Question 1

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 2

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 3

In a market economy, economic activity is guided by

Accepted Answer

In a market economy, economic activity is guided by the interactions of individuals and businesses in the marketplace who act in their own self-interest, and prices play a crucial role in coordinating the allocation of resources and determining what goods and services are produced and consumed.

Question 4

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 are based on the interaction of supply and demand in the market, which takes both the value of a good to society and the cost of making it into consideration. Prices signal to producers and consumers the relative scarcity of resources, the demand for goods, and the production costs. In contrast, government-determined prices may be influenced by political considerations rather than the actual value and cost of producing goods, leading to inefficiencies and market distortions.

Question 5

Which of the following statements about market economies is correct?

Accepted Answer

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

Question 6

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

Accepted Answer

A market economy is characterized by private individuals and businesses making decisions on what to produce, how much to produce, what to charge, and who to hire. The government does not play a primary role in market economies, but instead functions to ensure competition, protect property rights, and prevent negative economic externalities. Therefore, statement D does not apply to a market economy.

Question 7

In a market economy,

Accepted Answer

In a market economy, both households and firms make decisions. Households decide which firms to work for and what to buy with their incomes, while firms decide whom to hire and what to make. These decisions are made based on the laws of supply and demand, with prices serving as signals for both households and firms.

Question 8

In a market economy, economic activity is guided by

Accepted Answer

In a market economy, self-interest drives individuals and businesses to make decisions about what to produce and consume, and prices guide these decisions by indicating the relative scarcity or abundance of goods and services. The government does not play a directing role in this system, unlike in a planned economy, and corporations are simply one of many players in the market, subject to the same prices and incentives as everyone else. Central planners, who exist in planned economies, are not relevant to a market economy.

Question 9

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

Accepted Answer

The invisible hand, a concept introduced by Adam Smith in The Wealth of Nations, suggests that individuals pursuing their own self-interest in a free market economy will ultimately create benefits for society as a whole. This occurs through market forces such as competition and price signals, which guide individuals to efficiently allocate resources and produce goods and services that are in demand. Government intervention and the political process can sometimes interfere with or distort the workings of the invisible hand. Altruism, while a positive characteristic, is not the driving force behind the invisible hand.

Question 10

When the "invisible hand" guides economic activity, prices of products reflect

Accepted Answer

The "invisible hand" refers to the concept that the pursuit of self-interest by individuals in a free market economy leads to a desirable outcome for society as a whole. In this system, prices are determined by the balance between the values that consumers place on products (as expressed through their willingness to pay) and the costs of production. Therefore, prices reflect both the values that society places on products and the costs to society of producing those products.

Question 11

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

Accepted Answer

In a market economy, most economic decisions are made by both firms and households. Firms make decisions about what to produce, how much to produce, and what price to sell their products for. Households make decisions about what goods and services to purchase, and how much to consume. These decisions are guided by the laws of supply and demand and the price system. While the government plays a role in regulating the market and providing certain goods and services, in a market economy, the decisions are primarily made by firms and households.

Question 12

Prices direct economic activity in a market economy by

Accepted Answer

Prices play a critical role in a market economy by influencing the buying and selling decisions of both buyers and sellers. When prices are high, buyers tend to purchase less, whereas sellers tend to sell more. Conversely, when prices are low, buyers tend to purchase more, whereas sellers tend to sell less. This balancing act between buyers and sellers helps to allocate goods and services in a way that reflects consumer preferences and promotes overall economic efficiency. Scarcity of goods and services could be mitigated by an increase in supply or demand, which could be influenced by price fluctuations. However, prices alone do not eliminate the need for government intervention, nor do they always ensure an equitable allocation of resources.

Question 13

Prices usually reflect

Accepted Answer

Prices reflect both the value of a good to society and the cost to society of making the good. The value of a good to society is reflected in the price that consumers are willing to pay for it, while the cost of making a good is reflected in the price that producers need to charge to cover their costs and make a profit.

Question 14

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

Accepted Answer

The invisible hand is the concept introduced by Adam Smith which states that the self-interested actions of individuals in a market economy can lead to a collectively beneficial outcome for society as a whole. The invisible hand guides the participants in the market to promote general economic self-interest, without the need for government intervention or market power.

Question 15

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

When the government sets a wage for unskilled labor above the market wage, it creates a situation where the cost of hiring unskilled workers is higher than what employers are willing to pay. As a result, employers will be forced to reduce the number of unskilled workers they hire, as they cannot afford to pay them the mandated wage. Therefore, there will be a decrease in the number of unskilled jobs available.

Question 16

For markets to work well, there must be

Accepted Answer

Property rights are an essential prerequisite for efficient functioning of markets. They establish ownership rights, which enable people to exchange goods and services and invest with confidence. Without property rights, it would be difficult to transfer ownership of goods and services, allocate resources efficiently, or attract investment that is critical for economic growth. Market power creates distortions in competition, while a central planner may not always allocate resources efficiently or in line with people's preferences. Abundant resources would mean that there is no need for production decisions or allocation of resources as everything is available in abundance.

Question 17

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 situation where demand exceeds supply. Consumers are incentivized to make more visits due to the lower price, but health care providers have less of an incentive to provide services since the price is now lower than what they would receive in a free market. Therefore, we would expect an increase in the number of visits people want to make and a decrease in the number of visits health care providers want to provide. This results in a shortage of healthcare services.

Question 18

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 self-interest, firms and households are motivated to produce and consume goods and services in a way that maximizes their own well-being. This creates an incentive for businesses to produce goods efficiently and for households to spend money on goods they value the most. As a result, the market can achieve efficiency in production.

Question 19

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

Accepted Answer

In a market economy, decisions made by firms and households are guided by prices and self-interest. In a command economy, decisions are made by a centralized authority, and in a centrally-planned economy, decisions are made by a government planning agency. Therefore, the best choice is C, market economy.

Question 20

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

Accepted Answer

According to Adam Smith's theory of laissez-faire economics, decentralized market economies succeed due to individuals pursuing their own self-interest in the marketplace, leading to competition and innovation. Smith believed that this system would lead to the most efficient allocation of resources and ultimately benefit society as a whole.

Quiz 1: Ten Principles of Economics

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,

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,

In a market economy, economic activity is guided by

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

Which of the following statements about market economies is correct?

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

In a market economy,

In a market economy, economic activity is guided by

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

When the "invisible hand" guides economic activity, prices of products reflect

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

Prices direct economic activity in a market economy by

Prices usually reflect

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

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,

For markets to work well, there must be

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,

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

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

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

Quiz 1: Ten Principles of Economics

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,

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,

In a market economy, economic activity is guided by

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

Which of the following statements about market economies is correct?

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

In a market economy,

In a market economy, economic activity is guided by

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

When the "invisible hand" guides economic activity, prices of products reflect

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

Prices direct economic activity in a market economy by

Prices usually reflect

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

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,

For markets to work well, there must be

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,

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

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

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

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