Question 1

Which of the following is a result of a market economy?
A) environmental protection
B) an equal income distribution
C) agreement on equity
D) voluntary exchange

Accepted Answer

Voluntary exchange is a key characteristic of a market economy. This means that individuals and businesses are free to negotiate and agree on prices and trade goods and services without coercion from the government or any other external force. This allows for a competitive marketplace where supply and demand determine prices and the allocation of resources. Environmental protection and equity may be important considerations in a market economy, but they are not necessarily guaranteed outcomes. Income distribution may also be unequal in a market economy due to differences in skills, education, and other factors.

Question 2

Allocative efficiency best explains ________, and productive efficiency best explains ________.
A) how something will be produced; when something will be produced
B) when something will be produced; why something will be produced
C) why something will be produced; what will be produced
D) what will be produced; how something will be produced

Accepted Answer

The answer of Allocative efficiency best explains ________, and productive...

Question 3

Trina's Tropical Fish Store sells goldfish for $2 each and angelfish for $10 each. What is the opportunity cost of buying a goldfish?
A) 5 angelfish
B) 1/5 of an angelfish
C) $10
D) $2

Accepted Answer

The answer of Trina's Tropical Fish Store sells goldfish for...

Question 4

Mr. Peabody chooses to invest in companies that produce goods and services based on consumer preferences. Mr. Peabody is investing in companies that are attempting to be
A) allocatively efficient.
B) productively efficient.
C) guaranteed to make a profit.
D) all of the above

Accepted Answer

Allocative efficiency is the ability of a company to produce the goods and services that consumers want and are willing to pay for. By investing in companies that produce goods and services based on consumer preferences, Mr. Peabody is helping to allocate resources efficiently in the economy. Productive efficiency and guaranteed profits are not the primary goal of an investor who is focused on allocating resources appropriately.

Question 5

Trinh quits his $80,000-a-year job to become a full-time volunteer at a museum. What is the opportunity cost of his decision?
A) 0 since he will no longer be earning a salary
B) depends on the "going rate" of museum employees
C) at least $80,000
D) the value he attributes to the joy of working at a museum

Accepted Answer

The opportunity cost of Trinh's decision to quit his $80,000-a-year job is at least $80,000, since he is giving up the income he would have earned if he had continued in his previous job. Although there may be other factors that influenced his decision, such as a desire to pursue something more meaningful or enjoyable, the monetary value of the salary he is giving up represents the opportunity cost of his decision. Answer option A is incorrect because opportunity cost is not limited to financial costs. Answer option B is not accurate since the going rate of museum employees may be irrelevant to Trinh's opportunity cost. Answer option D is incorrect because it is subjective and does not reflect the actual cost of the decision.

Question 6

Voluntary exchange between buyers and sellers generates ________ in a market economy.
A) scarcity
B) allocative efficiency
C) productive efficiency
D) equity

Accepted Answer

Voluntary exchange in a market economy allows buyers and sellers to allocate resources to their most valued uses, resulting in allocative efficiency. This means that goods and services are produced in the optimal quantities and at the lowest possible cost. This generates economic growth and increases living standards. The other options, such as scarcity, productive efficiency, and equity, may also be present in a market economy, but they are not directly generated by voluntary exchange.

Question 7

In economics, the term "equity" means
A) everyone has an equal standard of living.
B) the hardest working individuals consume all they want.
C) only elected officials have high standards of living.
D) economic benefits are distributed fairly.

Accepted Answer

Equity in economics means that economic benefits are distributed fairly. This can refer to equitable distribution of income, wealth, or access to resources and opportunities. It does not necessarily mean that everyone has an equal standard of living or that the hardest working individuals consume all they want, as these concepts can be influenced by factors such as individual choices, abilities, and luck. Similarly, elected officials having high standards of living is not necessarily indicative of equity in the broader population.

Question 8

Which of the following is motivated by an efficiency concern?
A) In December 2006, the Bush administration restarted a short-term housing assistance program for victims of Hurricane Katrina.
B) Each year, the University of Notre Dame conducts a lottery to parcel out the 30,000 seats available to contributors, former athletes and parents in the 80,000-seat stadium.
C) The United Network for Organ Sharing advocates a system of rationing scarce kidneys that would favor young patients over old in an effort to wring more life out of donated organs.
D) The federal government's housing choice voucher program assists very low-income families, the elderly, and the disabled to afford decent, safe, and sanitary housing in the private market.

