Question 1

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

Accepted Answer

In a market economy, prices act as signals that communicate information about the relative scarcity and value of goods and services. Self-interested individuals respond to these price signals by making decisions that allocate resources efficiently, resulting in a higher level of overall economic efficiency than would be observed in a centrally-planned economy where decisions are made by a bureaucratic planning authority.

Question 2

If the government were to intervene and set the price of a dozen eggs above the market price, then we would expect, relative to the market outcome,

Accepted Answer

The answer of If the government were to intervene and...

Question 3

Prices direct economic activity in a market economy by

Accepted Answer

Prices in a market economy act as signals to buyers and sellers, influencing their decisions on whether to buy or sell a good or service. When the price of a good or service increases, it signals to producers that there is a higher demand for that good, and they may increase production to take advantage of the higher price. Conversely, when the price of a good or service decreases, it signals to buyers that there is a surplus of that good, and they may increase their purchases. Thus, the price system helps allocate resources in the most efficient way by matching supply and demand.

Question 4

If the government were to intervene in a market economy and fix the price of visiting a health care provider below the market price, then we would expect, relative to the market outcome,

Accepted Answer

If the government were to fix the price of visiting a healthcare provider below the market price, then the demand for healthcare services would increase. More people would want to visit healthcare providers because of the lower price. However, healthcare providers would not find it profitable to provide healthcare services at a lower price. Therefore, they might reduce the number of visits they provide, resulting in a decrease in the number of visits health care providers want to provide. This would create an excess demand or shortage of healthcare services, leading to a decrease in the number of visits people want to make. Therefore, we would expect an increase in the number of visits people want to make and a decrease in the number of visits health care providers want to provide. Choice B best describes this outcome.

Question 5

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 take into account both the demand for a good and the cost of producing it. This ensures that resources are allocated efficiently and that goods are produced at the lowest possible cost while still meeting consumer demand. Government-determined prices, on the other hand, are often arbitrary and may not reflect the true cost of producing a good or its value to society. Additionally, government price controls can create shortages or surpluses in the market, leading to further economic inefficiencies.

Question 6

In a market economy,

Accepted Answer

In a market economy, households are free to decide which firms to work for and what to buy with their incomes, while firms are free to decide whom to hire and what to produce. This system is characterized by the idea of supply and demand, in which prices are set by the interaction between buyers and sellers in the marketplace. Therefore, both household and firm decisions play a crucial role in the functioning of a market economy.

Question 7

For markets to work well, there must be

Accepted Answer

Property rights are necessary for markets to function effectively. Without clearly defined property rights, transactions become difficult to enforce and individuals may not have the incentives needed to invest in and improve resources. Market power and a central planner can hinder the functioning of markets, and the presence of abundant resources is not necessarily a requirement for markets to work well.

Question 8

If the government were to intervene and set a wage for unskilled labor above the market wage, then we would expect, relative to the market outcome,

Accepted Answer

When the government sets a wage for unskilled labor above the market wage, it creates a surplus of workers willing to work at that wage, while also making it more expensive for firms to hire them. This results in a decrease in the number of unskilled jobs available as firms may not be able to afford to hire as many workers at the higher wage, leading to unemployment or a shift towards automation. Additionally, this can create an incentive for workers to acquire more skills to earn a higher wage, decreasing the number of workers wanting unskilled jobs. Therefore, the correct choice is B.

Question 9

If the government were to intervene and set the rent for apartments in New York City below the market rent, then we would expect, relative to the market outcome,

Accepted Answer

The answer of If the government were to intervene and...

Question 10

In a market economy, who makes the decisions that guide most economic activity?

Accepted Answer

In a market economy, most economic activity is guided by the decisions made by both firms and households. Firms make decisions about what goods and services to produce and how much to charge, while households make decisions about what goods and services to buy and how much to spend. These decisions are largely based on the interactions of supply and demand in the market. While governments may intervene in certain situations, such as to regulate industries or provide public goods, they do not typically guide most economic activity in a market economy.

Question 11

Prices usually reflect

Accepted Answer

Prices in a market economy are determined by the interaction of supply and demand. The price consumers are willing to pay for a good reflects its value to them, while the price producers charge reflects the cost of producing the good. Therefore, prices reflect both the value of a good to society and the cost to society of making the good.

Question 12

The "invisible hand" works to promote general well­being in the economy primarily through

Accepted Answer

The concept of the "invisible hand" refers to the idea that in a free market economy, individuals pursuing their own self-interest will ultimately lead to the overall betterment of society. Prices are set by supply and demand, and individuals make choices based on their own preferences and desires. This results in a self-regulating system where resources are allocated efficiently and goods and services are produced in the quantity and quality that consumers demand. While government intervention and the political process may play a role in regulating and shaping the economy, the invisible hand is primarily driven by people's pursuit of their own self-interest.

