Question 1

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 among buyers and sellers, encouraging the voluntary exchange of goods and services. While equity and equality can be byproducts of this competition and exchange, they are not the primary goals or outcomes of markets. Therefore, option D is the best choice.

Question 2

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

The answer of How are the fundamental economic questions answered...

Question 3

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 aligns with consumer preferences. This means that resources are being allocated towards producing goods and services that consumers actually want, resulting in an optimal distribution of resources and production.

Question 4

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. This can refer to the distribution of income or wealth, as well as access to resources and opportunities. It is about ensuring that everyone has a fair shot at a decent standard of living, rather than a guarantee of equal outcomes.

Question 5

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 and directs production, which can lead to inefficiencies and a lack of incentives for firms to produce the low-cost, high-quality goods and services demanded by consumers. As a result, there is often a shortage of these goods and services, which can lead to long waiting lines and black markets.

Question 6

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 allows buyers and sellers to find the equilibrium price and quantity in a market, leading to allocative efficiency where goods and services are distributed to their most valued uses. While productive efficiency and scarcity are also features of a market economy, they are not directly generated by voluntary exchange. Equity, or fairness in the distribution of goods and services, is not necessarily generated through voluntary exchange as it depends on factors such as income distribution and social policies.

Question 7

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

Voluntary exchange is the cornerstone of a market economy, where individuals and firms freely choose to buy and sell goods and services based on their own self-interest. This leads to the efficient allocation of resources and the satisfaction of consumers' wants and needs. However, it does not necessarily result in environmental protection or an equal income distribution, as these issues may require government intervention or collective action. Agreement on equity is also not a guaranteed result of a market economy, as different individuals may have varying perceptions of what is fair and just.

Question 8

Political candidates often hold fund raisers by charging "per plate" for dinner.Wendy purchased four tickets to a $1,000 per plate dinner for a local city council candidate.Is this transaction economically efficient?
A) No, political candidates should never be allowed to overcharge for a fund raising dinner.
B) Yes, it was a voluntary exchange that benefited both parties.
C) No, Wendy paid too much for four dinners.
D) Yes, it is efficient only from the perspective of the candidate but not from the perspective of Wendy.

Accepted Answer

The transaction is economically efficient because it was a voluntary exchange where both parties benefitted. Wendy chose to pay for the tickets because she wanted to support the candidate and attend the dinner. The candidate was able to raise funds for their campaign. The fact that the dinner was costly does not mean that it was not economically efficient, as long as both parties agreed to the terms of the exchange.

Question 9

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 resources are allocated in a way that produces the goods and services that are most highly valued by consumers. Therefore, option B is the correct choice. Option A is referring to productive efficiency, which means producing goods and services at the lowest possible cost. Option C is not directly related to allocative efficiency, as opportunity cost refers to the next-best alternative that must be given up in order to produce a good or service. Option D is not correct, as a marginal cost of zero would mean that the firm is producing goods and services for free, which is not sustainable.

Question 10

________ 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 creates incentives for them to improve efficiency and reduce costs, resulting in lower prices and higher quality products. This encourages firms to constantly innovate and find new ways to produce goods and services, leading to economic growth and development. A centrally planned economy, on the other hand, limits competition and stifles innovation, leading to inefficiency and poor economic performance. Voluntary exchange and equity are important principles in a market economy, but they do not directly contribute to economic efficiency.

Question 11

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 lower-income families through food bank programs is motivated by an equity concern, as it aims to address the disparities in access and affordability of food for low-income households.

Question 12

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. This means that firms are utilizing their resources efficiently and minimizing waste in their production process, resulting in lower costs of production.

Question 13

Which of the following statements is true about competition in a market?
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 forces firms to continuously evaluate their production and selling strategies to ensure that the products being produced meet the needs of consumers and are priced according to the cost of production. Firms will continue to produce and sell products as long as the net benefit to consumers exceeds the cost of production, which is determined by comparing the marginal benefit to the marginal cost. Outscourcing for labor-intensive products (A) or adding low profit margins to costs (D) may be strategies that firms employ, but this is not a direct result of competition in the market. While competition may lead to lower prices for consumers (B), this is not the only outcome of competition as firms must also focus on maintaining profitability.

