Question 1

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

Accepted Answer

Allocative efficiency occurs when resources are allocated in a way that reflects consumer preferences, meaning that goods and services are being produced in the quantities and with the qualities that consumers want. This results in the maximum satisfaction of consumer wants and needs, and is considered a desirable outcome in a market economy.

Question 2

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 often requires maximizing productivity and optimizing allocation of resources, which can lead to unequal distribution of wealth and income. On the other hand, economic equity aims to promote fairness and equal access to resources, which may result in sacrificing some efficiency. Therefore, there is often a trade-off between the two goals.

Question 3

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

Productive efficiency refers to producing goods and services at the lowest possible cost. Competition among sellers creates an incentive to produce goods and services at the lowest cost possible in order to offer competitive prices to customers. This competition drives firms to be more efficient in their production processes, leading to productive efficiency. The other options listed do not directly contribute to productive efficiency.

Question 4

________ 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 occurs when a good or service is produced at the lowest possible cost. This means that all resources are being used efficiently and there is no waste or unnecessary cost in the production process. Allocative efficiency, on the other hand, refers to the situation where resources are allocated to their most valued uses, while equity refers to a fair and just distribution of resources among members of society. Optimal marginalism refers to the principle that economic decisions should be made by comparing the additional benefits and costs of each decision.

Question 5

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 United Network for Organ Sharing's advocacy for a system of rationing scarce kidneys that would favor young patients over old is motivated by an efficiency concern. The goal is to maximize the number of years of life gained from donated organs.

Question 6

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 possible cost, while maintaining quality standards. This means that resources are used in the most efficient way possible to produce the maximum output. When a firm achieves productive efficiency, it is operating at the lowest point on its average total cost curve, which means that it is producing goods and services at the lowest cost possible.

Question 7

Trinh quits his $80,000-a-year job to become a full-time volunteer at a museum.What is the opportunity cost of his decision?
A)0 since he will no longer be earning a salary
B)depends on the "going rate" of museum employees
C)at least $80,000
D)the value he attributes to the joy of working at a museum

Accepted Answer

The opportunity cost of Trinh's decision is the value of his forgone salary, which is at least $80,000 per year. This is because he gave up the opportunity to earn that salary in order to become a full-time volunteer at the museum. The other options (A, B, and D) are not accurate because they do not reflect the full value of what Trinh is giving up by quitting his job. Option A only considers his salary, but does not factor in the potential for future earnings or career advancement. Option B depends on the going rate of museum employees, which may or may not reflect the true value of Trinh's time and skills. Option D is subjective and does not reflect the monetary value of Trinh's decision.

Question 8

________ 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 creates incentives for firms to produce more efficiently and offer better quality goods and services at lower prices, which benefits consumers. This encourages firms to constantly innovate and improve their products, leading to technological progress and economic growth. In a competitive market, resources are allocated more efficiently as firms are forced to produce only what consumers demand, and at a price that reflects the true cost of production. As a result, scarce resources are not wasted on producing goods that are not desired or not as valued by consumers.

Question 9

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 is voluntary, meaning that both parties agreed to exchange money for tickets to a fundraising dinner. As long as both parties are satisfied with the exchange, it benefits both of them.

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, meaning that individuals are free to buy and sell goods and services as they choose. This allows for competition and price signals that guide production and consumption decisions. In a market economy, there is no guarantee of an equal income distribution or agreement on equity, and environmental protection may or may not be a priority depending on the preferences of consumers and businesses.

Question 11

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 results in allocative efficiency, where resources are allocated to their most valued uses as determined by consumers. This leads to the production of goods and services that are most in demand and maximizes societal welfare. Scarcity is a fundamental problem in all economies, and productive efficiency refers to producing goods and services using the fewest possible resources. Equity refers to fairness in the distribution of resources and benefits in society, which is not necessarily guaranteed by voluntary exchange.

Question 12

Trina's Tropical Fish Store sells goldfish for $2 each and angelfish for $10 each.What is the opportunity cost of buying a goldfish?
A)5 angelfish
B)1/5 of an angelfish
C)$10
D)$2

Accepted Answer

The answer of Trina's Tropical Fish Store sells goldfish for...

Question 13

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 in a market forces firms to produce and sell products as long as the marginal benefit to consumers exceeds the marginal cost of production. This ensures that resources are efficiently allocated and products are priced competitively. Firms may not necessarily outsource labor-intensive production, undercut their selling price, or add only low profit margins to their costs of production. These decisions are based on various factors such as availability of resources, market demand, and overall business strategy.

Question 14

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

In economics, the term "equity" means that economic benefits are distributed fairly. This means that individuals receive goods and services based on their needs and abilities, rather than based on their wealth or social status.

Question 15

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 as buyers and sellers compete to get the best price for goods and services. They also promote voluntary exchange as buyers and sellers willingly engage in transactions without force or coercion. While equity and equality can be goals of some markets, they are not inherent features promoted by all markets.

Question 16

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

The answer of Allocative efficiency best explains ________, and productive...

Question 17

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 achieved when firms produce goods and services that consumers value most. This means that the resources are allocated in a way that maximizes consumer satisfaction, and this is only possible if firms are producing goods that people actually want and are willing to pay for.

Question 18

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 bank programs to increase benefits for lower-income families is motivated by an equity concern as it seeks to address the economic inequality and provide more support to those in need.

Question 19

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 actually contributed to the downfall of the Soviet Union, as it led to economic inefficiencies and mismanagement. The other options (A, B, and C) all highlight factors that did contribute to the downfall, such as public dissatisfaction with living standards and a lack of high-quality goods and services.

Question 20

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 article by Kaplan and Merson shows that the government must choose between allocating resources based on reported AIDS cases, which may not be the most effective use of resources, and allocating resources to those activities that prevent more infections per dollar, which may leave some populations without any prevention services. This is an efficiency-equity trade-off as the government must weigh the efficiency of using resources where they are most effective against the equity of providing services to all populations.

Quiz 1: Economics: Foundations and Models

When production reflects consumer preferences, ________ occurs.

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

Which of the following generates productive efficiency?

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

Which of the following is motivated by an efficiency concern?

Productive efficiency is achieved when

Trinh quits his $80,000-a-year job to become a full-time volunteer at a museum.What is the opportunity cost of his decision?

________ 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.

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?

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

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

Trina's Tropical Fish Store sells goldfish for $2 each and angelfish for $10 each.What is the opportunity cost of buying a goldfish?

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

In economics, the term "equity" means

Markets promote

Allocative efficiency best explains , and productive efficiency best explains .

Allocative efficiency is achieved when firms produce goods and services

Which of the following is motivated by an equity concern?

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

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