Question 1

A surplus currently exists for a product called widgets.In a free market system,the government must step in and buy any widgets that consumers do not buy in order to eliminate the surplus and establish equilibrium.
Level of Learning 2: Understanding of concepts and principles

Accepted Answer

In a free market system, the government does not have to step in and buy any excess products. The market forces of supply and demand should eventually lead to a lower price for widgets, which will encourage more consumers to buy them and reduce the surplus.

Question 2

Economists refer to a market in which a few sellers dominate the supply side as monopolistic competition.
Level of Learning 1: Knowledge of key terms

Accepted Answer

Economists refer to a market in which a few sellers dominate the supply side as an oligopoly, not monopolistic competition. Monopolistic competition involves many sellers offering differentiated products.

Question 3

In a free market economic system,the lack of government control and regulation means that businesses find it easy to take advantage of customers by offering poor quality products at high prices.
Level of Learning 2: Understanding of concepts and principles

Accepted Answer

One of the key principles of a free market economic system is that competition drives businesses to offer high-quality products at reasonable prices. In a truly free market, consumers have access to information, and businesses must compete for their business. Without governmental interference, businesses are held accountable by the free market, and those that offer poor quality products at high prices are likely to lose customers to competitors who offer better quality and value. While government regulation can protect consumers, it is not the only means of ensuring that businesses act ethically and in the best interests of their customers.

Question 4

If a shortage exists in a market for a good,the price of that good will tend to fall.
Level of Learning 1: Knowledge of key terms

Accepted Answer

If a shortage exists in a market for a good, it means that the demand for the good is greater than the supply. In such a situation, the price of the good will tend to rise, not fall. The increase in price will encourage suppliers to produce more of the good, and consumers may also reduce their demand for the good due to the higher price, which may bring the market back to equilibrium.

Question 5

A graphical representation of a demand curve for a product will show the price for any particular quantity on the X-axis.
Level of Learning 1: Knowledge of key terms

Accepted Answer

In a demand curve, the quantity is typically shown on the X-axis, while the price is shown on the Y-axis.

Question 6

One strength of a free-market economic system is that it emphasizes the fair and humane treatment of the less fortunate in society.
Level of Learning 1: Knowledge of key terms

Accepted Answer

This statement is false. While free-market economic systems may provide opportunities for individuals to succeed and potentially increase overall economic growth, they do not necessarily prioritize fair and humane treatment of the less fortunate in society. In fact, some argue that free-market systems can exacerbate social and economic inequality if left unchecked.

Question 7

Product differentiation is a key to success in monopolistic competition.
Level of Learning 1: Knowledge of key terms

Accepted Answer

In monopolistic competition, firms differentiate their products from their competitors to attract customers and gain a competitive advantage, which is a key to success in this market structure.

Question 8

A monopoly occurs when there is a single seller for a product or service.
Level of Learning 1: Knowledge of key terms

Accepted Answer

This statement is true. A monopoly refers to a market situation where there is only one seller, and this seller has an exclusive control over the supply of the product or service, making it a sole provider in the market.

Question 9

In the United States,laws prohibit the creation of most types of monopolies.
Level of Learning 1: Knowledge of key terms

Accepted Answer

Monopoly refers to a situation where one company has exclusive control over a particular market, and the creation of such monopolies is typically prohibited by antitrust laws in the United States.

Question 10

Jill owns a bakery that specializes in cheesecakes.Until recently,Jill charged a price of $12 for each cheesecake.At this price Jill's customers bought an average of 84 cheesecakes each week.For the last few weeks,she has reduced her price to $10.50 per cheesecake,and her customers have purchased an average of 96 cheesecakes each week.These results are consistent with the economic concept of demand.
Level of Learning 3: Application of principles

Accepted Answer

The scenario demonstrates the law of demand, which states that as the price of a good or service decreases, the quantity demanded increases (and vice versa). By lowering the price from $12 to $10.50, Jill was able to increase the quantity of cheesecakes sold from 84 per week to 96 per week. This is a practical application of the economic principle of demand. Therefore, the answer is true (option A).

Question 11

Fetna resides in a country where the economic system is primarily based on free market capitalism.Fetna is likely to have the freedom to buy and sell property.
Level of Learning 2: Understanding of concepts and principles

Accepted Answer

Free market capitalism allows for the buying and selling of property without government interference.

Question 12

One of the drawbacks of free markets is the fact that competition in such markets undermines the ability of price to adjust to its equilibrium value in the long run.
Level of Learning 1: Knowledge of key terms

Accepted Answer

This statement is false. In free markets, competition actually helps to drive the price towards its equilibrium value in the long run. As firms compete with each other, they are motivated to produce and sell goods at a price that is closer to the actual cost of production. This process of competition and adjustment helps to ensure that prices accurately reflect the underlying supply and demand forces in the market.

Question 13

In perfect competition,each firm produces a product that is clearly differentiated from the products of other firms in the same market.
Level of Learning 1: Knowledge of key terms

Accepted Answer

In perfect competition, firms produce homogenous products that are identical to those produced by other firms in the same market. There is no product differentiation.

