Question 1

The decision about what goods and services will be produced in a market economy is made by

Accepted Answer

In a market economy, the decisions about what goods and services will be produced are made by consumers and firms who decide which goods and services to buy or produce based on their own preferences and interests. This is known as the principle of consumer sovereignty where consumers ultimately determine what is produced through their purchasing decisions.

Question 2

Refer to the Article Summary.The article discusses income inequality,and for some people this means a more equitable distribution of income is needed in the economy.Would an equitable distribution of income necessarily be the most efficient distribution of income?

Accepted Answer

An economically efficient distribution of income may not necessarily be an equitable distribution. The most economically efficient distribution may result in some groups or individuals earning significantly more or less than others. Equitable distribution often involves redistributing wealth and resources to make the distribution more equal, which may not be the most efficient option. Therefore, equitable and efficient are not interchangeable terms and do not always have the same definition.

Question 3

The decision about what goods and services will be produced in a centrally planned economy is made by

Accepted Answer

In a centrally planned economy, the government plays a dominant role in making economic decisions, including what goods and services will be produced. Lawmakers in the government decide what will be produced based on social and economic goals.

Question 4

Which of the following is not an example of an efficiency-equity trade-off faced by economic agents?

Accepted Answer

Option B is not an example of an efficiency-equity trade-off as it is solely focused on promoting equity by providing financial incentives to families with three children. It does not involve any trade-off between efficiency and equity. The other options involve trade-offs between efficiency and equity, such as prioritizing cost-effective HIV prevention programs over regions with high reported AIDS cases, releasing government corn stocks and imposing price ceilings on tortillas to ensure affordability for low-income consumers, and balancing merit-based and need-based scholarships to support students with different levels of financial need.

Question 5

Competition among sellers generates

Accepted Answer

Competition among sellers generates productive efficiency, which means that the production process is carried out in the most efficient way possible, minimizing waste and maximizing output. This leads to lower costs for firms and lower prices for consumers, as firms are able to produce and sell their goods at a lower price while maintaining a profit margin. Allocative efficiency and equity are not necessarily guaranteed by competition among sellers, and scarcity is a fundamental economic concept that exists regardless of competition.

Question 6

Refer to the Article Summary.The article discusses income inequality,and for some people this means a more equitable distribution of income is needed in the economy.What is meant by a more equitable distribution of income?

Accepted Answer

A more equitable distribution of income means that people believe that the distribution of income is currently unfair and that it needs to be redistributed in a more just manner to create greater equality.

Question 7

________ occurs when economic benefits are distributed fairly.

Accepted Answer

Equity refers to the fair distribution of economic benefits among the members of the society. It ensures that everyone has access to the basic amenities of life, such as healthcare, education, and housing. Allocative efficiency, on the other hand, refers to the optimal allocation of resources in such a way that the maximum level of satisfaction is achieved. Productive efficiency refers to the production of goods and services using the least amount of resources possible while meeting the requirements of the consumers. Equality implies treating everyone equally, regardless of their socio-economic status.

Question 8

Which of the following is motivated by an equity concern?

Accepted Answer

Cutting back on merit scholarships to fund need-based programs is motivated by an equity concern, as it prioritizes assistance for those with greater financial need.

Question 9

The Farm Factory,a booth at the local Farmer's Market,sells fresh eggs for $1.50 per dozen and fresh milk for $2.50 per gallon.What is the opportunity cost of buying a dozen eggs?

Accepted Answer

The opportunity cost of buying a dozen eggs is what you give up to buy the eggs instead. Since a dozen eggs costs $1.50 and a gallon of milk costs $2.50, you give up the opportunity to buy $1.50/$2.50 = 3/5 of a gallon of milk.

Question 10

Dr.Goldfinger decides to invest in companies which he believes can "improve the productivity and efficiency" of health care services.How can Dr.Goldfinger strive to achieve this productive efficiency?

Accepted Answer

The answer of Dr.Goldfinger decides to invest in companies which...

