Question 1

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

Accepted Answer

The concept of the "invisible hand" is based on the idea that individuals pursuing their own self-interest in the marketplace will also unintentionally promote the general well-being of society. As a result, market forces such as supply and demand will naturally allocate resources and drive economic growth, without the need for government intervention or the political process.

Question 2

In a market economy, economic activity is guided by

Accepted Answer

In a market economy, economic activity is primarily guided by individuals and businesses pursuing their own self-interest and making decisions based on prices determined by supply and demand. The government and central planners have minimal involvement in directing economic activity in a market economy. While corporations may play a role in the market, they do not guide the entire economy.

Question 3

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

Accepted Answer

In a market economy, government policies do not guide the decisions of firms and households. Instead, economic decisions are mostly influenced by market forces of supply and demand.

Question 4

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

Accepted Answer

Adam Smith believed that the success of decentralized market economies was primarily due to individuals' pursuit of self-interest. He argued that when individuals acted in their own self-interest, they unintentionally promoted the overall well-being of society by ensuring the efficient allocation of resources and the maximization of productivity.

Question 5

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 6

When the government prevents prices from adjusting naturally to supply and demand,

Accepted Answer

When the government prevents prices from adjusting naturally to supply and demand, it distorts the signals that prices send to both buyers and sellers. This may lead to surpluses or shortages, inefficient allocation of resources, and wasted resources. Therefore, preventing prices from adjusting naturally to supply and demand adversely affects the allocation of resources.

Question 7

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

Accepted Answer

In an economy guided by prices and individual self-interest, producers will supply goods and services that are in demand, and consumers will consume according to their preferences. This leads to efficient allocation of resources and maximization of social welfare. Prices act as a signal for producers and consumers, and the market mechanism adjusts supply and demand accordingly.

Question 8

In a market economy,

Accepted Answer

In a market economy, households make decisions on what to buy with their income, while firms make decisions on whom to hire and what to produce. Therefore, both choices A and B are correct. Choice C is incorrect because market economies rely on a decentralized system where individual decision-makers determine production and consumption, not a central planner.

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

Which of the following statements about market economies is correct?

Accepted Answer

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

Question 11

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

Accepted Answer

The invisible hand is a concept introduced by Adam Smith in his book "The Wealth of Nations." According to this concept, individual self-interest in a market economy is guided by the market mechanisms of supply and demand, resulting in the promotion of general economic self-interest. The invisible hand works as an automatic mechanism in the market that leads to an efficient allocation of resources and overall economic growth.

Question 12

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

Accepted Answer

In a market economy, firms and households make their own decisions based on self-interest and market prices. The government does not play a significant role in directing economic activity, as is the case in a command or centrally-planned economy. Therefore, the correct answer is the market economy, or choice C.

Question 13

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 reflect both the value of a good to society and the cost of making it. In a market economy, prices are set by the forces of supply and demand. When demand for a product or service is high, suppliers can charge a higher price, while when demand is low, prices tend to fall. These price signals are important because they provide information to producers and consumers about the relative scarcity or abundance of a particular product or service. In this way, prices act as beacons for producers to allocate resources to areas that will provide the highest profit, and as signals to consumers to purchase goods or services that are more highly valued relative to their cost. Government-determined prices, on the other hand, can lead to inefficiencies because they do not take into account the forces of supply and demand. In many cases, prices set by the government are either too high or too low, which can result in wasteful surpluses or shortages.

Question 14

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

When the government fixes the price of visiting a health care provider below the market price, it creates a price ceiling. This means that the price people pay is lower than what they would have paid in a free market. As a result, the demand for health care services would rise, since people would want to take advantage of the lower price. However, since the price is below the market equilibrium price, suppliers would reduce the quantity of services they provide, resulting in a decrease in supply. This would create a shortage of healthcare services, where there are more people who want to visit a health care provider than there are available appointments, which is known as excess demand.

Question 15

Prices direct economic activity in a market economy by

Accepted Answer

Prices in a market economy act as signals to both buyers and sellers, influencing the actions they take. Higher prices indicate that a good or service is in greater demand, leading sellers to produce more of it and buyers to consume less of it or seek alternatives. Conversely, lower prices indicate lower demand, leading to decreased production and increased consumption. This system of price signals helps to allocate resources efficiently and effectively without the need for government intervention.

Question 16

Prices usually reflect

Accepted Answer

Prices usually reflect both the value of a good to society and the cost to society of making the good. The value of a good is represented by how much people are willing to pay for it, while the cost of making the good includes the cost of labor, materials, and other expenses. Supply and demand in the market determine prices, and when demand is high and supply is low, prices tend to increase, indicating that society values the good highly. Conversely, when supply is high and demand is low, prices tend to decrease, indicating that society does not value the good as much.

Question 17

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

Accepted Answer

In a market economy, the decisions that guide most economic activity are made by both firms and households. Firms make decisions about what goods and services to produce and how much to charge for them based on the demand from households. Households make decisions about what goods and services to consume and how much to spend based on their income and personal preferences. The government may play a role in regulating and overseeing the market, but it does not make the majority of the economic decisions in a market economy.

Question 18

For markets to work well, there must be

Accepted Answer

Property rights are essential for markets to function properly. Without property rights, it would be difficult to determine who owns resources and goods, which would lead to a breakdown in market transactions. Market power, a central planner, and abundant resources are not necessary for markets to work well.

Question 19

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

Setting a wage for unskilled labor above the market wage would increase the cost for firms to hire unskilled workers, leading to a decrease in the number of unskilled jobs available. Firms may switch to labor-saving technologies or reduce the number of employees to maintain profitability.

Question 20

In a market economy, economic activity is guided by

Accepted Answer

In a market economy, economic activity is guided by prices determined by the forces of supply and demand, and the self-interest of individuals and businesses to make decisions about what to produce and consume. The government and central planners do not control economic decisions in a market economy. While large businesses may have some influence, ultimately they must respond to market forces and competition.

Quiz 1: Ten Principles of Economics

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

In a market economy, economic activity is guided by

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

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

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,

When the government prevents prices from adjusting naturally to supply and demand,

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

In a market economy,

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,

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

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

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

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,

Prices direct economic activity in a market economy by

Prices usually reflect

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

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,

In a market economy, economic activity is guided by

Quiz 1: Ten Principles of Economics

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

In a market economy, economic activity is guided by

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

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

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,

When the government prevents prices from adjusting naturally to supply and demand,

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

In a market economy,

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,

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

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

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

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,

Prices direct economic activity in a market economy by

Prices usually reflect

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

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,

In a market economy, economic activity is guided by

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