Question 1

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

Accepted Answer

In a market economy, those who are willing and able to buy goods and services will receive the most of what is produced. This is because producers will continue to produce and sell goods and services as long as there is demand for them, generating profit for themselves. The more affluent members of society who have the means to purchase more goods and services will therefore receive more of what is produced.

Question 2

Allocative efficiency is achieved when firms produce goods and services

Accepted Answer

Allocative efficiency is achieved when firms produce goods and services that are most valued by consumers. This means that resources are allocated to the production of goods and services that satisfy consumers' wants and needs at the lowest possible cost, which maximizes social welfare.

Question 3

The distribution of income primarily determines which of the fundamental economic questions?

Accepted Answer

The distribution of income determines who will receive the goods and services produced.

Question 4

Arlene quits her $125 000-a-year job to take care of her ailing parents. What is the opportunity cost of her decision?

Accepted Answer

The opportunity cost of Arlene's decision is the value of the next best alternative that she gave up – in this case, her salary of $125,000 per year. Therefore, the correct answer is option C - at least $125,000.

Question 5

Productive efficiency is achieved when

Accepted Answer

Productive efficiency means producing goods and services at the lowest possible cost, which means avoiding waste and using resources efficiently. This allows firms to offer lower prices for consumers and increase their profits.

Question 6

Consider the following economic agents: a. the government
B. consumers
C. producers
Who, in a centrally planned economy, decides what goods and services will be produced with the scarce resources available in that economy?

Accepted Answer

In a centrally planned economy, the government decides what goods and services will be produced with the scarce resources available in that economy. Consumers and producers have limited or no input in the decision-making process.

Question 7

The Coffee Nook, a small cafe near campus, sells cappuccinos for $2.50 and Russian tea cakes for $1.00 each. What is the opportunity cost of buying a Russian tea cake?

Accepted Answer

The opportunity cost is the value of the next best alternative. In this case, it is what you are giving up by buying a Russian tea cake instead of a cappuccino. You could buy 2/5 of a cappuccino with the money you are spending on a Russian tea cake ($1.00/$2.50 = 2/5). Therefore, the best choice is to buy a Russian tea cake if you value it more than 2/5 of a cappuccino.

Question 8

The Coffee Nook, a small cafe near campus, sells cappuccinos for $2.50 and Russian tea cakes for $1.00 each. What is the opportunity cost of buying a cappuccino?

Accepted Answer

The opportunity cost is the value of the best alternative forgone. In this case, if a customer chooses to buy a cappuccino for $2.50, they could have instead used that money to buy 2 1/2 Russian tea cakes (at a cost of $1 each). Therefore, the opportunity cost of buying a cappuccino is 2 1/2 Russian tea cakes.

Question 9

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

Accepted Answer

The statement "Only individuals face scarcity; firms and the government do not" is false. Firms and the government face the problem of scarcity, just like individuals, and must make trade-offs in their economic decisions.

Question 10

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

Accepted Answer

Productive efficiency is a situation in which a good or service is produced at the lowest possible cost. This means that all resources are being used in the most efficient way, without any waste. Allocative efficiency, on the other hand, refers to a situation in which resources are allocated to their most valuable use. Equity refers to the fairness in the distribution of resources and benefits. Optimal marginalism refers to a situation in which the cost and benefit of an additional unit of a good or service are equal. None of these concepts relate directly to producing a good or service at the lowest possible cost, which is the definition of productive efficiency.

Question 11

The highest valued alternative that must be given up to engage in an activity is the definition of

Accepted Answer

Opportunity cost is the highest valued opportunity forgone in order to engage in an activity. Marginal benefit refers to the additional benefit received from consuming one more unit of a good or service. Marginal cost refers to the additional cost incurred from producing one more unit of a good or service. Economic equity refers to the fair distribution of economic benefits and resources. Therefore, the best choice is C because it provides the most accurate definition of the term.

Question 12

When production reflects consumer preferences, ________ occurs.

Accepted Answer

Allocative efficiency occurs when production reflects consumer preferences, meaning that goods and services are being produced in proportions that match the desires of consumers. This leads to the most efficient use of resources and maximum satisfaction for consumers. Productive efficiency refers to producing goods at the lowest possible cost, while equity refers to fairness and equal distribution of resources. Efficient central planning refers to a system where a central authority, such as the government, manages the allocation of resources and production decisions, which is not reflective of consumer preferences.

Question 13

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

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 14

The decision about what goods and services will be produced in a market economy is made by

Accepted Answer

In a market economy, the decisions about what goods and services will be produced are left up to the consumers and firms. Consumers decide what they want to buy and the prices they are willing to pay, while firms decide what to produce based on consumer demand and their own profitability goals. The market economy operates on the principle of supply and demand, where prices and production levels are determined by the balance between the amount of goods and services producers are willing to supply and the amount consumers want to buy.

Question 15

Markets promote

Accepted Answer

Markets promote competition through the interaction of buyers and sellers who are motivated by self-interest. This competition leads to better products and services and lower prices. Markets also promote voluntary exchange, as individuals are free to choose what they buy and sell. However, markets do not necessarily promote equity or equality, as some individuals or groups may have more resources or bargaining power than others.

Question 16

Which of the following is not an example of an economic trade-off that a firm has to make?

Accepted Answer

While the demand for a firm's products is an important consideration for its operations, it is not an economic trade-off in the same sense as the other options listed. Economic trade-offs involve weighing the costs and benefits of different choices in terms of resources, such as labor or equipment, rather than external factors like consumer behavior.

Question 17

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?

Accepted Answer

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

Question 18

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

Accepted Answer

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

Question 19

Automobile manufacturers produce a range of automobiles such as sports utility vehicles, luxury sedans, pickup trucks and compact cars. What fundamental economic question are they addressing by making this range of products?

Accepted Answer

The fundamental economic question being addressed with this range of products is "what will be produced?" as the manufacturers are deciding on the specific products they will produce for the market.

Question 20

Which of the following statements is true?

Accepted Answer

Trade-offs are a fundamental concept in economics, and every individual, regardless of their wealth or social status, must make trade-offs due to the scarcity of resources. Option A is not true because economic equity refers to fairness and equality in the distribution of resources, not necessarily decision-making. Option B is also not true because trade-offs still exist in a stock clearance sale, such as sacrificing quality or features to save money. Option D is incorrect because economics does not study trade-offs exclusively but also analyzes other concepts such as incentives, markets, and government policies.

Quiz 1: Economics Foundations and Models