Question 1

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 allows for the market to shift towards allocative efficiency, where resources are allocated to their most valued uses according to consumers. This allows for a market economy to produce goods and services that consumers want at the lowest possible cost.

Question 2

Which of the following statements about the economic decisions consumers, firms, and the government have to make is false?
A)Governments face the problem of scarcity in making economic decisions.
B)Only individuals face scarcity; firms and the government do not.
C)Both firms and individuals face scarcity.
D)Each faces the problem of scarcity which necessitates trade-offs in making economic decisions.

Accepted Answer

All three entities - individuals, firms, and the government - face scarcity and have to make trade-offs in their economic decisions. Therefore, statement B is false.

Question 3

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 willingness and ability of consumers to buy them. Therefore, those who are willing and able to buy them receive the most of what is produced. This can include both high and low-income individuals, as long as they have the means to purchase the products they want. Lawmakers and politically favored groups do not necessarily receive the most, and everyone does not receive an equal amount.

Question 4

________ 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 drives firms to produce and sell goods and services as long as they generate a net benefit to consumers, which promotes increased economic efficiency. Firms that fail to meet consumer demands or operate inefficiently can be pushed out of the market by more efficient competitors, which further increases economic efficiency. Voluntary exchange and equity also contribute to the efficient allocation of resources, but they do not have the same direct impact on production and pricing decisions that competition does. A centrally planned economy, on the other hand, typically lacks the flexibility and incentives necessary to optimize economic efficiency.

Question 5

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 between Wendy and the political candidate is economically efficient because it was a voluntary exchange between two parties. Both parties believed that they benefited from the transaction, otherwise the exchange would not have occurred. The price of the dinner is determined by the candidate's campaign and the amount people are willing to pay to attend. The fact that Wendy purchased four tickets indicates that she believed the price was worth paying to support the candidate. Therefore, the transaction was economically efficient.

Question 6

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 is a centrally planned economy, meaning that the government is in charge of making all economic decisions, including what goods and services will be produced and how they will be distributed. There is no market interaction between individuals or firms. Additionally, the United Nations does not make economic decisions for North Korea.

Question 7

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 refers to the fair distribution of economic benefits, resources, and opportunities among individuals and groups. It is about ensuring that everyone has access to the resources they need to lead a dignified and fulfilling life, regardless of their race, ethnicity, gender, or socio-economic background.

Question 8

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 determines what and how much should be produced, as well as the prices at which goods and services are sold. This often leads to a lack of incentive for firms to produce low-cost, high-quality goods and services, as they do not have to compete with other producers in a market. This results in a shortage of such products, which is a problem inherent in centrally planned economies.

Question 9

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 as it forces them to produce at the lowest cost possible in order to remain competitive and attract customers. This leads to lower prices for the consumers and maximizes the efficiency of resources used in production.

Question 10

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. Instead, it was a contributing factor to the problems faced by the country during the Soviet era. The other choices, including public dissatisfaction, inability to produce low-cost consumer goods, and lack of high-quality goods and services, were all factors that contributed to the collapse of the Soviet Union in 1991.

Question 11

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 to find the best prices and quality products, as well as voluntary exchange where both parties benefit from the transaction. This promotes economic efficiency and overall welfare. While equity and equality may sometimes be outcomes of market activity, they are not the primary objectives or functions of markets.

Question 12

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

Accepted Answer

Allocative efficiency occurs when producers are making the goods and services that consumers want the most. Therefore, production reflects consumer preferences. Productive efficiency means producing at the lowest cost possible, and equity refers to fairness in the distribution of goods and services. Efficient central planning is not directly related to production reflecting consumer preferences.

Question 13

________ 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 the situation in which a good or service is produced at the lowest possible cost. This means that resources are being used in the most efficient way to produce the good or service. Allocative efficiency, on the other hand, is the situation in which resources are being used to produce the goods and services that are most desired by society. Equity refers to fairness and justice in the distribution of resources and wealth. Optimal marginalism is the principle that suggests that decisions should be made by comparing the marginal benefits and the marginal costs of each option.

Question 14

Which of the following statements is true about competition in a market?
A)Competition forces firms to out source the production of their labour-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 means that firms are motivated to produce goods at the lowest possible cost in order to offer them at a competitive price, but they also have to ensure that the product provides enough value to customers to justify the selling price. This results in a situation where customers can get the most benefit (in terms of quality, price, etc.) for their money, while firms are incentivized to keep their costs low and offer high-quality products. However, it should be noted that competition does not necessarily force firms to outsource labor-intensive production, add only low profit margins, or undercut their selling price - these are strategies that firms may decide to adopt in response to competitive pressures, but they are not inherent features of competition itself.

Question 15

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 16

Central planning relies on ________ to determine what types of products to make
A)government employees
B)consumers' choices
C)individual businesses
D)consumers' wants

Accepted Answer

Central planning relies on government employees to determine what types of products to make, as decisions are made by a central authority rather than individual businesses or consumers' choices and wants.

Question 17

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 relies on voluntary exchange, where individuals and businesses trade with each other based on supply and demand. This leads to the production of goods and services that are in demand, as producers seek to maximize profits. However, there is no guarantee of environmental protection or equal income distribution in a market economy, as these issues are not directly related to the functioning of markets.

Question 18

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 are producing goods and services at the lowest possible cost. This means they are maximizing their use of resources and minimizing waste or inefficiencies in the production process. By producing at the lowest cost, firms are able to offer lower prices and potentially gain a competitive advantage in the market.

Question 19

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 the production of goods and services corresponds with consumer preferences and values. This means that firms are producing the goods and services that consumers value most highly. Allocative efficiency is not related to the cost of production or the opportunity cost, although producing at the lowest cost possible can contribute to overall economic efficiency. Marginal cost of zero is not a realistic scenario as there are always some costs associated with production.

Question 20

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, the fundamental economic questions of what to produce, how to produce, and for whom to produce are answered through the interactions of households and firms within markets. These entities make decisions based on supply and demand, prices, and self-interest, without central planning by the government or domination by large corporations.

Quiz 1: Economics: Foundations and Models

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

Which of the following statements about the economic decisions consumers, firms, and the government have to make is false?

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

________ 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 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?

How are the fundamental economic decisions determined in North Korea?

In economics, the term "equity" means

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

Which of the following generates productive efficiency?

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

Markets promote

When production reflects consumer preferences, ________ occurs.

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

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

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?

Central planning relies on ________ to determine what types of products to make

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

Productive efficiency is achieved when

Allocative efficiency is achieved when firms produce goods and services

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