Question 1

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

Accepted Answer

History has shown that free-market capitalism often leads to an unequal distribution of wealth, with the concentration of wealth in the hands of a few. This is because the market rewards those who have resources and capital, and those who don't have access to these resources are left behind. This has led to the rise of income inequality and poverty.

Question 2

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, firms produce a homogenous or standardized product which is not differentiated from the products of other firms in the same market.

Question 3

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 the power to control the price and supply.

Question 4

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

Accepted Answer

The answer of The greed of businesspeople represents one of...

Question 5

If the quantity supplied in a market exceeds the quantity demanded, a shortage will exist.

Accepted Answer

If the quantity supplied exceeds the quantity demanded, then a surplus will exist, not a shortage.

Question 6

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 a market structure in which a small number of firms dominate the industry. In the case of the soft drink industry, a few major companies such as Coca-Cola and PepsiCo control a significant portion of the market, making it an oligopoly.

Question 7

Product differentiation is a key to success in monopolistic competition.

Accepted Answer

In monopolistic competition, firms compete with each other through product differentiation. By offering slightly different products, firms aim to capture a larger market share and earn profits. This helps in creating brand loyalty among customers, which is essential for sustained success in a monopolistically competitive market.

Question 8

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

Accepted Answer

This is true. The Sherman Antitrust Act of 1890 and subsequent laws such as the Clayton Antitrust Act of 1914 were created to prevent the formation of monopolies and promote fair competition. Monopolies that do exist are often regulated by government agencies such as the Department of Justice and the Federal Trade Commission.

Question 9

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

Accepted Answer

This statement is false. While free markets can experience temporary shortages or surpluses, they are not persistent in nature. In fact, free markets tend to promote efficiency and responsiveness to supply and demand, leading to a more stable allocation of resources in the long run.

Question 10

Glamour 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. Glamour Gal clearly operates in an oligopolistic environment.

Accepted Answer

An oligopolistic environment is characterized by a few dominant firms. The cosmetics industry is highly competitive with many companies, not just a few dominant ones.

Question 11

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.

Question 12

Economists refer to a market in which a few sellers dominate the supply side as monopolistic competition.

Accepted Answer

Economists refer to market with few sellers as an oligopoly, not monopolistic competition. Monopolistic competition refers to a market with many firms competing with differentiated products.

Question 13

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 system, businesses must compete with each other to attract customers. This competition often leads to innovation and improved products at competitive prices. However, some businesses may try to take advantage of customers. But, in a truly free market system, consumers have the power to choose where they spend their money and can choose not to do business with companies that offer poor quality products or high prices. Additionally, some level of government regulation is necessary to prevent anti-competitive practices and protect consumer rights.

Question 14

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

Accepted Answer

The theory of supply and demand suggests that in a competitive market, the market price will tend towards the equilibrium point where the quantity demanded equals the quantity supplied. This is the point where the market is most efficient and where there is no excess supply or demand. In the long run, changes in supply and demand factors will result in a shift of the equilibrium point, and the market price will adjust accordingly.

Question 15

If a shortage exists in a market for a good, the price of that good will tend to fall.

Accepted Answer

If there is a shortage of a good, it means that there is more demand than supply. This will typically cause prices to rise, not fall.

Question 16

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 not necessarily true. While some proponents of free-market economics argue that a thriving economy will ultimately benefit all members of society, the system does not inherently prioritize the fair and humane treatment of the less fortunate. In fact, critics of free-market capitalism argue that it can exacerbate inequality and lead to exploitation of workers and vulnerable populations.

Question 17

Sarah owns a bakery that specializes in cupcakes. Until recently, she charged a price of $5 for each treat. At this price Sarah's customers bought an average of 384 cupcakes each week. For the last few weeks, she has reduced her price to $3.95 per cake, and her customers have purchased an average of 596 cupcakes each week. These results are consistent with the economic concept of demand.

Accepted Answer

The decrease in price has caused an increase in the quantity demanded, which is consistent with the concept of demand.

Question 18

Fatima resides in a country where the economic system is primarily based on free market capitalism. Fatima is likely to have the freedom to buy and sell property.

Accepted Answer

Free market capitalism emphasizes private property rights, therefore Fatima is likely to have the freedom to buy and sell property in such an economic system.

Question 19

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 or sell goods. The market forces of supply and demand are left to establish equilibrium on their own without government interference. Therefore, the surplus of widgets would likely be resolved through market mechanisms such as price adjustments or shifts in demand rather than government intervention.

Question 20

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 actually false. In free markets, competition allows prices to adjust to their equilibrium value in the long run as supply and demand fluctuate. It is government intervention and market distortions that can undermine the ability of price to reach its equilibrium value.

Quiz 2: Understanding Economics and How It Affects Business