Question 1

Competition forces firms to produce and sell products as long as the ________ to consumers exceeds the ________ of production.
A)marginal benefit; marginal cost
B)marginal benefit; marginal benefit
C)marginal cost; marginal cost
D)marginal cost; marginal benefit

Accepted Answer

Competition forces firms to consider the marginal benefit (the additional benefit gained from selling one more unit of a product) compared to the marginal cost (the additional cost of producing one more unit of a product). If the marginal benefit exceeds the marginal cost, firms will continue to produce and sell the product. Option A correctly identifies the two key terms and their relationship in this context.

Question 2

When goods and services are produced at the lowest possible cost,________ occurs.
A)allocative efficiency
B)productive efficiency
C)equity
D)efficient central planning

Accepted Answer

Productive efficiency occurs when goods and services are produced at the lowest possible cost. This means that resources are being used in the most efficient way to maximize output, minimizing waste and lowering costs.

Question 3

When every good or service is produced up to the point where the last unit provides a marginal benefit to society equal to the marginal cost of producing it,________ occurs.
A)allocative efficiency
B)productive efficiency
C)equity
D)efficient central planning

Accepted Answer

Allocative efficiency occurs when resources are allocated in a way that maximizes the net benefit to society, meaning that the marginal benefit of producing a good or service is equal to the marginal cost of producing it. This ensures that resources are not being wasted on producing goods or services that do not provide a net benefit to society.

Question 4

Voluntary exchange increases economic efficiency
A)because neither the buyer nor the seller would agree to a trade unless they both benefit.
B)because voluntary exchange only takes place with government permission.
C)because it is free and consequently does not cost anything.
D)because it allows wealthy individuals to act altruistically and give to the poor.

Accepted Answer

Voluntary exchange means that both the buyer and seller are exchanging goods or services because they believe it benefits them in some way. This mutual benefit creates an incentive for individuals to specialize in the production of goods or services they are more efficient at which in turn leads to an overall increase in economic efficiency.

Question 5

Which of the following generates allocative efficiency in a market economy?
A)national government intervention
B)voluntary exchange between buyers and sellers
C)United Nations rules for competition
D)equity

Accepted Answer

Allocative efficiency occurs when resources are allocated in a way that maximizes societal welfare, meaning that the market is producing the goods and services that are most wanted by consumers. In a market economy, this is achieved through voluntary exchange between buyers and sellers, where consumers are able to express their preferences for goods and services through their willingness to pay, and producers respond by producing those goods and services that are in high demand. National government intervention, United Nations rules for competition, and equity may all have different goals or purposes, but they are not specifically aimed at generating allocative efficiency in a market economy.

Question 6

Productive efficiency is achieved when firms produce goods and services
A)most desired by society.
B)at the highest profit margin.
C)at the lowest cost.
D)of the highest quality.

Accepted Answer

Productive efficiency means producing goods and services at the lowest possible cost. It is not necessarily about producing goods and services that are most desired by society or of the highest quality, although these factors can contribute to a firm's success in achieving productive efficiency. Profit margin is also not necessarily a factor in determining productive efficiency.

Question 7

________ occurs when economic benefits are distributed fairly.
A)Productive efficiency
B)Allocative efficiency
C)Equality
D)Equity

Accepted Answer

Equity refers to the fair distribution of economic benefits, resources, and opportunities among individuals and groups. Allocative efficiency refers to the allocation of resources in a way that maximizes overall societal welfare, while productive efficiency refers to the use of resources in the most efficient manner possible. Equality refers to equal treatment and opportunities regardless of individual differences.

Question 8

Which of the following contributed to the downfall of the Soviet Union in 1991?
A)public dissatisfaction with low living standards and political repression
B)producing higher-quality goods than were desired by consumers
C)the rapidly increasing standard of living
D)the lack of a strong dictator who can coordinate economic activities

Accepted Answer

Public dissatisfaction with low living standards and political repression played a significant role in the downfall of the Soviet Union in 1991. The Soviet government's inability to address these issues led to widespread unrest and disapproval of the government, ultimately contributing to its collapse.

Question 9

Selling tickets to graduation ceremonies has long been a tradition among students at institutions that limit the number of guests.Suppose your classmate,Heidi purchased two tickets for $40 each.Is this transaction economically efficient?
A)No, people should never be allowed to sell items they received for free.
B)Yes, it was a voluntary exchange that benefited both parties.
C)No, Heidi paid too much for the tickets.
D)Yes, it is efficient only from the perspective of the seller and not from the perspective of the buyer.

