Question 1

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 and voluntary exchange, which drives innovation, improves efficiency, and leads to a more optimal allocation of resources. This ultimately benefits consumers by improving the quality and lowering the price of goods and services. The other choices listed (A, B, and C) do not contribute to the efficiency of markets. Governments playing an active role in the day-to-day operations of markets can result in inefficiencies and unintended consequences. Markets may not necessarily bring about an equitable distribution of goods and services, as this depends on factors such as income inequality and consumer preferences. Similarly, markets do not necessarily promote equal standards of living, as they can exacerbate inequality if certain groups have a comparative advantage in certain industries or markets.

Question 2

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 motivates firms to continue producing and selling products as long as the marginal benefit (i.e. the price consumers are willing to pay) exceeds the marginal cost of production. This is because the firms want to maximize their profits and in a competitive market, they cannot charge higher prices than their competitors. Therefore, they must keep their production costs low enough to earn a profit while also keeping their prices in line with the market.

Question 3

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

When goods and services are produced at the lowest possible cost, it indicates that resources are being utilized efficiently, which is known as productive efficiency. Allocative efficiency refers to the production of goods and services that are in demand in the market. Equity refers to fairness and equal distribution of wealth, and efficient central planning refers to the effective allocation of resources by the government or central authority.

Question 4

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 is achieved when firms produce goods and services at the lowest cost possible. This means they are minimizing their input costs while maximizing output, resulting in the most efficient use of resources. While producing goods and services of high quality or those most desired by society may also lead to success and profitability, they do not necessarily indicate productive efficiency.

Question 5

How are the fundamental economic decisions determined in Cuba?
A)Individuals,firms,and the government interact in a market to make these economic decisions.
B)These decisions are made by the country's elders who have had much experience in answering these questions.
C)The government decides because Cuba is a centrally planned economy.
D)The United Nations decides because Cuba is a developing economy.

Accepted Answer

In Cuba, the government decides the fundamental economic decisions because it is a centrally planned economy.

Question 6

In a market economy,those who are willing and able to buy what is produced
A)receives what the government allows them to receive.
B)receive the most of what is produced.
C)receive no more than everyone else in the market.
D)solely determine what is produced.

Accepted Answer

In a market economy, the production of goods and services is based on the demand of the consumers. The producers aim to produce goods and services that will appeal to the consumers so that they will buy them. Thus, those who are willing and able to buy what is produced receive the most of what is produced. The market determines the prices of the goods and services, and those who are willing and able to pay the most for them are the ones who get them. Therefore, choice B is the correct answer.

Question 7

In a market economy,________ interact in markets to decide the answers to the fundamental economic questions.
A)state and local governments
B)large corporations
C)households and firms
D)the judicial and legislative branches of the federal government

Accepted Answer

In a market economy, households (consumers) and firms (producers) interact in markets to decide the answers to the fundamental economic questions. The decisions of these individuals and firms are guided by the forces of supply and demand, which determine prices and quantities of goods and services produced and consumed. State and local governments, large corporations, and the judicial and legislative branches of the federal government may play a role in regulating or influencing market activity, but they do not make the fundamental economic decisions in a market economy.

Question 8

Fast food restaurants produce a range of menu items such as hamburgers,chicken sandwiches,salads,and french fries.What fundamental economic question are they addressing by offering this range of items?
A)How to produce goods that consumers want?
B)Why produce a variety of menu items?
C)What to produce?
D)Who to produce the menu items for?

Accepted Answer

Fast food restaurants decide on the variety of menu items to offer based on consumer demand and preferences, addressing the fundamental economic question of "What to produce?" to meet market needs.

Question 9

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 occurs when both the buyer and the seller believe they will benefit from the transaction. This means that resources are allocated to their most valued uses, and both parties are better off than they were before. As a result, voluntary exchange contributes to economic efficiency.

Question 10

How does a market system prevent people from getting as many goods and services as they wish?
A)Governments interfere with the market mechanism to influence the allocation of goods and services.
B)In a market system,firms can charge any price they want,thus preventing poor people from getting as many goods and services as they wish.
C)The market system allocates goods and services to those who are able to pay for those products and therefore income is a limiting factor.
D)The government imposes taxes on those who earn beyond a certain amount of income.

Accepted Answer

In a market system, goods and services are allocated to those who are able to pay for them. This means that income is a limiting factor in the amount of goods and services that people are able to consume. Those with higher incomes are able to purchase more goods and services, while those with lower incomes may only be able to afford a limited amount. The other choices are not accurate as the government can also interfere with the market mechanism to influence the allocation of goods and services, and taxes on high earners do not necessarily prevent people from getting as many goods and services as they wish.

Question 11

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 the market. This often leads to production managers focusing on meeting government targets and quotas rather than producing goods and services that consumers actually want. This can result in shortages of desired goods and surpluses of unwanted goods, leading to a mismatch between supply and demand.