Question 14

In the long run,the market price tends to adjust toward the equilibrium point.
Level of Learning 1: Knowledge of key terms

Accepted Answer

This statement is true. In equilibrium, the quantity demanded matches the quantity supplied at a particular price level, and this is the price at which goods will be sold in the market. As supply and demand factors change, the market price will adjust either upwards or downwards to reach a new equilibrium point.

Question 15

The greed of businesspeople represents one of the greatest dangers to the operation of a free market system.
Level of Learning 1: Knowledge of key terms

Accepted Answer

Greed can lead to unethical and illegal business practices, which can harm consumers and competitors and ultimately undermine the functioning of the free market system.

Question 16

History shows that free-market capitalism leads to a fair and equitable distribution of wealth.
Level of Learning 2: Understanding of concepts and principles

Accepted Answer

This statement is false. History has shown that free-market capitalism often results in inequality and concentration of wealth in the hands of a few. Government intervention and regulation are often necessary to ensure a more equitable distribution of wealth.

Question 17

Countries that rely on a free market system are plagued by persistent shortages or surpluses of goods and services.
Level of Learning 1: Knowledge of key terms

Accepted Answer

This statement is false. While free market systems can experience short-term fluctuations in supply and demand, they do not necessarily lead to persistent shortages or surpluses of goods and services. In fact, many argue that free markets are better at efficiently allocating resources and avoiding shortages or surpluses than other economic systems.

Question 18

Monica notices that just a few big companies produce the vast majority of soft drinks.She would be correct in describing the soft drink industry as an oligopoly.
Level of Learning 3: Application of principles

Accepted Answer

An oligopoly is a market structure in which a few large firms dominate the industry. In the case of the soft drink industry, just a few big companies, such as Coca-Cola and PepsiCo, control a significant share of the market, making it an oligopoly. Monica's observation is correct.

Question 19

If the quantity supplied in a market exceeds the quantity demanded,a shortage will exist.
Level of Learning 1: Knowledge of key terms

Accepted Answer

The statement is incorrect. If the quantity supplied exceeds the quantity demanded, a surplus will exist, not a shortage. A shortage occurs when the quantity demanded exceeds the quantity supplied.

Question 20

The point of intersection between the supply and demand curves is called the stress point.
Level of Learning 1: Knowledge of key terms

Accepted Answer

The point of intersection between the supply and demand curves is actually called the equilibrium point, not the stress point.

Quiz 2: Understanding How Economics Affects Business

A surplus currently exists for a product called widgets.In a free market system,the government must step in and buy any widgets that consumers do not buy in order to eliminate the surplus and establish equilibrium. Level of Learning 2: Understanding of concepts and principles

Economists refer to a market in which a few sellers dominate the supply side as monopolistic competition. Level of Learning 1: Knowledge of key terms

In a free market economic system,the lack of government control and regulation means that businesses find it easy to take advantage of customers by offering poor quality products at high prices. Level of Learning 2: Understanding of concepts and principles

If a shortage exists in a market for a good,the price of that good will tend to fall. Level of Learning 1: Knowledge of key terms

A graphical representation of a demand curve for a product will show the price for any particular quantity on the X-axis. Level of Learning 1: Knowledge of key terms

One strength of a free-market economic system is that it emphasizes the fair and humane treatment of the less fortunate in society. Level of Learning 1: Knowledge of key terms

Product differentiation is a key to success in monopolistic competition. Level of Learning 1: Knowledge of key terms

A monopoly occurs when there is a single seller for a product or service. Level of Learning 1: Knowledge of key terms

In the United States,laws prohibit the creation of most types of monopolies. Level of Learning 1: Knowledge of key terms

Fetna resides in a country where the economic system is primarily based on free market capitalism.Fetna is likely to have the freedom to buy and sell property. Level of Learning 2: Understanding of concepts and principles

One of the drawbacks of free markets is the fact that competition in such markets undermines the ability of price to adjust to its equilibrium value in the long run. Level of Learning 1: Knowledge of key terms

In perfect competition,each firm produces a product that is clearly differentiated from the products of other firms in the same market. Level of Learning 1: Knowledge of key terms

In the long run,the market price tends to adjust toward the equilibrium point. Level of Learning 1: Knowledge of key terms

The greed of businesspeople represents one of the greatest dangers to the operation of a free market system. Level of Learning 1: Knowledge of key terms

History shows that free-market capitalism leads to a fair and equitable distribution of wealth. Level of Learning 2: Understanding of concepts and principles

Countries that rely on a free market system are plagued by persistent shortages or surpluses of goods and services. Level of Learning 1: Knowledge of key terms

Monica notices that just a few big companies produce the vast majority of soft drinks.She would be correct in describing the soft drink industry as an oligopoly. Level of Learning 3: Application of principles

If the quantity supplied in a market exceeds the quantity demanded,a shortage will exist. Level of Learning 1: Knowledge of key terms

The point of intersection between the supply and demand curves is called the stress point. Level of Learning 1: Knowledge of key terms