Question 11

Dr.Goldfinger decides to invest in companies which he believes can "improve the productivity and efficiency" of health care services.What would Dr.Goldfinger need to do to try to achieve allocative efficiency?

Accepted Answer

Allocative efficiency is achieved when the production of goods and services aligns with consumer preferences, indicating that resources are allocated based on what consumers value most.

Question 12

Selling tickets to graduation ceremonies has long been a tradition among students at institutions that limit the number of guests.Suppose your classmate,Heidi,purchased two tickets for $40 each.Is this transaction economically efficient?

Accepted Answer

The transaction was economically efficient because it was a voluntary exchange between two parties who both benefited from the transaction. Heidi was willing to pay $40 per ticket in order to ensure that she could bring two guests to her graduation ceremony, while the seller was willing to part with the tickets in exchange for $80. Both parties gained something they valued more than what they gave up, making this a mutually beneficial transaction.

Question 13

The Farm Factory,a booth at the local Farmer's Market,sells fresh eggs for $1.50 per dozen and fresh milk for $2.50 per gallon.What is the opportunity cost of buying a gallon of milk?

Accepted Answer

The opportunity cost of buying a gallon of milk is the value of the next best alternative foregone, which in this case is the eggs. To determine the opportunity cost, we need to compare the price of the milk to the price of the eggs. One gallon of milk costs $2.50, while a dozen eggs cost $1.50. To determine how many eggs we could buy instead of a gallon of milk, we need to divide the cost of the milk by the cost of the eggs: $2.50 ÷ $1.50 = 1.67. This means that for the price of one gallon of milk, we could buy 1 2/3 dozen eggs, so the answer is A. Buying Choice A would be the best choice as it gives the most value for the money spent.

Question 14

The government makes all economic decisions in a centrally planned economy.

Accepted Answer

In a centrally planned economy, the government controls all aspects of economic decision-making, including setting prices, determining production levels, and allocating resources.

Question 15

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

Accepted Answer

The Soviet Union struggled to produce low-cost consumer goods that households wanted, leading to dissatisfaction among citizens and contributing to the economic downfall of the country in 1991.

Question 16

There is often a trade-off between

Accepted Answer

The answer of There is often a trade-off between
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Question 17

Mrs.Lovejoy decides to invest in companies which she believes are producing its goods based on the preferences of consumers.Mrs.Lovejoy is investing in companies that are

Accepted Answer

Mrs. Lovejoy is investing in companies that are producing goods based on consumer preferences, which means they are likely producing goods that consumers want to buy. This indicates that these companies are likely allocating resources and producing at a level where the marginal benefit equals the marginal cost, making them allocatively efficient. However, we cannot determine whether they are productively efficient or always going to be profitable based on this information alone.

Question 18

Which of the following is motivated by an efficiency concern?

Accepted Answer

Banning homeowners from watering their lawns is motivated by an efficiency concern to conserve water during a drought.

Question 19

Mrs.Lovejoy decides to invest in companies which she believes can produce their goods at the lowest possible cost.Mrs.Lovejoy is investing in companies that are

Accepted Answer

Mrs. Lovejoy is investing in companies that can produce their goods at the lowest possible cost, which means she is investing in companies that are productively efficient. Allocative efficiency refers to producing goods that are in demand in the market, and Mrs. Lovejoy's investment strategy does not directly relate to that. Therefore, choice A is the correct answer. Choice D is not a relevant option as there is no guarantee that all productively efficient companies will be profitable.

Question 20

How are the fundamental economic decisions determined in Canada?

Accepted Answer

In Canada, the fundamental economic decisions are determined through the interaction of individuals, firms, and the government in a market economy. The market forces of supply and demand play a significant role in determining the price and quantity of goods and services produced in the economy. The government also intervenes in the market economy through policies such as taxation, subsidies, and regulations to promote economic growth and stability. Overall, the economic decisions in Canada are made through a combination of market forces and government intervention.

Quiz 1: Economics: Foundations and Models