Question 1

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.

Question 2

In a free-market economy, the pricing mechanism always operates to

Accepted Answer

A)   produce an equitable distribution of income.
B)   provide an efficient allocation of resources.
C)   correct any inequality in distribution of output.
D)   equate consumers' desires with ability to pay.

Question 3

The saying "the lower the price, the better" may not always be correct for an economy's public interest because

Accepted Answer

A)   people should have to pay for what they want.
B)   people will overuse something they perceive as being cheaper than the utility they receive for it.
C)   the government can no longer afford to provide all the goods and services it provides because it is slowly going broke.
D)   cheaper prices will make people buy less of other things.

Question 4

Society might argue that there are cases in which it is appropriate to resist price increases in situations where scarcity is serious.Included would be the case of

Accepted Answer

A)   unrestrained monopoly that would otherwise succeed in gouging the public.
B)   taxes imposed on products capriciously and inappropriately.
C)   rising prices falling so heavily on the poor that rationing becomes preferable.
D)   All of the above are correct.

Question 5

When the price of the product falls

Accepted Answer

A)   consumer's surplus remains the same.
B)   producers' surplus increases.
C)   consumer's surplus falls.
D)   producer's surplus falls.

Question 6

The laissez-faire free-market system is

Accepted Answer

A)   an ideal of perfection.
B)   one that leaves no room for improvement.
C)   unmatched by any other system for allocative efficiency.
D)   All of the above are correct.

Question 7

In a laissez-faire system, the price mechanism dictates the production planning decisions.

Accepted Answer

A) True 
 B)False

Question 8

The issue of fairness versus efficiency arises

Accepted Answer

A)   only in a command economy.
B)   only in a market economy.
C)   in neither a command nor a market economy.
D)   in both a command and a market economy.

Question 9

Price increases always reduce economic efficiency.

Accepted Answer

A) True 
 B)False

Question 10

Efficiency in output requires which of the following?

Accepted Answer

A)   MC = MRP.
B)   MC = MFC.
C)   MC = MU.
D)   MC = AVC.

Question 11

A Pareto optimal allocation of resources is one in which any change to benefit one person would come at the expense of hurting another.Another word for Pareto optimal is

Accepted Answer

A)   unfair.
B)   fair.
C)   efficient.
D)   inefficient.

Question 12

Which of the following carries out the distribution process by rationing goods on the basis of preferences and relative incomes?

Accepted Answer

A)   Administered system
B)   Government
C)   Price system
D)   Central planning

Question 13

The metaphor used to describe the working of the price system to achieve efficiency in a free market is

Accepted Answer

A)   Occam's razor.
B)   the prisoner's dilemma.
C)   the invisible hand.
D)   the benefit principle.

Question 14

In a planned economy the concept of efficiency is

Accepted Answer

A)   more important than in a market economy.
B)   less important than in a market economy.
C)   not important at all.
D)   as important as in a market economy.

Question 15

With a monopoly, the consumer's surplus is lower than it would be with a perfectly competitive industry.

Accepted Answer

A) True 
 B)False

Question 16

Using prices to promote efficiency in the utilization of bridges,

Accepted Answer

A)   higher prices should be charged for the use of the most crowded bridges.
B)   lower prices should be charged for the use of the uncrowded bridges.
C)   traffic would be equalized among the bridges where space is a scarce resource.
D)   All of the above are correct.

Question 17

The free-market system coordinates output decisions by pushing

Accepted Answer

A)   up price when there is a shortage.
B)   down price when quantity demanded exceeds quantity supplied.
C)   up price when there is a surplus.
D)   up price when quantity supplied exceeds quantity demanded.

Question 18

In a planned economy,

Accepted Answer

A)   prices are used to coordinate economic activity.
B)   central planners set production targets and tell producers how to produce.
C)   high prices discourage use of the most scarce resources.
D)   central planners allow the price to determine distribution of a product.

Question 19

Which of the following is least likely to be an example of peak/off-peak pricing?

Accepted Answer

A)   breakfast cereals
B)   hotels
C)   wireless service
D)   electricity

Question 20

Fixed prices in a free-market economy can increase efficiency.

Accepted Answer

A) True 
 B)False

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

Fixed prices in a free-market economy can increase efficiency.

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The issue of fairness versus efficiency arises

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Which of the following carries out the distribution process by rationing goods on the basis of preferences and relative incomes?

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In a laissez-faire system, the price mechanism dictates the production planning decisions.

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With a monopoly, the consumer's surplus is lower than it would be with a perfectly competitive industry.

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The metaphor used to describe the working of the price system to achieve efficiency in a free market is

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The laissez-faire free-market system is

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A Pareto optimal allocation of resources is one in which any change to benefit one person would come at the expense of hurting another.Another word for Pareto optimal is

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In a planned economy,

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Efficiency in output requires which of the following?

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Which of the following is least likely to be an example of peak/off-peak pricing?

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The free-market system coordinates output decisions by pushing

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In a planned economy the concept of efficiency is

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In a free-market economy, the pricing mechanism always operates to

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When the price of the product falls

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The saying "the lower the price, the better" may not always be correct for an economy's public interest because

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Using prices to promote efficiency in the utilization of bridges,

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

Price increases always reduce economic efficiency.

Correct AnswerverifiedShow Answer

Society might argue that there are cases in which it is appropriate to resist price increases in situations where scarcity is serious.Included would be the case of

Correct AnswerverifiedShow Answer

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