Question 14

________ 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 where a good or service is produced at the lowest cost possible, using the least amount of resources. This ensures maximum output from the available resources and reduces wastage. Allocative efficiency, on the other hand, refers to the optimal distribution of resources among different industries or sectors to achieve the desired level of output at the lowest cost. Equity is the concept of fairness and justice in the distribution of resources and benefits. Optimal marginalism is the idea that decision-making is based on the comparison of marginal costs and marginal benefits to achieve the optimal level of output.

Question 15

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 can coordinate economic activities.

Accepted Answer

The lack of a strong dictator who can coordinate economic activities did not contribute to the downfall of the Soviet Union. In fact, it was the Soviet Union's reliance on a strong, centralized government under a dictator that contributed to its downfall. The other three choices (public dissatisfaction with low living standards and political repression, inability to produce low-cost consumer goods that households wanted, and lack of high-quality goods and services) were all factors that contributed to the Soviet Union's downfall.

Question 16

How are the fundamental economic decisions determined in North Korea?
A) Individuals, firms, and the government interact in a market to make these economic decisions.
B) These decisions are made by the country's elders who have had much experience in answering these questions.
C) The government decides because North Korea is a centrally planned economy.
D) The United Nations decides because North Korea is a developing economy.

Accepted Answer

North Korea operates under a centrally planned economy, meaning that economic decisions are made solely by the government. There is no market interaction or input from individuals or firms in these decisions.

Question 17

Who receives the most of what is produced in a market economy?
A) lawmakers and other politically favored groups
B) those who are willing and able to buy them
C) everyone receives an equal amount
D) people who earn the highest incomes

Accepted Answer

In a market economy, goods and services are distributed based on the principle of voluntary exchange. This means that those who are willing and able to pay for them receive the most. The prices of goods and services are determined by market forces such as supply and demand, and those who can afford to pay the most are able to consume the most. This leads to income inequality, and those who earn higher incomes are able to consume more than those who earn lower incomes. Lawmakers and politically favored groups do not necessarily receive the most in a market economy. Everyone does not receive an equal amount in a market economy, as the distribution is based on the principle of voluntary exchange.

Question 18

Why is it necessary for all economic systems to not only provide people with goods and services,but also restrict them from getting as much of these goods and services as they wish?
A) Failure to do this could reduce the efficiency of the system by producing some goods and services that are not as highly valued as others.
B) Failure to do this could lead to an inequitable allocation of goods and services produced.
C) Failure to do this could lead to drastic shortages of good and services.
D) Failure to do this could reduces efficiency and leads to an inequitable allocation of output.

Accepted Answer

The answer of Why is it necessary for all economic...

Question 19

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 advocates for a kidney allocation system that would favor younger patients over older patients in order to maximize the amount of time the donated kidneys will last. This is an example of a concern for efficiency, as it aims to maximize the use of a scarce resource (in this case, donated kidneys).

Question 20

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 encourages them to produce goods and services at the lowest possible cost, which generates productive efficiency. Competition among buyers, government inspectors, and government regulations may improve the quality of goods and services, but they do not necessarily generate productive efficiency.

Quiz 1: Economics: Foundations and Models

Markets promote

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

When production reflects consumer preferences,________ occurs.

In economics,the term "equity" means

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

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

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

Political candidates often hold fund raisers by charging "per plate" for dinner.Wendy purchased four tickets to a $1,000 per plate dinner for a local city council candidate.Is this transaction economically efficient?

Allocative efficiency is achieved when firms produce goods and services

________ 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.

Which of the following is motivated by an equity concern?

Productive efficiency is achieved when

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

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

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

How are the fundamental economic decisions determined in North Korea?

Who receives the most of what is produced in a market economy?

Why is it necessary for all economic systems to not only provide people with goods and services,but also restrict them from getting as much of these goods and services as they wish?

Which of the following is motivated by an efficiency concern?

Which of the following generates productive efficiency?