Accepted Answer

The transaction between Heidi and the seller is economically efficient because both parties voluntarily agreed to the exchange at a price they deemed fair. The fact that Heidi was willing to pay $40 for each ticket shows that she values attending the graduation ceremony with her guests at that price. The seller, on the other hand, had no use for the tickets and was able to earn $80 by selling them to Heidi. Therefore, this voluntary exchange benefited both parties, and it is economically efficient. Option A is incorrect because it is not relevant to the question asked. Option C is incorrect as it assumes that Heidi overpaid for the tickets, which is not necessarily true. Option D is also incorrect as it assumes that only the seller benefits from the transaction.

Question 10

Mrs.Lovejoy decides to invest in companies which she believes are producing its goods based on the preferences of consumers.Mrs.Lovejoy is investing in companies that are
A)productively efficient.
B)allocatively efficient.
C)both productively and allocatively efficient.
D)always going to be profitable.

Accepted Answer

Companies that produce goods based on the preferences of consumers are designing and allocating resources in a way that meets consumer demand. This is known as allocative efficiency. While this does increase the likelihood of profitability, it does not necessarily ensure it, as external factors such as competition and economic conditions can still impact a company's success.

Question 11

Which of the following contributes to the efficiency of markets?
A)Governments play an active role in the day-to-day operations of markets.
B)Markets are able to bring about an equitable distribution of goods and services.
C)Markets promote equal standards of living.
D)Markets promote competition and voluntary exchange.

Accepted Answer

Markets promote competition by allowing multiple buyers and sellers to interact freely. This competition leads to the efficient allocation of resources and encourages innovation, lowering prices, and improving product quality. Voluntary exchange is also promoted in a market economy, which means that people have the freedom to buy and sell goods and services as they choose. This enhances efficiency by ensuring that goods and services flow to those who value them the most.

Question 12

Dr.Goldfinger decides to invest in companies which he believes can "improve the productivity and efficiency" of health care services.How can Dr.Goldfinger strive to achieve this productive efficiency?
A)by investing in companies that produce goods and services based on consumer preferences
B)by investing in companies that produce goods and services at the lowest possible cost
C)by investing in companies that fairly distribute their products and services
D)by investing in companies that produce up to the point where the marginal benefit of the last unit produced is equal to the marginal cost of producing it.

Accepted Answer

The answer of Dr.Goldfinger decides to invest in companies which...

Question 13

Dr.Goldfinger decides to invest in companies which he believes can "improve the productivity and efficiency" of health care services.What would Dr.Goldfinger need to do to try to achieve allocative efficiency?
A)invest in companies that produce goods and services based on consumer preferences
B)invest in companies that produce goods and services at the lowest possible cost
C)invest in companies that fairly distribute their products and services
D)invest in companies that produce up to the point where the marginal cost of the last unit produced is zero.

Accepted Answer

Allocative efficiency is achieved when the production of goods and services aligns with consumer preferences, indicating that resources are allocated based on what consumers value most.

Question 14

Competition among sellers generates
A)productive efficiency.
B)allocative efficiency.
C)equity.
D)scarcity.

Accepted Answer

Competition among sellers drives them to find ways to produce goods and services more efficiently in order to lower costs and attract customers. This leads to productive efficiency, which is defined as producing output at the lowest possible cost. Allocative efficiency, which is defined as producing the optimal quantity of goods and services in response to consumer demand, is also a potential outcome of competition, but it is not the main focus of this question. Equity and scarcity are not directly related to competition among sellers.

Question 15

Allocative efficiency is achieved when
A)goods and services are fairly distributed among consumers in an economy.
B)firms produce the goods and services that consumers value most.
C)firms produce goods and services at the lowest cost.
D)there are no shortages or surpluses in the market.

Accepted Answer

Allocative efficiency occurs when the goods and services produced in an economy are those that are most highly valued by consumers. This means that resources are being allocated in a way that maximizes their value and benefits to society. It is not necessarily about fair distribution or producing at the lowest cost, although those factors may indirectly contribute to achieving allocative efficiency. Shortages and surpluses may still exist in a market that is allocatively efficient, as these are temporary imbalances that can also help to drive market adjustments towards more efficient outcomes.

Question 16

Which of the following is a problem inherent in centrally planned economies?
A)There are no problems and everyone, including consumers, is satisfied.
B)There is too much production of low-cost, high-quality goods and services.
C)Production managers are more concerned with satisfying government's orders than with satisfying consumer wants.
D)Unemployment is too high.

