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True / False
1. Efficient allocation of resources makes everyone better off.
a.
True
b.
False
2. Scarcity limits the volume of goods that an economic system can produce, but does not limit the production of services.
a.
True
b.
False
3. Scarcity is illustrated graphically by a production possibilities frontier.
a.
True
b.
False
4. Points below the production possibilities frontier are inefficient because it is possible to make someone better off
without making anyone else worse off.
a.
True
b.
False
5. Economics tells us which resource allocations are preferable.
a.
True
b.
False
6. There is only one efficient allocation of resources in an economy at one point in time.
a.
True
b.
False
7. Price increases always reduce economic efficiency.
a.
True
b.
False
8. Price decreases always increase economic efficiency.
a.
True
b.
False
9. Economists believe having higher prices for scarcer resources promotes efficiency.
a.
True
b.
False
10. Lower prices are always better for society.
a.
True
b.
False
11. Prices set too low can actually be against the public interest.
a.
True
b.
False
12. Higher prices can discourage use/consumption, which in turn may better allocate scarce resources.
a.
True
b.
False
13. Higher efficiency in the economy can be reached if prices are held low by law.
a.
True
b.
False
14. In a market system, prices are used to coordinate economic activity.
a.
True
b.
False
15. Laissez faire refers to a program of minimal interference in the market system.
a.
True
b.
False
16. Laissez faire is a policy that espouses central planning.
a.
True
b.
False
17. In a laissez-faire system, the price mechanism dictates the production planning decisions.
a.
True
b.
False
18. Under a system of laissez faire, output selection is determined by consumers' wants.
a.
True
b.
False
19. Central planning is an efficient method for making coordination decisions.
a.
True
b.
False
20. Distribution is a major question to be answered by any economic system.
a.
True
b.
False
21. High prices do not occur in laissez-faire markets.
a.
True
b.
False
22. The "invisible hand" refers to the control that government must exercise over a market economy.
a.
True
b.
False
23. Any increase in efficiency increases output available for distribution.
a.
True
b.
False
24. Any increase in efficiency increases only profits of producers, with no increase in output.
a.
True
b.
False
25. Centrally planned economies use free-market systems for their production planning.
a.
True
b.
False
26. Production planning without the market mechanism is very efficiently handled by central planners.
a.
True
b.
False
27. 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.
a.
True
b.
False
28. The price system takes into account consumer preferences in the distribution of goods and services.
a.
True
b.
False
29. Command economies are able to achieve greater allocative efficiency than market economies.
a.
True
b.
False
30. Input-output analysis was developed by Wassily Leontief.
a.
True
b.
False
31. Input-output analysis is a technique used to solve complicated market equations.
a.
True
b.
False
32. 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.
a.
True
b.
False
33. 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.
a.
True
b.
False
34. For a rational consumer, the consumer's surplus will never be a negative number.
a.
True
b.
False
35. With a monopoly, the consumer's surplus is lower than it would be with a perfectly competitive industry.
a.
True
b.
False
36. With a monopoly, the total surplus is lower than it would be with a perfectly competitive industry.
a.
True
b.
False
37. The introduction of a tax in a perfectly competitive marketplace that is originally in equilibrium will lower total
surplus.
a.
True
b.
False
38. The introduction of a subsidy in a perfectly competitive marketplace that is originally in equilibrium will raise total
surplus.
a.
True
b.
False
39. The allocation of resources is efficient under an idealized free market system.
a.
True
b.
False
40. Efficiency in the choice of outputs requires that marginal cost be equal to marginal revenue and nothing else.
a.
True
b.
False
41. Under perfect competition, the lure of profits makes producers try to equate marginal cost and price.
a.
True
b.
False
42. Fixed prices in a free-market economy can increase efficiency.
a.
True
b.
False
43. To be efficient, outputs should be produced that minimize total cost.
a.
True
b.
False
44. Mutually beneficial trade is possible because of differing marginal utilities.
a.
True
b.
False
45. Mutually beneficial trade is impossible when different persons have different preferences about goods and services.
a.
True
b.
False
46. The price system automatically leads to an efficient allocation of inputs among the different production processes.
a.
True
b.
False
47. Before a market allocation of goods on the production possibilities curve can be judged efficient, one must evaluate
"what" goods the market produced.
a.
True
b.
False
48. The perfect competition price system is the most efficient because it equates MC = P = MU.
a.
True
b.
False
49. Uncoordinated decisions in perfect competition lead to mass confusion and inefficiency.
a.
True
b.
False
50. For an efficient outcome, MR must exceed MC.
a.
True
b.
False
51. It is in society's best interest that the MC of the last unit produced of a good is equal to its MU.
a.
True
b.
False
52. Prices influence the distribution of income by making the distribution fairer.
a.
True
b.
False
53. Market systems can be evaluated as efficient or inefficient, but not as fair or unfair.
a.
True
b.
False
54. For any combination or outputs, there is an efficient allocation of income.
a.
True
b.
False
55. Economists can evaluate the desirability of the distribution of income.
a.
True
b.
False
56. Politicians and citizens may often choose policies that reduce economic efficiency because they are perceived as
"fairer."
a.
True
b.
False
57. "Fair" outcomes and "efficient" outcomes are always identical.
a.
True
b.
False
58. "Peak pricing" can often improve economic efficiency.
a.
True
b.
False
59. "Peak pricing" involves setting lower prices at peak times so that people can afford a good or service.
a.
True
b.
False
60. Free markets produce relatively high levels of efficiency but low rates of growth.
a.
True
b.
False
61. Free markets produce allocatively efficient outcomes and have no flaws.
a.
True
b.
False
62. Politicians always agree with economists about the most efficient way of doing things.
a.
True
b.
False
63. Centrally planned economies do not use the price system for anything.
a.
True
b.
False
64. The distribution process performed by the price system is not as efficient as the distribution process of central
planners.
a.
True
b.
False
65. Goods are distributed efficiently if everyone gets an equal share of each good.
a.
True
b.
False
66. Input-output analysis is commonly used in production decisions.
a.
True
b.
False
67. 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.
68. 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.
69. 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.
70. 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.
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
72. Which nation listed below is successfully transitioning from a planned economy to a hybrid market economy?
a.
People's Republic of China.
b.
Japan.
c.
United Kingdom.
d.
United States.
73. 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.
74. 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.
75. 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.
