Question 1

All of the following contributed to the downfall of the Soviet Union in 1991 except
A)public dissatisfaction with low living standards and political repression.
B)an inability to produce low-cost consumer goods that households wanted.
C)lack of high-quality goods and services.
D)lack of a strong dictator who could coordinate economic activities.

Accepted Answer

The lack of a strong dictator who could coordinate economic activities did not contribute to the downfall of the Soviet Union. In fact, the Soviet Union had a history of strong dictators who were able to coordinate economic activities but who ultimately failed to address the underlying issues that led to the country's collapse. The main factors contributing to the downfall of the Soviet Union were public dissatisfaction with low living standards and political repression, an inability to produce low-cost consumer goods that households wanted, and a lack of high-quality goods and services.

Question 2

Which of the following statements about competition in a market is true?
A)Competition forces firms to outsource the production of their labor-intensive products.
B)Competition forces firms to undercut their selling price, thus benefiting consumers who will be able to purchase products at the lowest price possible.
C)Competition forces firms to produce and sell products as long as the marginal benefit to consumers exceeds the marginal cost of production.
D)Competition forces firms to add only low profit margins to their costs of production.

Accepted Answer

Competition drives firms to produce and sell products until the cost of production equals the price received, forcing firms to produce at the lowest possible cost to keep the price low. Therefore, firms have to produce when the marginal benefit to consumers exceeds the marginal cost of production. In a competitive market, firms have minimal pricing power and cannot add only low profit margins to their costs of production. The cost of producing a product should equal the selling price in a competitive market, and pricing your product arbitrarily will soon drive customers to your competitors.

Question 3

Markets promote
A)equity and competition.
B)voluntary exchange and equality.
C)equity and equality.
D)competition and voluntary exchange.

Accepted Answer

Markets promote competition and voluntary exchange. While markets may provide some benefits in terms of equity and equality, promoting those values is not the primary function of a market. The primary function is to facilitate exchange between buyers and sellers, and to provide incentives for producers to produce goods and services that are valued by consumers. This helps to allocate resources efficiently and promotes economic growth.

Question 4

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

Allocative efficiency refers to producing what is most desired by society, while productive efficiency refers to producing goods in the least costly way, which relates to how something will be produced.

Question 5

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 among individuals, regardless of their socio-economic status, race, gender, or any other characteristic. The goal is to reduce inequalities and ensure that all individuals have a fair and equal opportunity to achieve economic success.

Question 6

________ increases economic efficiency because it forces firms to produce and sell goods and services as long as the additional benefit to consumers is greater than the additional cost of production.
A)Competition
B)Voluntary exchange
C)Equity
D)A centrally planned economy

Accepted Answer

Competition among firms forces them to constantly improve their production processes, reduce costs, and offer better quality goods and services. The firms that are most efficient are able to produce at lower costs and offer lower prices, and therefore can attract more customers away from their competitors. This promotes economic efficiency as resources are allocated to the production of goods and services that consumers value the most, while wasteful and inefficient production is discouraged. Voluntary exchange, equity, and a centrally planned economy do not necessarily promote economic efficiency in the same way that competition does.

Question 7

Productive efficiency is achieved when
A)firms add a low profit margin to the goods and services they produce.
B)firms produce the goods and services that consumers value most.
C)firms produce goods and services at the lowest cost.
D)there are no shortages or surpluses in the market.

Accepted Answer

Productive efficiency is achieved when firms produce goods and services at the lowest cost possible, which means that they are operating at the lowest point on the average total cost curve. This minimizes waste and allows firms to produce more output with the same amount of resources, leading to lower prices for consumers and higher profits for the firm. Adding a low profit margin (A) may be one method of achieving productive efficiency, but it is not the defining characteristic. Producing the goods and services that consumers value most (B) is an important aspect of allocative efficiency, but it does not necessarily ensure productive efficiency. The absence of shortages or surpluses in the market (D) is a characteristic of market equilibrium rather than productive efficiency.

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 system of rationing scarce kidneys that favors young patients over old is motivated by an efficiency concern as it aims to allocate the scarce resource of donated organs to those who can benefit the most from them and maximize the number of lives saved.

Question 9

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 example given in option A shows an efficiency-equity trade-off as it suggests reallocating resources to achieve maximum prevention of HIV infections per dollar spent, even if it means some populations would be left without any prevention services. This involves a trade-off between efficiency (maximizing prevention per dollar spent) and equity (ensuring everyone has access to prevention services). Option B is an example of a policy aimed at increasing birth rates, and option C is an example of international recruitment for a specific purpose, neither of which involves an efficiency-equity trade-off. Option D is an example of a policy aimed at increasing access to museums, but it does not involve a trade-off between efficiency and equity.

Question 10

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

A market economy is based on voluntary exchange where people can freely buy and sell goods and services. This means that transactions are made because both parties agree that it will benefit them. This leads to increased competition, innovation and efficiency, which are all benefits of a market economy. In contrast, environmental protection and income distribution are typically managed by the government or other organizations, and agreement on equity is a social issue that is not necessarily related to the economy.

Question 11

Allocative efficiency is achieved when firms produce goods and services
A)at the lowest possible cost.
B)that consumers value most.
C)at the lowest opportunity cost.
D)at a marginal cost of zero.

Accepted Answer

Allocative efficiency is the production of goods and services that consumers value most. It occurs when suppliers produce goods and services at a price that reflects the marginal cost of production, meaning that resources are being used in the most efficient way possible.

