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

Question 1

Laissez faire refers to a program of minimal interference in the market system.

Answer 1

True

Question 2

Price increases always reduce economic efficiency.

Answer 2

False

Question 3

Central planning is an efficient method for making coordination decisions.

Answer 3

False

Question 4

Points below the production possibilities frontier are inefficient because it is possible to make someone better off without making anyone else worse off.

Question 5

Distribution is a major question to be answered by any economic system.

Question 6

Efficient allocation of resources makes everyone better off.

Question 7

In a market system,prices are used to coordinate economic activity.

Question 8

Higher efficiency in the economy can be reached if prices are held low by law.

Question 9

Laissez faire is a policy that espouses central planning.

Question 10

Higher prices can discourage use/consumption,which in turn may better allocate scarce resources.

Question 11

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

Question 12

Economists believe having higher prices for scarcer resources promotes efficiency.

Question 13

Scarcity limits the volume of goods that an economic system can produce,but does not limit the production of services.

Question 14

Under a system of laissez faire,output selection is determined by consumers' wants.

Question 15

Economics tells us which resource allocations are preferable.

Question 16

Scarcity is illustrated graphically by a production possibilities frontier.

Question 17

Price decreases always increase economic efficiency.

Question 18

Lower prices are always better for society.

Question 19

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

Question 20

There is only one efficient allocation of resources in an economy at one point in time.

Question 21

The "invisible hand" refers to the control that government must exercise over a market economy.

Question 22

Efficiency in the choice of outputs requires that marginal cost be equal to marginal revenue and nothing else.

Question 23

The allocation of resources is efficient under an idealized free market system.

Question 24

The producer's surplus is equal to the difference between how much the seller can charge for a product and how much the consumer is willing to purchase it for.

Question 25

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

Question 26

For a rational consumer,the consumer's surplus will never be a negative number.

Question 27

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

Question 28

High prices do not occur in laissez-faire markets.

Question 29

Input-output analysis was developed by Wassily Leontief.

Question 30

Centrally planned economies use free-market systems for their production planning.

Question 31

The introduction of a tax in a perfectly competitive marketplace that is originally in equilibrium will lower total surplus.

Question 32

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

Question 33

The price mechanism solves the "for whom" problem by assigning high prices to goods in high demand and letting customers choose whether to purchase them.

Question 34

The price system takes into account consumer preferences in the distribution of goods and services.

Question 35

Production planning without the market mechanism is very efficiently handled by central planners.

Question 36

Any increase in efficiency increases output available for distribution.

Question 37

Input-output analysis is a technique used to solve complicated market equations.

Question 38

The introduction of a subsidy in a perfectly competitive marketplace that is originally in equilibrium will raise total surplus.

Question 39

Any increase in efficiency increases only profits of producers,with no increase in output.

Question 40

At the equilibrium point in a perfectly competitive industry,the total surplus (the sum of the consumer surplus and producer surplus)will be at its maximum.

Question 41

Under perfect competition,the lure of profits makes producers try to equate marginal cost and price.

Question 42

"Peak pricing" can often improve economic efficiency.

Question 43

"Fair" outcomes and "efficient" outcomes are always identical.

Question 44

The perfect competition price system is the most efficient because it equates MC = P = MU.

Question 45

Mutually beneficial trade is possible because of differing marginal utilities.

Question 46

For any combination or outputs,there is an efficient allocation of income.

Question 47

Uncoordinated decisions in perfect competition lead to mass confusion and inefficiency.

Question 48

"Peak pricing" involves setting lower prices at peak times so that people can afford a good or service.

Question 49

To be efficient,outputs should be produced that minimize total cost.

Question 50

Politicians and citizens may often choose policies that reduce economic efficiency because they are perceived as "fairer."

Question 51

Before a market allocation of goods on the production possibilities curve can be judged efficient,one must evaluate "what" goods the market produced.

Question 52

Free markets produce relatively high levels of efficiency but low rates of growth.

