Question 1

Which of the following are characteristics of a perfectly free economy?

Accepted Answer

In a perfectly free economy, numerous buyers and sellers prevent any single entity from controlling the market, free entry and exit ensure competitive dynamics, and perfect information allows for informed decision-making, making all the listed options (A, B, C) characteristics of such an economy.

Question 2

When companies get together to fix prices, the result is a______ .

Accepted Answer

When companies get together to fix prices, the result is a monopoly, where one company has complete control over the market.

Question 3

Efficiency comes about in perfectly competitive free markets when:

Accepted Answer

In perfectly competitive free markets, efficiency is achieved through all the mechanisms described: firms are incentivized to allocate resources based on consumer demand (A), to minimize resource consumption and adopt efficient technologies (B), and commodities are distributed to maximize consumer satisfaction within their budget constraints (C).

Question 4

The common definition of price fixing is:

Accepted Answer

Price fixing typically involves an agreement among competitors to set prices artificially high or at a certain level, rather than allowing market forces to determine them.

Question 5

In a perfectly free economy, all buyers and sellers are utility maximizers: Each tries to get as much as possible for as little as possible.

Accepted Answer

In a perfectly free economy, the assumption is that all participants (buyers and sellers) act rationally to maximize their utility, meaning buyers want to obtain the maximum benefit at the lowest cost, and sellers aim to sell their goods or services at the highest possible price to maximize profit.

Question 6

A survey of major corporate executives indicated that 60 percent of those sampled believed that many businesses engage in price fixing.

Accepted Answer

The statement is plausible as surveys often reveal executives' perceptions on industry practices, including unethical ones like price fixing. However, without a specific source or study, the statement's accuracy in reality cannot be confirmed, but it is reasonable to assume such surveys could yield this result.

Question 7

In a perfectly free competitive market, no buyer or seller has the power to significantly affect the price of a good.

Accepted Answer

In a perfectly competitive market, there are many buyers and sellers, none of whom has a significant share of the market. This means that no single buyer or seller can influence the market price of a good; prices are determined by the overall forces of supply and demand.

Question 8

Because Microsoft Corporation's, market share is only 92 percent of the market in operating systems (Windows) and 94 percent of the market in integrated office suite software (MS Office), Microsoft is not considered a monopoly.

Accepted Answer

Despite not holding 100% of the market, Microsoft's dominant shares in operating systems and office suite software (92% and 94%, respectively) are significant enough to be considered monopolistic in nature, as they control a majority of the market, limiting competition.

Question 9

The most obvious failure of monopoly markets lies in the high prices they allow the monopoly companies to charge, violating capitalist justice.

Accepted Answer

Monopoly markets often lead to higher prices because the lack of competition allows the sole provider to set prices without the pressure to lower them, which can be seen as violating the principles of fair competition inherent in capitalist systems.

Question 10

Proponents of the Antitrust view argue that prices and profits in highly concentrated industries are higher than they should be. By breaking up large corporations into smaller units, they claim, higher levels of competition will emerge in those industries.

Accepted Answer

Antitrust proponents argue that reducing concentration in industries by breaking up large corporations will lead to increased competition, which typically results in lower prices and profits, benefiting consumers.

Question 11

When a company sells a buyer certain goods only on condition that the buyer also purchases other goods from the firm, this is known as:

Accepted Answer

Tying arrangement is a practice where a seller requires the buyer to purchase a second product as a condition for obtaining a desired product, effectively tying the sale of two products together.

Question 12

In a monopoly, there is only one seller, but other sellers can enter the market.

Accepted Answer

In a monopoly, there is only one seller in the market with high barriers to entry, preventing other sellers from entering the market easily.

Question 13

When a buyer purchases a good, each additional item of a certain type is less satisfying than the earlier ones. This is known as:

Accepted Answer

The principle of diminishing marginal utility states that as a person consumes more units of a good, the satisfaction (utility) gained from each additional unit decreases.

Question 14

Monopolistic markets and their high prices and profits violate capitalist justice because the seller charges more than the goods are worth. Thus, the prices the buyer must pay are unjust.

Accepted Answer

In a monopolistic market, the lack of competition allows the seller to set higher prices, which can lead to profits that exceed what would be considered fair in a competitive market, thus violating the principles of capitalist justice where prices should reflect the true value of goods.

Question 15

As in the ADM case, all that companies have to do to fix price is to agree on the price for which the companies will sell the product.

Accepted Answer

Price fixing involves not only agreeing on prices but also on other terms such as production quotas or market shares, which can restrict competition and harm consumers. The complexity of such agreements goes beyond merely setting a selling price.

Quiz 4: Ethics in the Market Place