Question 12

Which of the following generates productive efficiency?
A)competition among sellers
B)competition among buyers
C)government inspectors
D)government production rules and regulations

Accepted Answer

Competition among sellers generates productive efficiency because it forces firms to produce at the lowest possible cost and price, improving their productivity and efficiency. Competition among buyers, government inspectors, government production rules, and regulations may also contribute to improving efficiency in their respective ways, but they do not generate productive efficiency as directly as competition among sellers.

Question 13

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 banks to increase benefits for lower-income families is motivated by a concern for equity, as it aims to address the disparities in access to food between high- and low-income households.

Answer: C 
 Rationing scarce kidneys to favor young patients over older patients is motivated by a concern for equity, as it aims to ensure that limited resources are distributed fairly among individuals who need them.

The other options are not primarily motivated by equity concerns. B is motivated by a desire to promote energy conservation and D is motivated by a desire to incentivize innovation and reward investment in drug development.

Question 14

Which of the following is a problem inherent in centrally planned economies?
A)Households and firms make poor decisions in choosing how resources are allocated.
B)There is too little production of low-cost, high-quality goods and services.
C)Production managers are more concerned with satisfying consumer wants than with satisfying government's orders.
D)Exports tend to exceed imports.

Accepted Answer

In centrally planned economies, the government controls the allocation of resources and production decisions, which can lead to a lack of competition and innovation. This often results in lower-quality goods and services being produced at higher costs, which means there is too little production of low-cost, high-quality goods and services.

Question 15

________ is a situation in which a good or service is produced at the lowest possible cost.
A)Allocative efficiency
B)Productive efficiency
C)Equity
D)Optimal marginalism

Accepted Answer

Productive efficiency is a situation in which a good or service is produced at the lowest possible cost. This means producing a good or service with the least amount of input, while maintaining the quality of the output. In other words, it is producing at the point on the production possibility frontier where resources are used most efficiently. Allocative efficiency, on the other hand, refers to producing the right quantity and type of goods and services that are most valued by society. Equity and optimal marginalism are not related to the concept of lowest possible cost of production.

Question 16

How are the fundamental economic questions answered in a market economy?
A)The government alone decides the answers.
B)Individuals, firms, and the government interact in markets to decide the answers to these questions.
C)Households and firms interact in markets to decide the answers to these questions.
D)Large corporations alone decide the answers.

Accepted Answer

In a market economy, households and firms interact in markets to determine the allocation of resources and answer the fundamental economic questions through supply and demand dynamics.

Question 17

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 refers to the optimal allocation of resources while economic equity refers to the fair distribution of resources. Often, achieving one goal may come at the expense of the other. For example, policies that increase economic equity by redistributing wealth or income may reduce economic efficiency by discouraging productivity or investment. On the other hand, policies that promote economic efficiency such as reducing regulations or taxes may worsen economic equity by increasing income inequality. Therefore, there is often a trade-off between economic efficiency and economic equity.

Question 18

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 between buyers and sellers in a market economy leads to allocative efficiency, meaning resources are allocated to produce goods and services that consumers value the most. This allows for the greatest level of satisfaction for both buyers and sellers, and is a hallmark of a well-functioning market economy.

Question 19

Political candidates often hold fundraisers by charging "per plate" for dinner.Wendy purchased four tickets to a $1,000 per plate dinner for a local city council candidate.Does this transaction benefit both parties?
A)No, political candidates should never be allowed to overcharge for a fundraising dinner as that limits the number of people who can afford to attend.
B)Yes, it was a voluntary exchange that benefited both parties.
C)No, Wendy paid too much for four dinners.
D)Yes, but only if the dinners served actually cost $1,000 each.

Accepted Answer

The transaction of purchasing four tickets to a $1,000 per plate dinner was voluntary and mutually beneficial. Wendy chose to support the local city council candidate and was willing to pay the price for it. The candidate received the financial support needed for their campaign. Therefore, it benefited both parties.

Question 20

When production reflects consumer preferences, ________ occurs.
A)allocative efficiency
B)productive efficiency
C)equity
D)efficient central planning

Accepted Answer

Allocative efficiency occurs when production reflects consumer preferences, meaning that the resources are allocated in a way that best satisfies the wants and needs of the consumers. This leads to the production of goods and services that are in high demand and have a greater value to society.

Quiz 1: Economics: Foundations and Models

All of the following contributed to the downfall of the Soviet Union in 1991 except

Which of the following statements about competition in a market is true?

Markets promote

Allocative efficiency best explains , and productive efficiency best explains .

In economics, the term "equity" means

________ increases economic efficiency because it forces firms to produce and sell goods and services as long as the additional benefit to consumers is greater than the additional cost of production.

Productive efficiency is achieved when

Which of the following is motivated by an efficiency concern?

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

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

Allocative efficiency is achieved when firms produce goods and services

Which of the following generates productive efficiency?

Which of the following is motivated by an equity concern?

Which of the following is a problem inherent in centrally planned economies?

________ is a situation in which a good or service is produced at the lowest possible cost.

How are the fundamental economic questions answered in a market economy?

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

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

Political candidates often hold fundraisers by charging "per plate" for dinner.Wendy purchased four tickets to a $1,000 per plate dinner for a local city council candidate.Does this transaction benefit both parties?

When production reflects consumer preferences, ________ occurs.