lower than the marginal cost of producing the product, as this would lead to a loss. As a result, firms are forced to find a balance between the price they charge and the cost of production in order to remain competitive in the market. This benefits consumers as they are able to purchase products at the lowest possible price.

Question 4

Trinh quits his $80,000-a-year job to become a full-time volunteer at a museum. What is the opportunity cost of his decision?

Accepted Answer

The opportunity cost of Trinh's decision is the value of the next best alternative that he gave up by quitting his job. Since Trinh was earning $80,000 a year in his previous job, the opportunity cost of his decision to become a full-time volunteer at the museum is at least $80,000.

Question 5

Political candidates often hold fundraisers by charging "per plate" for dinner. Wendy purchased four tickets to a $1,000 per plate dinner for a local city council candidate. Does this transaction benefit both parties?

Accepted Answer

Wendy voluntarily purchased four tickets to the fundraising dinner for the city council candidate, which indicates that she values the experience of attending the event and supporting the candidate more than the cost of the tickets. The candidate is able to raise funds for their campaign through this transaction, which benefits their campaign. Therefore, it is a voluntary exchange that benefits both parties.

Question 6

Markets promote

Accepted Answer

Markets promote competition and voluntary exchange between individuals, allowing for the most efficient allocation of resources. While market outcomes may not always be equal or equitable, they are generally considered fair as individuals make choices based on their own preferences and abilities. Therefore, choice D is the best answer as it accurately reflects the main functions of markets.

Question 7

How are most fundamental economic decisions now determined in China?

Accepted Answer

The answer of How are most fundamental economic decisions now...

Question 8

________ increases economic efficiency because it forces firms to produce and sell goods and services as long as the additional benefit to consumers is greater than the additional cost of production.

Accepted Answer

Competition incentivizes firms to be more efficient and produce goods and services that consumers want at a lower cost. This competition leads to lower prices for consumers and more innovation in the market. Voluntary exchange and equity do not necessarily increase economic efficiency, and a centrally planned economy is not focused on competition or efficiency.

Question 9

Jewelry manufacturers produce a range of products such as rings, necklaces, bracelets, and brooches. What fundamental economic question are they addressing by offering this range of items?

Accepted Answer

By offering a range of products such as rings, necklaces, bracelets, and brooches, jewelry manufacturers are addressing the fundamental economic question of "what to produce?" They are deciding on the mix of products to offer in order to meet consumer demand and maximize profits.

Question 10

When every good or service is produced up to the point where the last unit provides ________, allocative efficiency occurs.

Accepted Answer

Allocative efficiency occurs when every good or service is produced up to the point where the last unit provides a marginal benefit to society equal to the marginal cost of producing it. This means that the resources are distributed in the most efficient way possible, and there is no way to produce more of a good or service without incurring an additional cost that is greater than the marginal benefit it provides to society. Therefore, option A is the correct choice.

Question 11

Trina's Tropical Fish Store sells goldfish for $2 each and angelfish for $10 each. What is the opportunity cost of buying a goldfish?

Accepted Answer

The opportunity cost is the value of the next best alternative that must be given up in order to make the chosen purchase. In this case, if someone chooses to buy a goldfish for $2, they are giving up the opportunity to buy an angelfish for $10. Therefore, the opportunity cost of buying a goldfish is equivalent to 1/5 of an angelfish. It is not $10 or $2 because those are the actual prices of the fish, not the opportunity cost. It is also not 5 angelfish because that is the opposite calculation (the opportunity cost of buying an angelfish would be giving up the opportunity to buy 5 goldfish).

Question 12

Which of the following generates productive efficiency?

Accepted Answer

Competition among sellers leads to efficient production where firms try to minimize their costs to remain competitive in the market. This leads to a situation where firms produce at the lowest possible cost, leading to productive efficiency. Competition among buyers, government inspectors, and government production rules and regulations are not directly linked to productive efficiency.

Question 13

Consider the following economic agents: 
a.	the government
b. 	consumers
c.	producers
Who, in a market economy, decides what goods and services will be produced with the scarce resources available in that economy?

Accepted Answer

In a market economy, consumers and producers collectively decide what goods and services will be produced. Consumers express their preferences through their purchasing choices, while producers respond to these preferences by supplying goods and services.

Question 14

Which of the following is motivated by an equity concern?

Accepted Answer

Transferring funds to food bank programs to increase benefits for lower-income families is motivated by an equity concern as it aims to address the unequal distribution of resources and provide support to those in need.

Question 15

In a modern mixed economy, who decides what goods and services will be produced?

Accepted Answer

In a mixed economy, the decision of what goods and services to produce is influenced by producers who decide what to manufacture or offer, consumers who make purchases based on demand, and the government which sets regulations and guidelines for production and consumption. Therefore, all three parties play a role in determining what goods and services are produced in a modern mixed economy.

Question 16

Which of the following correctly describes the relationship between economic efficiency and economic equity?

Accepted Answer

Economic efficiency and economic equity often call for different outcomes, and achieving one may require sacrificing the other. For example, a perfectly efficient market might not provide equal access to goods and services, while policies designed to promote equity may lead to decreased efficiency. A common trade-off exists between these goals, and policymakers must make difficult decisions about how to balance them.

Question 17

In economics, the term "equity" means

Accepted Answer

In economics, equity refers to the fair distribution of economic benefits among individuals or groups. It is the principle of fairness and impartiality in allocating resources or opportunities, regardless of factors like race, gender, or social status. Therefore, option D (economic benefits are distributed fairly) is the best choice that aligns with the meaning of equity in economics. The other options (A, B, and C) are incorrect as they do not reflect the concept of equity in economics.

Question 18

Voluntary exchange between buyers and sellers generates ________ in a market economy.

Accepted Answer

Voluntary exchange between buyers and sellers allows for prices to be determined by supply and demand, resulting in a more efficient allocation of resources to the production of goods and services that consumers are willing to pay for. This is known as allocative efficiency.

Question 19

Which of the following is an example of an efficiency-equity trade-off faced by economic agents?

Accepted Answer

The allocation of HIV-prevention resources illustrates an efficiency-equity trade-off because the government must choose between allocating resources based on reported AIDS cases (equity) or allocating resources to programs that prevent more infections per dollar (efficiency). This trade-off involves balancing the goal of providing prevention services to those who need it most with the goal of maximizing the overall impact of the resources.

Question 20

Allocative efficiency best explains ________, and productive efficiency best explains ________.

Accepted Answer

The answer of Allocative efficiency best explains ________, and productive...

Quiz 1: Economics: Foundations and Models