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 are not without their flaws and shortcomings, persistent shortages or surpluses of goods and services are not inherent to a free market system. The proper functioning of a free market system requires competition, pricing mechanisms, and sufficient information to ensure that supply and demand are balanced. When these conditions are met, shortages and surpluses should be temporary and self-correcting.

Question 2

Meredith notices that just a few big companies produce most of the flavored teas she sees in the grocery store. She would be correct in describing the flavored tea industry as an oligopoly.

Accepted Answer

An oligopoly exists when a few large sellers dominate a market. Examples of oligopolistic markets include aircraft, automobiles, soft drinks, and breakfast cereals.

Question 3

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 4

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. While a free-market economic system allows for the potential for wealth creation and economic growth, it does not necessarily emphasize the fair treatment of the less fortunate. In fact, a completely unregulated free market can lead to inequality and exploitation. It is the responsibility of the government and individuals within society to ensure that the less fortunate are treated fairly and given access to resources and opportunities.

Question 5

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

Accepted Answer

Markets for products tend to move toward equilibrium through price adjustments. If there is a surplus of fidget spinners, the price of fidget spinners will fall, and buyers and sellers will adjust until equilibrium is achieved. Thus, adjustments in market price will restore equilibrium without government intervention.

Question 6

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 statement is incorrect. In fact, competition in free markets ensures that prices do adjust to their equilibrium value in the long run. When there is excess demand for a product, prices will increase, attracting new producers to enter the market and increasing supply until the market reaches equilibrium. Conversely, when there is excess supply, prices will decrease, causing some producers to exit the market and reducing supply until the market reaches equilibrium. This process of supply and demand interacting to determine prices is the basis of how free markets work.

Question 7

In the long run, the market price tends to adjust toward the equilibrium point.

Accepted Answer

This is one of the central concepts of microeconomics. The equilibrium price is where the quantity of a good or service demanded by consumers is equal to the quantity supplied by producers. If the market price is above the equilibrium point, there will be a surplus of the good or service, and producers will have an incentive to lower the price to sell more. If the market price is below the equilibrium point, there will be a shortage of the good or service, and producers will have an incentive to raise the price to make more profit. Over time, these forces will push the market price toward the equilibrium point.

Question 8

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

One of the fundamental characteristics of free markets is competition. Because businesses compete with each other, they must provide customers with quality products at fair prices and offer good service. Firms that produce poor products, charge high prices, or provide poor service will lose business to companies that provide customers with a better deal.

Question 9

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

Accepted Answer

A monopoly occurs when there is no competition in the market and a single seller has complete control over the supply and pricing of a product or service.

Question 10

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

Accepted Answer

The right to private property is the most fundamental of all rights under capitalism. This right means that people can buy, sell, and use land, buildings, machinery, inventions, and other forms of property. They can also pass the property on to their children.

Question 11

The point of intersection between the supply and demand curves is called the stress point.

Accepted Answer

The point of intersection between the supply and demand curves is called the equilibrium point.

Question 12

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

Accepted Answer

In many nations, capitalism has led to an unequal distribution of wealth. In fact, some businesspeople have sought personal gain through the exploitation of workers. Examples of this sort of exploitation include child labor, sweatshops employing immigrants for long hours at low wages under dismal working conditions, and even outright slavery.

Question 13

Glittering Gems is a popular fashion jewelery company. Although it is gaining in popularity among younger women, its promotional strategy continues to focus on the tarnish-free finish that is applied to every earring, necklace, and ring. 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

Glittering Gems competes against several companies. Monopolistic competition refers to a large number of sellers who produce very similar products. Buyers perceive the products to be different due to the firms' ability to differentiate themselves from each other.

Question 14

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

Accepted Answer

If there is a shortage in the market, the demand for the good is higher than the supply. As a result, the price tends to increase due to the scarcity of the good.

Question 15

Sarah owns a candle shop. She had been charging $5 for each scented jar candle. At this price her customers bought an average of 421 jars each week. For the last few weeks, she has reduced her price to $3.95 per candle, and her customers have purchased an average of 695 jar candles each week. These results are consistent with the economic concept of demand.

Accepted Answer

Generally speaking, the quantity demanded tends to rise when the price of a good falls.

Question 16

Product differentiation is a key to success in monopolistic competition.

Accepted Answer

Product differentiation allows firms to create a unique identity for their products, making their products appear different from their competitors. This allows firms to charge a higher price and gain a loyal customer base. In monopolistic competition, where there are many small firms selling differentiated products, product differentiation is a key to success as it helps the firms to stand out and attract customers.

Question 17

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 few sellers dominate the supply side as an oligopoly, not monopolistic competition. Monopolistic competition refers to a market structure with many small firms selling differentiated products.

Question 18

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

Accepted Answer

The Sherman Antitrust Act and other laws in the United States prohibit the creation of most types of monopolies in order to promote competition and protect consumers.

Question 19

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, each firm produces a product that is identical or homogeneous to the products of other firms in the same market. There is no differentiation.

Question 20

Shimmer Sisters, a popular nail polish and cosmetics company, is gaining popularity among teens and young professionals. Differentiating itself from the sea of companies that compete for the same business, it focuses on creating products using trending color palettes and the finest ingredients. Shimmer Sisters clearly operates in an oligopolistic environment.

Accepted Answer

Shimmer Sisters competes against several companies. Monopolistic competition refers to a large number of sellers who produce very similar products. Buyers perceive the products to be different due to the firms' ability to differentiate themselves from each other. An oligopoly is a market in which just a few sellers dominate the market.

Quiz 2: Understanding Economics and How It Affects Business