Question 1

Prices are useful in coordinating society's economic planning because

Accepted Answer

A)  they convey information about which goods are scarce and which are plentiful.
B)  economies based on price systems are more flexible than centrally planned economies.
C)  economies based on price systems are more likely than centrally planned economies to minimize the cost of producing society's output.
D)  All of the above are correct.E) A) and D)
F) C) and D)

Question 2

Price decreases always increase economic efficiency.

Accepted Answer

A) True 
 B)False

Question 3

Under perfect competition,the market mechanism,without any government regulation,is capable of

Accepted Answer

A)  allocating resources efficiently.
B)  solving equity problems.
C)  making the average cost of labor equal to the average cost of all commodities.
D)  making more income available to the poor.E) A) and C)
F) A) and D)

Question 4

If the marginal utility of a gallon of milk to consumers is $2.50 and the MC of producing the gallon of milk is $1.50,then

Accepted Answer

A)  the value of the resources used up in producing one more gallon of milk would be $1 less than the money value of the additional gallon to consumers.
B)  society could be made better off by expanding the output of milk.
C)  resources are not being used most efficiently.
D)  All of the above are true.E) None of the above
F) A) and C)

Question 5

Government-imposed limits on price movements are likely to

Accepted Answer

A)  increase economic efficiency.
B)  decrease economic efficiency.
C)  leave economic efficiency unchanged.
D)  promote economic growth in the economy.E) C) and D)
F) A) and D)

Question 6

Economics can decide

Accepted Answer

A)  the appropriate trade-off between fairness and efficiency.
B)  which pricing arrangements are fair and which are unfair.
C)  whether a pricing decision will impose heavy inefficiency costs on society.
D)  All of the above are correct.E) None of the above
F) A) and B)

Question 7

The task of deciding which consumer gets each of the goods produced in a free-market economy is solved by

Accepted Answer

A)  the price system.
B)  the industries which produce the goods.
C)  the central planners.
D)  citizens with political power.E) A) and B)
F) B) and C)

Question 8

If the poor cannot afford proper medical treatment,an economist,for reasons of efficiency,would favor

Accepted Answer

A)  giving the poor added income to spend as they see fit.
B)  paying doctors bonuses to treat the poor.
C)  paying the medical bills of the poor.
D)  giving the poor "medical stamps."E) None of the above
F) All of the above

Question 9

When an economy operates efficiently,

Accepted Answer

A)  the MRPs of every input into the production of a good are equal.
B)  marginal utility equals marginal cost for every good.
C)  the price of a good equals the sum of the marginal physical products of its inputs.
D)  All of the above are correct.E) None of the above
F) C) and D)

Question 10

Command economies are able to achieve greater allocative efficiency than market economies.

Accepted Answer

A) True 
 B)False

Question 11

Prices set too low can actually be against the public interest.

Accepted Answer

A) True 
 B)False

Question 12

Prohibiting price increases in situations of true scarcity could best be described as

Accepted Answer

A)  interfering with the "law" of supply and demand.
B)  thwarting the "law" of increasing returns to scale.
C)  violating the "law" of increasing cost.
D)  interfering with the "law" of diminishing marginal utility.E) All of the above
F) None of the above

Question 13

Prices

Accepted Answer

A)  solve the problem of distribution of products among consumers.
B)  act as rationing devices.
C)  under laissez faire produce an efficient allocation of resources.
D)  do all of the above.E) A) and B)
F) B) and C)

Question 14

Figure 14-2
 
-As we move down the production possibilities schedule in Figure 14-2,each successive point is

Accepted Answer

A)  less efficient.
B)  more efficient.
C)  equally efficient.
D)  more or less efficient; we cannot tell which.E) B) and D)
F) C) and D)

Question 15

A factory in a centrally planned economy produces 1,000 left shoes and no right shoes.No corresponding factory produces only right shoes.This outcome is an example of inefficiency in

Accepted Answer

A)  output selection.
B)  production planning.
C)  product distribution.
D)  market segmentation.E) A) and D)
F) B) and C)

Question 16

Central planners in command economies

Accepted Answer

A)  generally set production targets for firms.
B)  always consult consumers on the output of goods they want to consume.
C)  allow prices to organize the economy's production.
D)  depend upon the invisible hand to coordinate economic activities.E) A) and D)
F) B) and D)

Question 17

The price system rations goods among consumers in such a way that

Accepted Answer

A)  all are treated equally.
B)  all needs are satisfied.
C)  the rich are favored.
D)  important needs are satisfied first.E) A) and B)
F) B) and C)

Question 18

In a classic administrative snafu,the Army assigns trained classical musicians to kitchen duty and places trained cooks in the military band.This is an example of inefficiency in

Accepted Answer

A)  output selection.
B)  production planning.
C)  product distribution.
D)  market segmentation.E) A) and D)
F) None of the above

Question 19

In a free-market economy,prices coordinate society's decisions about

Accepted Answer

A)  how and for whom to produce.
B)  what, how, and for whom to produce.
C)  how and for whom to produce but not how much to produce.
D)  how much and for whom to produce but not how to produce.E) All of the above
F) B) and D)

Question 20

Figure 14-2
 
-In Figure 14-2,which movement would represent an improvement for all individuals?

Accepted Answer

A)  A to B
B)  C to AC
C)  D to B
D)  A to DE) A) and B)
F) A) and C)

Exam 14: The Case for Free Markets I: the Price System

In a free-market economy,prices coordinate society's decisions about

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If the poor cannot afford proper medical treatment,an economist,for reasons of efficiency,would favor

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When an economy operates efficiently,

Correct AnswerverifiedShow Answer

Figure 14-2 -In Figure 14-2,which movement would represent an improvement for all individuals?

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Government-imposed limits on price movements are likely to

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Economics can decide

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A factory in a centrally planned economy produces 1,000 left shoes and no right shoes.No corresponding factory produces only right shoes.This outcome is an example of inefficiency in

Correct AnswerverifiedShow Answer

Price decreases always increase economic efficiency.

Correct AnswerverifiedShow Answer

The price system rations goods among consumers in such a way that

Correct AnswerverifiedShow Answer

Under perfect competition,the market mechanism,without any government regulation,is capable of

Correct AnswerverifiedShow Answer

Central planners in command economies

Correct AnswerverifiedShow Answer

Prices set too low can actually be against the public interest.

Correct AnswerverifiedShow Answer

Figure 14-2 -As we move down the production possibilities schedule in Figure 14-2,each successive point is

Correct AnswerverifiedShow Answer

If the marginal utility of a gallon of milk to consumers is $2.50 and the MC of producing the gallon of milk is $1.50,then

Correct AnswerverifiedShow Answer

Prohibiting price increases in situations of true scarcity could best be described as

Correct AnswerverifiedShow Answer

The task of deciding which consumer gets each of the goods produced in a free-market economy is solved by

Correct AnswerverifiedShow Answer

Prices are useful in coordinating society's economic planning because

Correct AnswerverifiedShow Answer

Prices

Correct AnswerverifiedShow Answer

Command economies are able to achieve greater allocative efficiency than market economies.

Correct AnswerverifiedShow Answer

In a classic administrative snafu,the Army assigns trained classical musicians to kitchen duty and places trained cooks in the military band.This is an example of inefficiency in

Correct AnswerverifiedShow Answer

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