Question 53

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

Question 54

Mutually beneficial trade is impossible when different persons have different preferences about goods and services.

Question 55

It is in society's best interest that the MC of the last unit produced of a good is equal to its MU.

Question 56

Economists can evaluate the desirability of the distribution of income.

Question 57

The price system automatically leads to an efficient allocation of inputs among the different production processes.

Question 58

Market systems can be evaluated as efficient or inefficient,but not as fair or unfair.

Question 59

For an efficient outcome,MR must exceed MC.

Question 60

Prices influence the distribution of income by making the distribution fairer.

Question 61

Figure 14-1

In Figure 14-1,a technological breakdown in calculator production would cause which movement?

A)B to E
B)B to C
C)B to D
D)A to D

Question 62

Figure 14-2

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

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

Question 63

The production possibilities frontier illustrates

A)the constant rate of technological progress.
B)the fundamental concept of scarcity.
C)the rapid growth of the U.S. economy.
D)that guns always trade for butter.

Question 64

An efficient allocation of resources exists if

A)one group of people can get more of the things they want without someone else having to give up anything.
B)no one can get more of the things he wants without someone else having to give up something.
C)the economy operates at any point under the production possibilities frontier.
D)the economy is operating at any point above the production possibilities frontier.

Question 65

The necessity for choice,in economics,arises from

A)high incomes and many goods.
B)scarcity of economic means for satisfying economic wants.
C)scarcity of time and knowledge, and numerous similar goods.
D)All of the above are correct.

Question 66

Figure 14-2

In Figure 14-2,which of the points are efficient allocations of resources?

A)A, B, and C
B)B and C only
C)C and B and D
D)B only

Question 67

Politicians always agree with economists about the most efficient way of doing things.

Question 68

What does the production possibility curve imply about the resource allocation?

A)Only some points on the curve are efficient.
B)All points on the curve are equally efficient.
C)A point which lies below the curve is more efficient.
D)A point which lies above the curve is readily achievable.

Question 69

Free markets produce allocatively efficient outcomes and have no flaws.

Question 70

The nation listed below whose economy comes closest to a centrally planned economy is

A)People's Republic of China.
B)Japan.
C)United Kingdom.
D)United States.

Question 71

Which type of economic system will produce the highest degree of allocative efficiency?

A)a perfectly competitive market system
B)a purely command economic system
C)a market system with limited price controls and price ceilings
D)a command system with limited market activity for non-essentials

Question 72

The slope of a typical production possibilities frontier reflects the fact that

A)some systems of market organization are more efficient than others.
B)the invisible hand always functions smoothly in a market system without government intervention.
C)when resources are allocated efficiently, it's impossible to produce more of anything without producing less of something else.
D)production is only possible when resources are allocated efficiently.

Question 73

Centrally planned economies do not use the price system for anything.

Question 74

The graphical device that illustrates the concept of scarce resources being efficiently utilized in the economy is a(n)

A)budget line.
B)indifference curve.
C)production possibilities frontier.
D)marginal cost curve.

Question 75

The nation listed below whose economy currently comes closest to a free market is

A)North Korea.
B)Germany.
C)People's Republic of China.
D)Cuba.

Question 76

Figure 14-1

In Figure 14-1,a change in consumer tastes favoring calculators will lead to which movement?

A)A to C
B)A to D
C)A to B
D)A to E

Question 77

The existence of a universal law of scarcity creates pressures on societies to

A)use their resources according to government plans.
B)economize in the use of their resources.
C)allocate their resources equitably.
D)exploit their resources.

Question 78

Figure 14-1

In Figure 14-1,a cost-reducing technological breakthrough in calculator production would cause which movement?

A)A to D
B)A to C
C)A to B
D)A to E

Question 79

An efficient allocation of resources is demonstrated by a point

A)above the production possibilities frontier.
B)below the production possibilities frontier.
C)on the production possibilities frontier.
D)near the middle of the production possibilities frontier.

Question 80

Figure 14-2

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

A)A to B
B)C to AC
C)D to B
D)A to D