Question 1

If the price of a dozen eggs were fixed above the current price, then we would expect

Accepted Answer

The answer of If the price of a dozen eggs...

Question 2

Which of the following is not generally regarded by economists as a legitimate reason for the government to intervene in a market?

Accepted Answer

Protecting an industry from foreign competition is not generally regarded by economists as a legitimate reason for the government to intervene in a market because it can lead to inefficiencies and ultimately harm both domestic and foreign consumers. Instead, economists generally advocate for free trade and competition to allow for market efficiency and allocation of resources to the most productive industries.

Question 3

The term used to describe a situation in which markets do not allocate resources efficiently is

Accepted Answer

Market failure is the term used to describe a situation in which markets do not allocate resources efficiently. This can occur due to various reasons like lack of competition, externalities, public goods, information asymmetry, etc. In such a scenario, government intervention may be required to ensure efficient allocation of resources. Economic meltdown refers to a sudden and severe contraction of the economy, equilibrium refers to a state of balance, and the invisible hand refers to the concept that the pursuit of self-interest by individuals in a market economy leads to the common good.

Question 4

Causes of market failure include

Accepted Answer

Externalities, which are the costs or benefits of production or consumption that are not reflected in market prices, can lead to market failure. Market power, which occurs when a single buyer or seller is able to manipulate prices and reduce the efficiency of the market, can also lead to market failure. The other choices do not accurately describe causes of market failure.

Question 5

If the price of visiting a doctor were fixed below the current price, then we would expect

Accepted Answer

The answer of If the price of visiting a doctor...

Question 6

The term market failure refers to

Accepted Answer

Market failure refers to a situation in which the market fails to allocate resources efficiently, resulting in an inefficient allocation of goods and services in the economy. This can occur due to externalities, public goods, monopolies, and other market imperfections that prevent the market from reaching an optimal outcome.

Question 7

If the rent for apartments in New York City were fixed below the current price, then we would expect

Accepted Answer

If the rent for apartments in New York City were fixed below the current price, it would make living in the city more affordable and attractive to a larger number of people, resulting in an increase in the number of people wanting to rent apartments in New York City.

Question 8

When the government prevents prices from adjusting naturally to supply and demand,

Accepted Answer

Preventing prices from adjusting naturally to supply and demand creates market distortions that can lead to inefficient resource allocation. This is because prices no longer accurately reflect the true value and scarcity of the goods or services being exchanged. Therefore, government interventions that prevent price adjustments may lead to inefficiencies in the allocation of resources. Choices A, C, and D are not correct because they do not accurately describe the effects of government interventions on price adjustments.

Question 9

Which of the following could reduce economic efficiency?

Accepted Answer

All of the options could potentially reduce economic efficiency. Laws that encourage lawsuits can increase legal costs and discourage businesses from engaging in certain activities. Policies that redistribute income can deter individuals from working or investing, as they may not reap the full benefits of their efforts. Significant restrictions on international trade can limit access to foreign markets and increase prices for domestic consumers.

Question 10

The government enforces property rights by

Accepted Answer

Property rights refer to the legal ownership or control of assets, including real property (land and buildings), personal property (movable possessions) and intellectual property (copyrighted works, patents). The government enforces property rights through its legal system, including providing police and courts to uphold laws and protect property from theft or damage. Property taxes are a means of generating revenue for government services and are not directly related to enforcing property rights. Similarly, providing public parks and recreation facilities has more to do with promoting healthy living and community development than with enforcing property rights. Forcing people to own property is not a function of government in a free market economy.

Question 11

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. In a competitive market, producers are incentivized to produce goods that society values highly and at the lowest possible cost, leading to prices that are both efficient and equitable. In contrast, government-determined prices can be influenced by political considerations rather than evaluations of actual costs and benefits.

Question 12

One reason we need government, even in a market economy, is that

Accepted Answer

While both a and b are reasons why we need government, the best choice is C because the invisible hand, while powerful, is not perfect and can lead to market failures such as externalities, public goods, and information asymmetry. Therefore, government intervention is necessary to correct these market failures and ensure efficient outcomes.

Question 13

A company that formerly produced software went out of business because too many potential customers bought illegally-produced copies of the software instead of buying the product directly from the company. This instance serves as an example of

Accepted Answer

The situation described highlights the failure of property rights enforcement, as individuals were able to obtain the software without paying the company for their intellectual property. This ultimately led to the downfall of the company.

Question 14

Public policies

Accepted Answer

Public policies have the potential to improve economic efficiency by, for example, implementing regulations that reduce market failures and promote competition. They also have the potential to improve equality by, for example, implementing redistributive policies such as progressive taxation and social welfare programs. Therefore, public policies can improve either economic efficiency or equality, or sometimes both.

Question 15

A rationale for government involvement in a market economy is

Accepted Answer

All of the above reasons are valid justifications for government involvement in the market economy. Market failure can lead to an unfair distribution of economic well-being, where some individuals and segments of society are left worse off than others. In addition, markets may not always allocate resources efficiently, resulting in suboptimal outcomes that may be detrimental to the overall economy. Finally, the government must enforce property rights to ensure that individuals and businesses have legal protection and security for their assets and investments.

Question 16

If the wage for unskilled labor were fixed above the current wage, then we would expect

Accepted Answer

The answer of If the wage for unskilled labor were...

Question 17

Market failure can be caused by

Accepted Answer

Market failure is caused by externalities and market power. Externalities are costs or benefits that affect a third party who did not choose to incur that cost or benefit. Market power occurs when one or more firms have the ability to influence market prices through their dominance in the market. Both externalities and market power cause the market to allocate goods and resources inefficiently, leading to market failure. The other options, low consumer demand, equilibrium prices, high prices, and foreign competition, do not necessarily lead to market failure.

Question 18

For which of the following problems can well-designed public policy enhance economic efficiency?

Accepted Answer

Public policy can enhance economic efficiency for both externalities and market power. Externalities such as pollution or congestion can be addressed through policies such as taxes or permits. Market power, such as monopolies, can be regulated through antitrust laws or price controls. By addressing these market failures, the market can become more efficient and produce outcomes closer to the socially optimal level.

Question 19

Which of the following can lead to market failure?

Accepted Answer

Both externalities and market power can lead to market failure. Externalities occur when the production or consumption of a good or service affects the well-being of a third party who does not directly participate in the transaction, leading to inefficiencies in the allocation of resources. Market power occurs when a single firm or a group of firms is able to influence market prices, leading to reduced competition and higher prices for consumers. Both of these factors can lead to market failure and the need for government intervention to correct the inefficiencies.

Question 20

To say that government intervenes in the economy to promote efficiency is to say that government is attempting to

Accepted Answer

Government intervention in the economy to promote efficiency is focused on enlarging the economic pie, which means increasing overall economic growth and productivity. While government interventions may also address issues of income distribution and fairness, these are not the primary goals of efficiency-based interventions.

Quiz 1: Ten Principles of Economics