Question 1

Countries that rely on a free market system are plagued by persistent shortages or surpluses of goods and services.

Accepted Answer

While free market systems may experience temporary shortages or surpluses, they tend to naturally balance out over time through the forces of supply and demand.

Question 2

(p. 37 Jill owns a bakery that specializes in cheesecakes. Until recently, Jill charged a price of $12 for each cheesecake. At this price Jill's customers bought an average of 84 cheesecakes each week. For the last few weeks, she has reduced her price to $10.50 per cheesecake, and her customers have purchased an average of 96 cheesecakes each week. These results are consistent with the economic concept of demand.

Accepted Answer

The decrease in price resulted in an increase in quantity demanded, which is consistent with the law of demand. Thus, the results are consistent with the economic concept of demand.

Question 3

GLAMOR GAL is a popular cosmetics company. Although it is gaining in popularity among younger women, its promotional strategy continues to focus on the shadow-free finish that it produces on almost any skin type. Due to the fact that its industry faces monopolistic competition, the company knows that it must continue to differentiate itself from the competition.

Accepted Answer

The statement accurately reflects the situation described in the passage.

Question 4

One of the drawbacks of free markets is the fact that competition in such markets undermines the ability of price to adjust to its equilibrium value in the long run.

Accepted Answer

The answer of One of the drawbacks of free markets...

Question 5

A monopoly occurs when there is a single seller for a product or service.

Accepted Answer

A monopoly refers to a market structure in which one single seller has control over the supply of a particular good or service, and there are no close substitutes available for customers. This gives the monopolist significant pricing power, as they can set the price of the product at a level that maximizes their profits, without fear of losing customers to competitors.

Question 6

Product differentiation is a key to success in monopolistic competition.

Accepted Answer

In monopolistic competition, there are many firms in the market and each firm tries to differentiate its product from its competitors to attract more customers. This differentiation can be in terms of quality, design, packaging, or branding. Product differentiation helps firms to create a unique identity for their products and charge higher prices. It also creates a sense of brand loyalty among customers. Therefore, product differentiation is a key to success in monopolistic competition.

Question 7

GLAMOR GAL, a popular women's cosmetics company is gaining popularity among younger women. Differentiating itself from the sea of companies that compete for the same business, it focuses on products for sensitive, youthful skin. GLAMOR GAL clearly operates in an oligopolistic environment.

Accepted Answer

The answer of GLAMOR GAL, a popular women's cosmetics company...

Question 8

If the quantity supplied in a market exceeds the quantity demanded, a shortage will exist.

Accepted Answer

If the quantity supplied exceeds the quantity demanded, there will be a surplus, not a shortage.

Question 9

Monica notices that just a few big companies produce the vast majority of soft drinks. She would be correct in describing the soft drink industry as an oligopoly.

Accepted Answer

Oligopoly is a market structure in which a small number of firms dominate the market. The fact that only a few big companies produce the vast majority of soft drinks indicates that the soft drink industry is indeed an oligopoly.

Question 10

Fetna resides in a country where the economic system is primarily based on free market capitalism. Fetna is likely to have the freedom to buy and sell property.

Accepted Answer

Free market capitalism emphasizes private property rights and allows individuals to buy and sell property. Therefore, Fetna would likely have the freedom to buy and sell property in a country with a free market capitalist economic system.

Question 11

As you drive to school in the morning, you will probably flip through several radio stations before deciding to settle on one for the duration of the drive. For instance: you can listen to a "fair and balanced" talk show; an "intelligent talk" program; an interactive "call-in" talk show; a "right-wing" political talk show; a "self-improvement" talk show; and, even an "all sports" talk show. With so much monopolistic competition in radio programming, radio stations focus on offering you something just a little different.

Accepted Answer

The passage states that there is monopolistic competition in radio programming, with each station offering something different in order to stand out from the others.

Question 12

In the United States, laws prohibit the creation of most types of monopolies.

Accepted Answer

The Sherman Antitrust Act and other laws prohibit the creation of monopolies that substantially lessen competition or create a monopoly in a particular industry.

Question 13

The greed of businesspeople represents one of the greatest dangers to the operation of a free market system.

Accepted Answer

The answer of The greed of businesspeople represents one of...

Question 14

Economists refer to a market in which a few sellers dominate the supply side as monopolistic competition.

Accepted Answer

Economists refer to a market in which a single seller dominates the supply side as a monopoly, not monopolistic competition. Monopolistic competition is a market structure characterized by many small firms selling differentiated products.

Question 15

In a free market economic system, the lack of government control and regulation means that businesses find it easy to take advantage of customers by offering poor quality products at high prices.

Accepted Answer

In a free market economic system, businesses are driven by competition to offer high-quality products at competitive prices. Without government control and regulation, businesses must rely on the satisfaction of their customers to succeed. While it is possible for some businesses to take advantage of customers, this is generally not a sustainable business practice in a free market system.

Question 16

One strength of a free-market economic system is that it emphasizes the fair and humane treatment of the less fortunate in society.

Accepted Answer

This statement is false. A free-market economic system is based on the principles of supply and demand and the pursuit of individual profit. It does not necessarily prioritize the fair and humane treatment of the less fortunate, and in fact, can often lead to inequality and exploitation.

Question 17

A surplus currently exists for a product called widgets. In a free market system, the government must step in and buy any widgets that consumers do not buy in order to eliminate the surplus and establish equilibrium.

Accepted Answer

In a free market system, the government does not typically intervene to buy up excess supply. Instead, market forces such as lowering the price or reducing production may eventually eliminate the surplus.

Question 18

In perfect competition, each firm produces a product that is clearly differentiated from the products of other firms in the same market.

Accepted Answer

In perfect competition, firms produce homogeneous products, meaning that their products are identical to each other in terms of quality, features, and characteristics. There is no differentiation among the products of different firms in the market.

Question 19

If a shortage exists in a market for a good, the price of that good will tend to fall.

Accepted Answer

If a shortage exists in a market for a good, it means that the demand for that good exceeds its supply. In this case, the price of the good is likely to increase, not fall, as consumers compete to purchase the limited supply of the good.

Question 20

History shows that free-market capitalism leads to a fair and equitable distribution of wealth.

Accepted Answer

History has shown that free-market capitalism often leads to concentration of wealth and income inequality. Without government interventions and regulations, the wealthiest individuals and corporations can gain significant advantages and accumulate wealth at the expense of others, leading to a large wealth gap between the rich and the poor.

Quiz 2: Understanding Economics and How It Affects Business