Question 1

Adam Smith's book The Wealth of Nations was published in

Accepted Answer

The Wealth of Nations was published in 1776.

Question 2

Which of the following statements best characterizes a basic difference between market economies and centrally planned economies?

Accepted Answer

In a market economy, prices are used to allocate resources, and the self-interest of households is reflected in market outcomes. In a centrally planned economy, the government plays a larger role in economic affairs.

Question 3

Prior to the collapse of communism,communist countries worked on the premise that economic well-being could be best attained by

Accepted Answer

Communist countries operated under the principle of a centrally planned economy, where the government made all economic decisions, including what to produce, how much to produce, and at what price to sell. The collapse of communism was largely due to the failure of this economic system, as it created inefficiencies and shortages in production and distribution, ultimately leading to economic stagnation.

Question 4

Which of the following statements about markets is most accurate?

Accepted Answer

Markets are generally efficient in allocating resources and determining prices based on supply and demand. This allows for a more efficient distribution of goods and services compared to a centrally-planned economy. However, there may be certain situations where markets fail, such as in cases of monopolies or externalities. Nonetheless, the overall efficiency of markets makes them a favorable way to organize economic activity.

Question 5

The failure of communism in a large number of countries is at least partly explained by

Accepted Answer

Central planners in communist countries lacked information about consumer preferences and market demands, which made it difficult for them to allocate resources efficiently. This resulted in shortages of goods and services, and ultimately contributed to the failure of the communist economic system.

Question 6

Market economies are distinguished from other types of economies largely on the basis of

Accepted Answer

Market economies are characterized by the allocation of resources through the interactions of buyers and sellers in markets, rather than by government decision-making or other mechanisms. Therefore, the correct choice is C, as this describes the fundamental difference between market economies and other types of economies. A, B, and D are incorrect options, as they are not related to the defining features of a market economy.

Question 7

The famous observation that households and firms interacting in markets act as if they are guided by an "invisible hand" that leads them to desirable market outcomes comes from whose 1776 book?

Accepted Answer

The observation that households and firms interacting in markets act as if they are guided by an "invisible hand" that leads them to desirable market outcomes comes from Adam Smith's 1776 book "The Wealth of Nations."

Question 8

In communism,central planners decide which of the following?

Accepted Answer

In communism, central planners have control over all aspects of production, including what goods and services are produced, how much is produced, and who will produce and consume them. Therefore, all of the above options are correct.

Question 9

The idea that only the government can organize economic activity in a way that promotes economic well-being for a country as a whole

Accepted Answer

The idea that only the government can organize economic activity in a way that promotes economic well-being for a country as a whole denies the basic principle of market interactions, which is that individuals and firms make decisions based on their own self-interest, leading to an efficient allocation of resources. This idea is known as economic interventionism and is contrary to the principles of laissez-faire economics promoted by Adam Smith in his book "The Wealth of Nations" in 1776.

Question 10

Which of the following observations was made famous by Adam Smith in his book The Wealth of Nations?

Accepted Answer

Adam Smith famously introduced the concept of the "invisible hand" in his book The Wealth of Nations, which refers to the idea that the self-interested actions of individuals and firms in a market economy ultimately lead to a desirable outcome for society as a whole.

Question 11

Benefits from trade would not include

Accepted Answer

Trade and competition go hand in hand, as trade provides more opportunities for competition. Therefore, less competition would not be a benefit of trade. Specialization, greater variety of goods and services, and lower prices are all benefits of trade.

Question 12

The term "invisible hand" was coined by

Accepted Answer

The term "invisible hand" was coined by Adam Smith in his book "The Wealth of Nations".

Question 13

When Ukraine trades with Italy,

Accepted Answer

When Ukraine trades with Italy, both countries are likely made better off. Ukraine can provide goods at a lower cost due to their comparative advantage in certain industries, while Italy can provide high-quality goods that may not be available or as cost-effective in Ukraine. This allows both countries to specialize in their respective areas of expertise and increase their overall economic output.

Question 14

Communist countries worked under the premise that

Accepted Answer

Communist countries were founded on the belief that central planning, by a small group of experts, was the best way to allocate resources in the economy. The government controlled all aspects of the economy including production, distribution, and pricing. The system was based on the idea that each individual would work to the best of their ability and receive according to their needs. This approach was in direct opposition to the free-market system, which favors individual choice and competition.

Question 15

The economy of the former Soviet Union is best described as a

Accepted Answer

The former Soviet Union had a centrally-planned economy where the government controlled most economic decisions and resources.

Question 16

One advantage market economies have over centrally-planned economies is that market economies

Accepted Answer

Market economies are more efficient as price signals determine the allocation of resources, leading to better utilization of resources and increased productivity. In centrally-planned economies, government officials determine the allocation of resources, which can lead to inefficient use of resources and a lack of incentives for innovation and productivity. Market economies do not guarantee an equal distribution of goods and services, and while government does play a role in market economies, it is typically limited to providing necessary regulations to ensure fair competition and protecting consumer rights. Market economies do not solve the problem of scarcity, but they do provide a framework for addressing it through efficient allocation of resources.

Question 17

The "invisible hand" refers to

Accepted Answer

The "invisible hand" is a term used to describe the self-regulating nature of the free market, where individuals pursuing their own self-interest inadvertently contribute to the greater good of society as a whole.

Question 18

The basic principles of economics suggest that

Accepted Answer

The basic principles of economics suggest that markets are generally efficient and effective in organizing economic activity, but may not always produce efficient or fair outcomes. In those cases, government intervention may be necessary to correct market failures and ensure a more efficient and equitable distribution of resources. This could include measures such as regulation, taxation, subsidies, or public provision of goods and services. However, it is not necessary for government to be involved in all markets or in trade between countries, unless there is evidence of market failure or other externalities that require intervention.

Question 19

The collapse of communism in the Soviet Union and Eastern Europe took place mainly in the

Accepted Answer

The collapse of communism in the Soviet Union and Eastern Europe took place mainly in the 1980s, with the fall of the Berlin Wall in 1989 and the dissolution of the Soviet Union in 1991. While there were some movements towards reform in the 1960s and 1970s, the major events leading to the collapse occurred in the 1980s.

Question 20

Central planning refers to

Accepted Answer

Central planning refers to the government guiding economic activity. Today, many countries that had this system have abandoned it, such as the former Soviet Union and other communist countries.

Quiz 1: Ten Principles of Economics: How People Interact