Question 1

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

This statement is false because both firms and the government also face scarcity. Firms have limited resources to produce goods and services while the government has limited resources to provide public goods and services, such as infrastructure, education, and healthcare. All three parties have to make trade-offs due to scarcity.

Question 2

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 creates incentives for firms to produce goods at the lowest possible cost, which leads to productive efficiency.

Question 3

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?
A)How to produce goods that consumers want?
B)Why produce a variety of automobiles?
C)What to produce?
D)Who to produce automobiles for?

Accepted Answer

By producing a range of automobiles, manufacturers are addressing the fundamental economic question of "What to produce?" They are trying to meet the diverse needs and preferences of consumers by offering a variety of products.

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 at the lowest possible cost while maintaining quality standards. This results in economic efficiency as resources are utilized in the production of goods and services that are in demand and provide the most value to consumers. Firms that fail to meet consumer demand are driven out of the market. This ensures that only the most efficient producers remain, resulting in the highest level of economic efficiency.

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 goods and services.
D)Failure to do this could reduce efficiency and lead to an inequitable allocation of output.

Accepted Answer

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

Question 6

Which of the following statements about competition in a market is true?
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 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 will only produce products that are valued by consumers, ensuring that resources are used efficiently and that the market is providing products that people want. This competition also encourages firms to become more efficient and innovative, as they try to reduce their production costs and offer better products to consumers.

Question 7

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 where the government decides on the fundamental economic decisions. Individuals and firms have little to no influence in the decision-making process.

Question 8

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 "willing and able". This means that those who are willing and able to buy these goods and services receive the most. People with higher incomes are more able to buy these goods and services, but it is not limited to them only. Therefore, option B is the most accurate answer.

Question 9

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, which means they are using their resources efficiently and minimizing their costs. This allows them to offer lower prices, which benefits consumers and helps the economy grow. Choices A, B, and D do not necessarily ensure productive efficiency.

Question 10

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 11

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, production is determined by the government rather than market demand. This often results in a lack of production of low-cost, high-quality goods and services that are in demand by consumers.

Question 12

________ 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, i.e. the production process is optimized to minimize costs without sacrificing quality or quantity. Allocative efficiency refers to the situation in which resources are allocated in a manner that maximizes social welfare, while equity refers tofairness and distributional justice. Optimal marginalism refers to the situation in which the marginal cost of producing a good or service equals the marginal benefit derived from consuming it.

Question 13

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?
A)the government
B)producers
C)consumers
D)consumers and producers
E)the government,consumers,and producers

Accepted Answer

In a centrally planned economy, the government has complete control over the allocation of resources and therefore determines what goods and services will be produced. Consumers and producers have no say in the decision-making process.

Question 14

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 reflects consumer preferences. This means that resources are being allocated in a way that best satisfies the wants and needs of consumers, and producers are responding to changes in consumer demand. Allocative efficiency ensures that there is no waste of resources, and that social welfare is maximized. Therefore, the best choice is A) Allocative efficiency.

Question 15

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 by allowing businesses to compete with each other to provide better goods and services at lower prices. They also promote voluntary exchange by allowing individuals to choose which goods and services they want to buy or sell. While markets may indirectly promote equity and equality through their effects on economic growth and job creation, this is not their primary purpose.

Question 16

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 firms produce goods and services that consumers value most. This means that the resources are allocated in a way that satisfies consumers' preferences and maximizes their satisfaction. Producing at the lowest possible cost or at the lowest opportunity cost does not necessarily mean that consumers are getting the most value from the goods and services produced. A marginal cost of zero is not feasible for most goods and services, and achieving it does not necessarily result in allocative efficiency.

Question 17

The distribution of income primarily determines which of the fundamental economic questions?
A)What goods and services are to be produced?
B)How the goods and services are to be produced?
C)Who will receive the goods and services produced?
D)How to plan the economy?

Accepted Answer

The distribution of income determines who will receive the goods and services produced. Therefore, it primarily answers the fundamental economic question of "Who will receive the goods and services produced?"

Question 18

Arlene quits her $125,000-a-year job to take care of her ailing parents.What is the opportunity cost of her decision?
A)zero,since she will no longer be earning a salary
B)It depends on the "going rate" for home-care providers.
C)at least $125,000
D)the value she attributes to the satisfaction she receives from taking care of her parents

Accepted Answer

The opportunity cost of a decision is the value of the next best alternative that was foregone. In this case, Arlene's next best alternative was to continue working and earning a salary of $125,000 per year. Therefore, the opportunity cost of her decision to quit her job to take care of her parents is at least $125,000.

Question 19

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 could coordinate economic activities.

Accepted Answer

Lack of a strong dictator who could coordinate economic activities did not contribute to the downfall of the Soviet Union. In fact, many argue that the authoritarian rule of leaders such as Joseph Stalin and Leonid Brezhnev contributed to the stagnation of the Soviet economy and ultimately led to its collapse. The other options, including public dissatisfaction with living standards and political repression, inability to produce low-cost consumer goods, and lack of high-quality goods and services, all contributed to the Soviet Union's downfall.

Question 20

The decision about what goods and services will be produced in a market economy is made by
A)lawmakers in the government voting on what will be produced.
B)workers deciding to produce only what the boss says must be produced.
C)producers deciding what society wants most.
D)consumers and firms choosing which goods and services to buy or produce.
E)consumers dictating to firms what they need most.

Accepted Answer

In a market economy, the decisions about what goods and services to produce are based on the choices made by consumers and firms in the marketplace. This is because producers who are able to successfully identify and satisfy consumer demands will be rewarded with higher profits, while those who fail to do so will be forced to exit the market. As a result, the allocation of resources and production decisions are driven by consumer sovereignty, or the idea that consumers ultimately determine what is produced by their choices in the market.

Quiz 1: Economics: Foundations and Models

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

Which of the following generates productive efficiency?

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?

________ 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?

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

How are the fundamental economic decisions determined in North Korea?

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

Productive efficiency is achieved when

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

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

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

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?

When production reflects consumer preferences,________ occurs.

Markets promote

Allocative efficiency is achieved when firms produce goods and services

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

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

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

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