Question 1

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 homogeneous product that is identical to the products of other firms in the same market. There is no differentiation between products.

Question 2

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 typically does not intervene to buy excess products. Instead, the surplus may lead to a decrease in prices, which can encourage more consumers to purchase the product and ultimately bring the market back to equilibrium.

Question 3

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 has led to an increase in the quantity demanded, which is consistent with the law of demand in economics.

Question 4

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

Accepted Answer

History actually reveals that free-market capitalism often leads to an inequitable distribution of wealth, with the rich getting richer and the poor becoming poorer. This tends to occur because those who are already wealthy can use their resources to gain even more wealth, while those who are less fortunate struggle to compete.

Question 5

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

This statement is false. In fact, competition in free markets is key to ensuring that prices adjust to their equilibrium value in the long run. When there is competition among producers, they are incentivized to lower their prices in order to attract customers, which ultimately drives down the price of the good or service to its equilibrium level. In this way, competition promotes efficiency in the market and ensures that resources are allocated to their most productive uses.

Question 6

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. Monopolistic competition refers to a market structure in which many firms sell products that are similar but not identical, and have some control over the price they charge.

Question 7

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, competition among businesses encourages them to offer high-quality products at competitive prices in order to attract customers. Without government regulation, businesses may still attempt to take advantage of customers, but this behavior is limited by the forces of supply and demand, as well as the potential for negative feedback and loss of reputation.

Question 8

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 mentions that the industry faces monopolistic competition, which means there are multiple competitors in the market. Therefore, Glamor Gal needs to differentiate itself from its competitors to stand out.

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

An oligopoly is characterized by a small number of large firms dominating an industry. In the soft drink industry, Coca-Cola, PepsiCo, and Dr Pepper Snapple Group control most of the market share.

Question 10

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

Accepted Answer

This is true. The United States has antitrust laws such as the Sherman Antitrust Act and the Clayton Antitrust Act to prevent monopolies and promote competition in the marketplace.

Question 11

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

Accepted Answer

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Question 12

Product differentiation is a key to success in monopolistic competition.

Accepted Answer

In monopolistic competition, firms differentiate their products to create a perceived difference in order to capture a larger market share and pricing power. This allows firms to have some control over the price they charge, creating a competitive advantage and potential for increased profits. Therefore, product differentiation is essential for success in monopolistic competition.

Question 13

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

Accepted Answer

A monopoly occurs when there is only one seller for a particular product or service, giving them significant control over the market price and supply.

Question 14

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 or market-clearing point, not the stress point.

Question 15

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 free-market economic systems can provide opportunities for individuals to improve their economic status, they do not necessarily prioritize the fair and humane treatment of the less fortunate. In fact, critics of free-market systems argue that they often perpetuate inequality and can result in exploitation of marginalized groups. Policies and government interventions are often necessary to address these issues and ensure fair treatment for all members of society.

Question 16

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

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Question 17

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

Accepted Answer

While free market economies can experience fluctuations in supply and demand leading to temporary shortages or surpluses, they are not persistent or systemic in nature. The free market system typically self-corrects through adjustments in prices and competition among producers.

Question 18

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

Accepted Answer

This is a fundamental principle of market economics known as the law of supply and demand. As supply and demand shift over time, the market price will fluctuate, but ultimately it will tend to settle at the equilibrium point where the quantity of goods or services demanded by buyers matches the quantity supplied by sellers.

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, it means that demand for the good exceeds the available supply. This puts upward pressure on the price of the good. As a result, the price of the good will tend to rise rather than fall.

Question 20

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 typically allows for the freedom to buy and sell property.

Quiz 2: Understanding Economics and How It Affects Business