Question 13

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

Accepted Answer

The "invisible hand" refers to the idea that in a market economy, prices of products are determined by the interaction of supply and demand. This means that prices reflect both the values that society places on those products (as reflected in consumer demand) and the costs to society of producing those products (as reflected in producer supply).

Question 14

Which of the following statements about market economies is correct?

Accepted Answer

The answer of Which of the following statements about market...

Question 15

The self-interest of the participants in an economy is guided into promoting general economic self-interest by

Accepted Answer

The concept of the invisible hand, first introduced by Adam Smith in "The Wealth of Nations," suggests that individuals acting out of self-interest in a competitive market will unintentionally promote the general economic interest of society. In other words, the pursuit of profit and personal gain leads to greater efficiency and allocative accuracy in resource distribution, benefiting the economy as a whole.

Question 16

According to Adam Smith, the success of decentralized market economies is primarily due to

Accepted Answer

Adam Smith believed that individuals pursuing their own self-interest in a market economy would lead to the greatest economic benefit for society as a whole. This idea is known as the invisible hand and is a key concept in Smith's famous work, The Wealth of Nations. He did not believe that the success of market economies was due to the benevolence of society or partnerships between business and government, although he did emphasize the importance of a stable legal system.

Question 17

In a market economy, economic activity is guided by

Accepted Answer

In a market economy, economic activity is guided by the forces of supply and demand, which can be reflected in prices. Individuals and businesses act in their own self-interest to determine how to best allocate resources, which generates competition and innovation. The government and central planners do not have significant control over economic activity in a market economy. Large businesses may have influence, but they are subject to market pressures and competition as well.

Question 18

The decisions of firms and households are guided by prices and self-interest in a

Accepted Answer

In a market economy, prices determine the allocation of resources and guide the decisions of both firms and households. Self-interest also plays a significant role in decision-making, as individuals strive to maximize their own utility or profits. In a command economy or centrally-planned economy, decisions are typically made by a central authority rather than by market forces and self-interest.

Question 19

In a market economy, economic activity is guided by

Accepted Answer

In a market economy, self-interest and prices guide economic activity. Consumers and producers make their own decisions about what goods and services to produce and consume based on their own self-interest, and prices act as signals that direct those decisions. The government may play a role in regulating the market and providing some services, but it does not dictate economic activity. Corporations and central planners may have some influence, but ultimately it is the interactions between buyers and sellers that drive the market economy.

Question 20

Which of the following statements does not apply to a market economy?

Accepted Answer

The statement "Government policies are the primary forces that guide the decisions of firms and households" does not apply to a market economy. In a market economy, government intervention is limited and firms and households make their own decisions based on market forces.

Quiz 1: Ten Principles of Economics

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

If the government were to intervene and set the price of a dozen eggs above the market price, then we would expect, relative to the market outcome,

Prices direct economic activity in a market economy by

If the government were to intervene in a market economy and fix the price of visiting a health care provider below the market price, then we would expect, relative to the market outcome,

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

In a market economy,

For markets to work well, there must be

If the government were to intervene and set a wage for unskilled labor above the market wage, then we would expect, relative to the market outcome,

If the government were to intervene and set the rent for apartments in New York City below the market rent, then we would expect, relative to the market outcome,

In a market economy, who makes the decisions that guide most economic activity?

Prices usually reflect

The "invisible hand" works to promote general wellbeing in the economy primarily through

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

Which of the following statements about market economies is correct?

The self-interest of the participants in an economy is guided into promoting general economic self-interest by

According to Adam Smith, the success of decentralized market economies is primarily due to

In a market economy, economic activity is guided by

The decisions of firms and households are guided by prices and self-interest in a

In a market economy, economic activity is guided by

Which of the following statements does not apply to a market economy?

Quiz 1: Ten Principles of Economics

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

If the government were to intervene and set the price of a dozen eggs above the market price, then we would expect, relative to the market outcome,

Prices direct economic activity in a market economy by

If the government were to intervene in a market economy and fix the price of visiting a health care provider below the market price, then we would expect, relative to the market outcome,

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

In a market economy,

For markets to work well, there must be

If the government were to intervene and set a wage for unskilled labor above the market wage, then we would expect, relative to the market outcome,

If the government were to intervene and set the rent for apartments in New York City below the market rent, then we would expect, relative to the market outcome,

In a market economy, who makes the decisions that guide most economic activity?

Prices usually reflect

The "invisible hand" works to promote general well­being in the economy primarily through

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

Which of the following statements about market economies is correct?

The self-interest of the participants in an economy is guided into promoting general economic self-interest by

According to Adam Smith, the success of decentralized market economies is primarily due to

In a market economy, economic activity is guided by

The decisions of firms and households are guided by prices and self-interest in a

In a market economy, economic activity is guided by

Which of the following statements does not apply to a market economy?

The "invisible hand" works to promote general wellbeing in the economy primarily through