Question 1

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 occurs when firms produce goods and services that are most valued by consumers. This is because it maximizes the satisfaction of consumers with the available resources. Therefore, choice B is the correct one. Choices A, C, and D do not reflect allocative efficiency as they do not prioritize consumer preferences.

Question 2

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

Accepted Answer

Allocative efficiency refers to the production of goods and services that consumers demand the most. When production reflects consumer preferences, resources are essentially allocated towards the production of goods and services that consumers value the most, leading to allocative efficiency.

Question 3

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 in markets. This system relies on the forces of supply and demand to allocate resources efficiently.

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 incentivizes firms to produce efficiently and keep prices low in order to attract customers, ultimately leading to a more efficient allocation of resources in the economy. Voluntary exchange also promotes economic efficiency, but it is not directly related to firms' production decisions. Equity and a centrally planned economy do not necessarily promote efficiency, and can in fact lead to inefficiencies in resource allocation.

Question 5

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 6

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 between buyers and sellers, as well as offering opportunities for voluntary exchange. While some argue that markets can lead to equity and equality, these outcomes are not inherent to markets and are highly dependent on the specific context and regulations in place. Therefore, D is the best choice as it correctly identifies the two core principles that markets promote.

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 aims to ensure that everyone has access to the same opportunities and benefits and that economic benefits are distributed fairly. This can include things like equal pay for equal work, access to education and healthcare, and fair distribution of taxes and social services.

Question 8

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. This means that resources are used efficiently and wastage is minimized, resulting in lower production costs. This enables firms to offer goods and services at lower prices, which benefits consumers. A low profit margin alone does not necessarily guarantee productive efficiency, as it could be the result of high costs or inefficient production processes. Producing the goods and services that consumers value most, while important, does not necessarily ensure that production is efficient or at the lowest cost. The absence of shortages or surpluses is also important for market equilibrium but does not necessarily reflect productive efficiency.

Question 9

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

Option B is false as both firms and the government face the problem of scarcity, just like individuals. Scarcity is a fundamental economic problem that arises due to unlimited wants and limited resources to satisfy those wants. Therefore, all economic decision-makers, including individuals, firms, and governments, must make trade-offs between alternatives to allocate their scarce resources in the most efficient manner possible.

Question 10

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 cannot charge exorbitant prices for their products as consumers have the option to switch to a more affordable alternative offered by a competing firm. This competition ensures that firms are efficient in their production and are able to provide goods and services at the lowest possible cost to the consumers.

Question 11

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, which means that individuals and businesses are free to buy and sell goods and services with each other based on their own self-interest. This leads to the creation of a price system which reflects the supply and demand of goods and services, and guides production and consumption decisions. In a market economy, individuals and businesses also have the freedom to make their own decisions about production and consumption, without government intervention. Therefore, voluntary exchange is the result of a market economy. The other choices, such as environmental protection, equal income distribution, and agreement on equity, are not necessary outcomes of a market economy, and may require government intervention or regulation.

Question 12

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 between Wendy and the political candidate. Both parties benefited from the exchange, as Wendy was willing to pay $4,000 for the four tickets and the candidate was able to raise funds for their campaign. The fact that the dinner was priced at $1,000 per plate does not necessarily mean that Wendy paid too much, as the value of the dinner may have been worth the cost to her.

Question 13

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 opposed to relying on consumers' wants or the decisions of individual businesses.

Question 14

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 has a centrally planned economy, which means that economic decisions are made by the government, rather than by individuals or companies operating in a market.

Question 15

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, often leading to inefficiencies and a lack of incentives for firms to produce low-cost, high-quality goods and services. This can result in shortages of essential goods and services and an overall decrease in the standard of living for citizens.

Question 16

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

While lack of a strong leader may have contributed to economic and political instability in the Soviet Union, it was not the primary factor in its downfall. A, B, and C all highlight significant issues that led to public discontent and a lack of faith in the government, ultimately resulting in the collapse of the Soviet Union.

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, the distribution of goods and services is determined by the willingness and ability of consumers to buy them. This means that those who have higher incomes and can afford to pay more will receive more of what is produced. It is not based on any political favoritism or equal distribution.

Question 18

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 leads to cost-cutting measures and innovation to offer products at a lower cost, thereby ensuring productive efficiency. Competition among buyers, government inspectors, and regulations may improve the quality of the product but not necessarily generate productive efficiency.

Question 19

________ 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, using the least amount of resources possible. This means that resources are being used in the most efficient way possible, with no waste, allowing producers to maximize output and minimize costs.

Question 20

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, which means that resources are allocated in the best possible way to satisfy consumers' wants and needs. This is because consumers are able to indicate their preferences through the prices they are willing to pay, and producers are incentivized to produce goods and services that consumers want at the lowest possible cost in order to stay competitive. This results in a more efficient use of resources and a higher overall level of economic welfare.

Quiz 1: Economics: Foundations and Models

Allocative efficiency is achieved when firms produce goods and services

When production reflects consumer preferences,________ occurs.

How are the fundamental economic questions answered 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.

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?

Markets promote

In economics,the term "equity" means

Productive efficiency is achieved when

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

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

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?

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

How are the fundamental economic decisions determined in North Korea?

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

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

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

Which of the following generates productive efficiency?

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

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