Question 1

Adam Smith argued that in a market system,when people act in their own self-interest,they typically

Accepted Answer

Adam Smith argued that when individuals act in their own self-interest in a market system, it leads to mutually beneficial outcomes for all parties involved. This is because individuals will naturally try to find ways to provide goods or services that will be valuable to others in order to earn a profit for themselves. Therefore, people acting in their own self-interest can ultimately lead to a greater overall benefit for society as a whole than if they were deliberately trying to help others.

Question 2

The invisible hand works to promote general well-being in the economy primarily through

Accepted Answer

The invisible hand refers to the unintended social benefits that individuals' self-interested actions have on the economy. Adam Smith, the father of modern economics, argued that individuals acting in their own self-interest would lead to a more efficient and prosperous economy. This is because businesses and individuals would naturally gravitate towards producing goods and services that are in demand, thus creating a system of supply and demand that benefits the economy as a whole. Therefore, the invisible hand promotes general well-being through people's pursuit of their own self-interest.

Question 3

Prior to the collapse of communism,communist countries worked on the premise that economic well-being could be best attained by

Accepted Answer

Communist countries operated under a system of central planning by the government, where the state owned and controlled all means of production and made economic decisions. This was seen as the most efficient way to allocate resources and achieve economic well-being, according to communist ideology. However, this system proved to be inefficient and led to economic stagnation, which ultimately contributed to the collapse of communist regimes.

Question 4

The term "invisible hand" was coined by

Accepted Answer

The term "invisible hand" was coined by Adam Smith in his book "The Wealth of Nations" to refer to the unintended social benefits of individual actions.

Question 5

Which of the following statements best characterizes a basic difference between market economies and centrally-planned economies?

Accepted Answer

The answer of Which of the following statements best characterizes...

Question 6

When the "invisible hand" guides economic activity,prices of products reflect

Accepted Answer

The "invisible hand" is a concept in economics that describes how the market forces of supply and demand interact to determine prices of products. The values that society places on products and the costs of producing them are both factors that influence supply and demand. Therefore, when the "invisible hand" guides economic activity, prices will reflect both the values that society places on products and the costs of producing them. The government may regulate certain aspects of the market, but it does not set prices in a way that is universally considered fair.

Question 7

Which of the following observations was made famous by Adam Smith in his book The Wealth of Nations?

Accepted Answer

Adam Smith's observation of the "invisible hand" guiding households and firms interacting in markets towards desirable outcomes is a central idea in his book The Wealth of Nations. It refers to the idea that individuals pursuing their own self-interest can unintentionally promote the good of society as a whole through market competition and interaction.

Question 8

Which of the following firms is most likely to have market power?

Accepted Answer

The last gas station in New Mexico for 100 miles is likely to have market power because it has no close substitutes and consumers have few, if any, other options for purchasing gasoline.

Question 9

The economy of the former Soviet Union is best described as a

Accepted Answer

The economy of the former Soviet Union was a centrally-planned economy, with most economic decisions made by the government and a lack of private ownership of means of production.

Question 10

A friend of yours asks you why market prices are better than government-determined prices.Because you understand economic principles,you say that market-determined prices are better because they generally reflect

Accepted Answer

Market-determined prices reflect both the value of a good to society and the cost of making it. Supply and demand in a competitive market determine the price at which the quantity supplied equals the quantity demanded, which simultaneously takes into account both the value to consumers and the cost to producers. This leads to a socially optimal level of production and consumption. In contrast, government-determined prices, such as price floors or price ceilings, can result in inefficient production and allocation of resources.

Question 11

Adam Smith's book The Wealth of Nations was published in

Accepted Answer

The Wealth of Nations was published in 1776.

Question 12

The "invisible hand" directs economic activity through

Accepted Answer

The concept of the "invisible hand" was introduced by Adam Smith, who argued that individuals pursuing their own self-interest in a free market would be guided by an invisible hand to promote the overall good of society. Prices, determined by the market forces of supply and demand, play a key role in this process of directing economic activity. Advertising, central planning, and government regulations may also be factors in economic activity, but they do not represent the guiding force of the invisible hand.

Question 13

The idea that only the government can organize economic activity in a way that promotes economic well-being for a country as a whole

Accepted Answer

The idea that only the government can organize economic activity is a denial of the basic principle that individuals can make choices and interact with each other to promote economic well-being. This principle is a foundation of market economics, which relies on the "invisible hand" to guide economic activity rather than government intervention. While Adam Smith did promote these ideas in his book "The Wealth of Nations" published in 1776, the idea that only the government should organize economic activity is contrary to his teachings.

Question 14

The collapse of communism in the Soviet Union and Eastern Europe took place mainly in the

Accepted Answer

The collapse of communism in the Soviet Union and Eastern Europe occurred mainly in the 1980s, with the fall of the Berlin Wall in 1989 and the dissolution of the Soviet Union in 1991.

Question 15

The invisible hand's ability to coordinate the decisions of the firms and households in the economy can be hindered by

Accepted Answer

The invisible hand relies on the premise that prices accurately reflect the supply and demand of goods and services in the market. However, if the government intervenes and artificially distorts prices through taxes, subsidies, or price controls, it can disrupt the invisible hand's ability to coordinate economic decision-making.

Question 16

Prices direct economic activity in a market economy by

Accepted Answer

Prices act as signals to both buyers and sellers in a market economy, influencing their actions. High prices signal to producers that consumers are willing to pay more for a product, incentivizing them to produce more. Similarly, low prices signal to consumers that a product is abundant and may be a good deal, incentivizing them to purchase more of it. As a result, prices help to efficiently allocate resources in the economy, as producers and consumers respond to the price signals sent by the market.

Question 17

Both The Wealth of Nations and the Declaration of Independence share the point of view that

Accepted Answer

Both The Wealth of Nations and the Declaration of Independence emphasize the importance of individual freedoms and the idea that individuals are best left to their own devices without government intervention. In The Wealth of Nations, Adam Smith argued for the benefits of a free market economy where individuals pursue their self-interests without interference from the government. The Declaration of Independence also expresses the idea that individuals have the right to pursue their own happiness and that the government's role is to protect those rights, rather than interfere with them.

Question 18

One advantage market economies have over centrally-planned economies is that market economies

Accepted Answer

Market economies are more efficient due to the forces of supply and demand, which allow for resources to be allocated to those who value them most. Centrally-planned economies often struggle to efficiently allocate resources, as decisions are made by a small group of individuals rather than the collective choices of millions of consumers and producers in a market.

Question 19

An example of a firm with market power is a

Accepted Answer

A cable TV provider in St. Louis can be an example of a firm with market power because in most cases consumers in a given area have limited choices when it comes to cable TV providers. This allows the provider to have some control over prices and potentially limit competition in the market.

Question 20

In an economy in which decisions are guided by prices and individual self-interest,there is

Accepted Answer

In an economy guided by prices and individual self-interest, firms are incentivized to produce the goods and services that consumers demand at the lowest possible cost. This leads to efficiency in production as firms strive to minimize their costs and maximize their profits. Government intervention may be necessary in certain cases, but in general, the market can allocate resources efficiently without government interference.

Quiz 1: Ten Principles of Economics