Question 12

In a market economy,who decides what goods and services will be produced?
A)only the producers
B)only consumers
C)consumers and producers
D)the government

Accepted Answer

In a market economy, both consumers and producers have a say in what goods and services are produced. Producers create products they believe will be in demand by consumers, while consumers ultimately determine what products are successful through their purchasing decisions. This market interaction creates a balance between supply and demand and determines what goods and services will continue to be produced.

Question 13

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's control over all aspects of economic activity. This level of control is typically only possible in a political dictatorship where the government has complete authority over its citizens and can enforce its economic policies without opposition or debate. Mixed and market economies, on the other hand, allow for more individual freedom and private enterprise.

Question 14

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, achieved when the marginal cost of producing a good or service is equal to the marginal benefit to society. This means that all goods and services that provide a positive net benefit to society are produced, while goods and services that provide less benefit than cost are not produced, resulting in the most efficient allocation of resources.

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 is achieved when resources are allocated in a way that reflects consumer preferences. This means firms are producing goods and services that consumers value most, which maximizes overall satisfaction and utility. The other choices may contribute to allocative efficiency, but they are not the primary factor.

Question 16

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 was a major factor in the downfall of the Soviet Union in 1991. Despite efforts to improve the economy and living conditions, the system was plagued by inefficiencies and corruption, and many citizens grew disillusioned with the government. This led to widespread protests and calls for reform, ultimately contributing to the collapse of the Soviet Union.

Question 17

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 is achieved when goods and services are distributed in a way that maximizes societal welfare. In a market economy, voluntary exchange between buyers and sellers through supply and demand determines the allocation of resources. As consumers express their preferences through purchases, firms respond by producing goods and services that are in high demand, while reducing their production of goods that are less desired. This ensures that resources are allocated in a way that reflects consumer preferences and societal needs, leading to allocative efficiency. National government intervention may result in unintended consequences that interfere with the market's ability to allocate resources efficiently. United Nations rules for competition and equity are not directly related to allocation efficiency.

Question 18

Which of the following is correct about the economic decisions consumers,firms,and the government have to make?
A)Governments may face the problem of shortages but not scarcity in making economic decisions.
B)Only individuals face scarcity; firms and the government do not.
C)Firms and the government face scarcity,individuals only face shortages.
D)Each faces the problem of scarcity which necessitates trade-offs in making economic decisions.

Accepted Answer

Scarcity is a fundamental economic problem faced by all individuals, firms and the government. It means that available resources are insufficient to satisfy all wants and needs of society. Thus, trade-offs have to be made by all economic agents in making economic decisions. Governments also face the problem of scarcity, as they need to allocate resources to different sectors of the economy, such as healthcare, education, and defense, which are all important but limited resources. Therefore, choice D is the correct answer.

Question 19

Consider the following economic agents: a.the government
B.consumers
C.producers
Who,in a modern mixed economy,decides what goods and services will be produced with the scarce resources available in that economy?
A)the government
B)producers
C)consumers
D)consumers and producers
E)the government,consumers and producers

Accepted Answer

In a modern mixed economy, the decision about what goods and services will be produced with the scarce resources available is influenced by the government, consumers, and producers. The government may set regulations or provide subsidies, consumers express their preferences through demand, and producers decide on the supply based on various factors including consumer demand and government policies.

Question 20

It is necessary for all economic systems to provide people with goods and services and also restrict them from getting as much of these goods and services as they wish,because failure to do this could ________ the efficiency of the system by producing some goods and services that are ________.
A)reduce; not as highly valued as others
B)increase; not as highly valued as others
C)reduce; valued more than others
D)increase; valued more than others

Accepted Answer

If people were not restricted in their access to goods and services, they would consume too much of some goods and services, while neglecting others. This would lead to inefficiencies in the economy, as resources would be allocated towards producing goods and services that are not highly valued by consumers. By restricting people's access to goods and services, an economic system can ensure that resources are used efficiently and that the most highly valued goods and services are produced.

Quiz 1: Economics: Foundations and Models

Which of the following contributes to the efficiency of markets?

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.

Productive efficiency is achieved when firms produce goods and services

How are the fundamental economic decisions determined in Cuba?

In a market economy,those who are willing and able to buy what is produced

In a market economy,________ interact in markets to decide the answers to the fundamental economic questions.

Fast food restaurants produce a range of menu items such as hamburgers,chicken sandwiches,salads,and french fries.What fundamental economic question are they addressing by offering this range of items?

Voluntary exchange increases economic efficiency

How does a market system prevent people from getting as many goods and services as they wish?

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

In a market economy,who decides what goods and services will be produced?

All ________ economies have been political dictatorships.

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.

Allocative efficiency is achieved when

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

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

Which of the following is correct about the economic decisions consumers,firms,and the government have to make?

Consider the following economic agents: a.the government B.consumers C.producers Who,in a modern mixed economy,decides what goods and services will be produced with the scarce resources available in that economy?

It is necessary for all economic systems to provide people with goods and services and also restrict them from getting as much of these goods and services as they wish,because failure to do this could the efficiency of the system by producing some goods and services that are .