Accepted Answer

In centrally planned economies, production decisions are made by the government rather than individual firms responding to market demand. This can lead to production managers being more concerned with fulfilling the government's orders rather than producing goods and services that consumers actually want. This can result in a lack of quality or choice for consumers, and can stifle innovation and competition.

Question 17

All ________ economies have been political dictatorships.
A)centrally planned
B)mixed
C)market
D)mixed and market

Accepted Answer

Centrally planned economies are characterized by the government controlling all aspects of the economy, including production and distribution of goods and services. This central control is typically maintained through political dictatorship, with little to no input from citizens or private industry. Mixed and market economies, on the other hand, can have varying degrees of government involvement and may operate under democratic political systems. Therefore, options B, C, and D are not correct.

Question 18

Mrs.Lovejoy decides to invest in companies which she believes can produce its goods at the lowest possible cost.Mrs.Lovejoy is investing in companies that are
A)productively efficient.
B)allocatively efficient.
C)both productively and allocatively efficient.
D)always going to be profitable.

Accepted Answer

Investing in companies that can produce goods at the lowest possible cost indicates that Mrs. Lovejoy is looking for companies that are productively efficient, meaning they are producing goods at the lowest possible cost. This does not necessarily mean that these companies are allocatively efficient, as they may not be producing the goods that are most desired by consumers. Additionally, investing in productively efficient companies does not guarantee profitability, as other factors such as market demand and competition can also impact a company's profitability.

Question 19

Which of the following is motivated by an equity concern?
A)Some U.S.colleges have cut back on merit scholarships since these programs siphon money from need-based programs, thus harming lower-income students with greater financial need.
B)Following the removal of subsidies in urban water use, household demand for water decreased quite significantly in Bogor, Indonesia.
C)In November 2003, the Federal Communications Commission implemented the "local number portability" rule which gives cell phone customers the option of keeping their number when they switch carriers within the same geographic region.
D)The United States protects intellectual property rights, allowing inventors to prevent others from using their inventions without payment.

Accepted Answer

The decision to cut back on merit scholarships to prioritize need-based programs shows concern for equity by ensuring that lower-income students with greater financial need have greater access to funding.

Question 20

Which of the following is motivated by an efficiency concern?
A)In 2009, the Obama administration increased unemployment benefits.
B)As part of an economic stimulus package, each taxpayer received a $3,000 tax rebate check.
C)Following a six-month drought, a city banned homeowners from watering their lawns in an effort to conserve water.
D)Some U.S.colleges have cut back on merit scholarships since these programs siphon money from need-based programs, thus harming lower-income students with greater financial need.

Accepted Answer

Banning homeowners from watering their lawns is motivated by an efficiency concern as it aims to conserve water during a drought.

Quiz 1: Economics: Foundations and Models

Competition forces firms to produce and sell products as long as the to consumers exceeds the of production.

When goods and services are produced at the lowest possible cost,________ occurs.

When every good or service is produced up to the point where the last unit provides a marginal benefit to society equal to the marginal cost of producing it,________ occurs.

Voluntary exchange increases economic efficiency

Which of the following generates allocative efficiency in a market economy?

Productive efficiency is achieved when firms produce goods and services

________ occurs when economic benefits are distributed fairly.

Which of the following contributed to the downfall of the Soviet Union in 1991?

Selling tickets to graduation ceremonies has long been a tradition among students at institutions that limit the number of guests.Suppose your classmate,Heidi purchased two tickets for $40 each.Is this transaction economically efficient?

Mrs.Lovejoy decides to invest in companies which she believes are producing its goods based on the preferences of consumers.Mrs.Lovejoy is investing in companies that are

Which of the following contributes to the efficiency of markets?

Dr.Goldfinger decides to invest in companies which he believes can "improve the productivity and efficiency" of health care services.How can Dr.Goldfinger strive to achieve this productive efficiency?

Dr.Goldfinger decides to invest in companies which he believes can "improve the productivity and efficiency" of health care services.What would Dr.Goldfinger need to do to try to achieve allocative efficiency?

Competition among sellers generates

Allocative efficiency is achieved when

Which of the following is a problem inherent in centrally planned economies?

All ________ economies have been political dictatorships.

Mrs.Lovejoy decides to invest in companies which she believes can produce its goods at the lowest possible cost.Mrs.Lovejoy is investing in companies that are

Which of the following is motivated by an equity concern?

Which of the following is motivated by an efficiency concern?