Accepted Answer

The advocacy for a system of rationing scarce kidneys based on age is motivated by an efficiency concern, aimed at maximizing the number of lives saved with the limited supply of donated organs available.

Question 9

All centrally planned economies
A) have been political dictatorships.
B) started out as market economies.
C) began as mixed economies.
D) have become mixed economies.

Accepted Answer

All centrally planned economies have been political dictatorships, as the government has had complete control over the economy and decision-making processes.

Question 10

Voluntary exchange ________ economic efficiency because neither the buyer nor the seller would agree to a trade unless ________.
A) increases; they both benefit
B) increases; only one party benefits
C) decreases; neither benefit
D) decreases; they both benefit

Accepted Answer

Voluntary exchange leads to economic efficiency because both the buyer and the seller would agree to a trade only if they both benefit. Therefore, the exchange maximizes the satisfaction of both parties and allocates resources to their most valued use, leading to an increase in economic efficiency.

Question 11

Which of the following correctly describes the relationship between economic efficiency and economic equity?
A) They are both automatically achieved in a free market economy.
B) They always call for opposite outcomes.
C) There is no conflict between the two goals.
D) There is often a trade-off between the two.

Accepted Answer

Economic efficiency often requires resources to be allocated in a way that maximizes production and minimizes waste, which can lead to unequal distribution of wealth and income. On the other hand, economic equity calls for resources to be distributed fairly, which may result in a less efficient allocation. Therefore, there is often a trade-off between the two goals.

Question 12

Political candidates often hold fund raisers by charging "per plate" for dinner. Wendy purchased four tickets to a $1,000 per plate dinner for a local city council candidate. Is this transaction economically efficient?
A) No, political candidates should never be allowed to overcharge for a fund raising dinner.
B) Yes, it was a voluntary exchange that benefited both parties.
C) No, Wendy paid too much for four dinners.
D) Yes, it is efficient only from the perspective of the candidate but not from the perspective of Wendy.

Accepted Answer

The transaction was voluntary, meaning that both parties agreed to the price of $1,000 per plate. Therefore, it was efficient because both parties believed that the benefits of the transaction exceeded the cost. Additionally, it is important to note that the price per plate is based on the candidate's perceived value and not just the cost of the meal itself.

Question 13

When every good or service is produced up to the point where the last unit provides ________, allocative efficiency occurs.
A) a marginal benefit to society equal to the marginal cost of producing it
B) a marginal benefit to society greater than the marginal cost of producing it
C) a marginal benefit to society less than the marginal cost of producing it
D) a marginal benefit to society equal to zero

Accepted Answer

Allocative efficiency occurs when every good or service is produced up to the point where the marginal benefit to society equals the marginal cost of producing it. This means that any additional unit of the good or service produced would result in a cost to society that is greater than the benefit received, and therefore, it would not be efficient to produce it.

Question 14

Which of the following is an example of an efficiency-equity trade-off faced by economic agents?
A) According to an article by in the American Journal of Public Health by Edward Kaplan and Michael Merson of Yale University School of Medicine, the federal government's current method of allocating HIV-prevention resources is not cost-effective. Instead of allocating resources to states in proportion to reported AIDS cases, resources should flow first to those activities that prevent more infections per dollar and then to less and less effective combinations of programs and populations until funds are exhausted, even if it means that some populations would be left without any prevention services.
B) Concerned about the falling birth rate, the French government has pledged more money for families with three children, in an effort to encourage working women to have more babies.
C) Some U.S. colleges are actively recruiting foreign students for their technology-based programs.
D) All New York City art museums are considering adopting a free-admission policy for local residents one weekend per month.

Accepted Answer

The article by Kaplan and Merson highlights a trade-off between efficiency (preventing more infections per dollar) and equity (ensuring all populations receive prevention services). By reallocating resources based on effectiveness, some populations may receive less or no prevention services, leading to a potential equity issue.

Question 15

How are the fundamental economic decisions determined in China?
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 China is a centrally planned economy.
D) The United Nations decides because China is a developing economy.

Accepted Answer

The answer of How are the fundamental economic decisions determined...

Question 16

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

Accepted Answer

In a modern mixed economy, the decision of what goods and services will be produced is determined by a combination of all three factors: producers, consumers, and the government. Producers make decisions based on supply and demand in the marketplace, consumers make decisions based on their preferences and purchasing power, and the government may intervene with regulations or subsidies to promote certain goods or services, or to address externalities such as pollution or inequality.

Question 17

Which of the following is motivated by an equity concern?
A) Some states have transferred funds to food bank programs in order to increase benefits to lower-income families.
B) Following the implementation of subsidies for energy conservation, household demand for rooftop solar panels increased quite significantly in California.
C) The United Network for Organ Sharing advocates a system of rationing scarce kidneys that would favor young patients over old in an effort to wring more life out of donated organs.
D) The United States offers patent protection to pharmaceutical manufacturers to prevent others from duplicating their products.

Accepted Answer

Transferring funds to food bank programs to increase benefits to lower-income families is motivated by an equity concern as it aims to address the unequal distribution of resources and provide support to those who are financially disadvantaged.

Question 18

Mr. Peabody chooses to invest in companies that produce goods and services at the lowest possible cost. Mr. Peabody is investing in companies that are
A) allocatively efficient.
B) productively efficient.
C) guaranteed to make a profit.
D) all of the above

Accepted Answer

Mr. Peabody's investment criteria focuses on producing goods and services at the lowest possible cost, which suggests a focus on productivity efficiency. This does not necessarily guarantee a profit, nor does it guarantee that the goods or services produced are the ones most in demand (allocative efficiency).

Question 19

Consider the following economic agents: a. the government
B. consumers
C. producers
Who, in a market 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 market economy, the decisions about what goods and services will be produced are ultimately made by the consumers and producers. Consumers express their desires for goods and services by choosing what to buy, and producers respond to those desires by deciding what to produce in order to make a profit. The government may play a role in regulating certain industries or providing public goods, but it does not generally make decisions about what goods and services will be produced in the economy.

Question 20

Jewelry manufacturers produce a range of products such as rings, necklaces, bracelets, and brooches. 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 items?
C) What to produce?
D) Who to produce the items for?

Accepted Answer

By offering a range of products such as rings, necklaces, bracelets, and brooches, jewelry manufacturers are addressing the fundamental economic question of "what to produce?" They are deciding on the mix of products to offer in order to meet consumer demand and maximize profits.

Quiz 1: Economics: Foundations and Models

Which of the following is a result of a market economy?

Allocative efficiency best explains , and productive efficiency best explains .

Trina's Tropical Fish Store sells goldfish for $2 each and angelfish for $10 each. What is the opportunity cost of buying a goldfish?

Mr. Peabody chooses to invest in companies that produce goods and services based on consumer preferences. Mr. Peabody is investing in companies that are attempting to be

Trinh quits his $80,000-a-year job to become a full-time volunteer at a museum. What is the opportunity cost of his decision?

Voluntary exchange between buyers and sellers generates ________ in a market economy.

In economics, the term "equity" means

Which of the following is motivated by an efficiency concern?

All centrally planned economies

Voluntary exchange economic efficiency because neither the buyer nor the seller would agree to a trade unless .

Which of the following correctly describes the relationship between economic efficiency and economic equity?

Political candidates often hold fund raisers by charging "per plate" for dinner. Wendy purchased four tickets to a $1,000 per plate dinner for a local city council candidate. Is this transaction economically efficient?

When every good or service is produced up to the point where the last unit provides ________, allocative efficiency occurs.

Which of the following is an example of an efficiency-equity trade-off faced by economic agents?

How are the fundamental economic decisions determined in China?

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

Which of the following is motivated by an equity concern?

Mr. Peabody chooses to invest in companies that produce goods and services at the lowest possible cost. Mr. Peabody is investing in companies that are

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

Jewelry manufacturers produce a range of products such as rings, necklaces, bracelets, and brooches. What fundamental economic question are they addressing by offering this range of items?