Scarcity and the Need to Coordinate Economic Decisions
138. When box lunches are handed out at an elementary school, Jimmy (who loves chocolate and hates raisins) gets a
raisin cookie and Johnny (who hates chocolate and loves raisins) gets a chocolate chip cookie. This is an example of
inefficiency in
a.
output selection.
b.
production planning.
c.
product distribution.
d.
market segmentation.
DISC: Markets, market failure, a – DISC: Markets, market failure, and externalities
United States – BPROG: Reflective Thinking – BPROG: Analysis
Markets, market failure, and ext – Markets, market failure, and externalities
Scarcity and the Need to Coordinate Economic Decisions
139. Which of the following is concerned with the distribution part of resource allocation?
a.
An economy decides to produce equal quantities wheat, rice, and clothes.
b.
An economy decides to use 25% of the available capital for producing clothes.
c.
An economy decides to ration 40% of its output to low income groups.
d.
An economy decides to use more labor for producing wheat and rice.
United States – BPROG: Reflective Thinking – BPROG: Analysis
The study of economics, and defi – The study of economics, and definitions of economics
Scarcity and the Need to Coordinate Economic Decisions
140. Which of the proposals for education reform is likely to be supported by an economist concerned with efficiency?
a.
b.
c.
d.
DISC: Efficiency and equity
Efficiency and equity
Scarcity and the Need to Coordinate Economic Decisions
141. Prices serve the public interest by
a.
making resource owners wealthy.
b.
rationing scarce resources.
c.
keeping poor people from purchasing more than they can afford.
d.
forcing the government to participate in the market.
DISC: Supply and demand
United States – BPROG: Analytic
Supply and demand
Scarcity and the Need to Coordinate Economic Decisions
142. The price system rations goods among consumers in such a way that
a.
all are treated equally.
b.
all needs are satisfied.
c.
the rich are favored.
d.
important needs are satisfied first.
DISC: Supply and demand
United States – BPROG: Analytic
Supply and demand
Scarcity and the Need to Coordinate Economic Decisions
143. If the poor cannot afford proper medical treatment, an economist, for reasons of efficiency, would favor
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.”
DISC: Efficiency and equity
United States – BPROG: Analytic
Efficiency and equity
Scarcity and the Need to Coordinate Economic Decisions
144. An efficient distribution of goods requires that
a.
everyone gets an equal share of each good.
b.
marginal cost equal marginal utility for the last unit produced.
c.
each person derives the same total utility from the good.
d.
since tastes differ, every person pays a different price in accordance with different marginal utilities.
Difficult
DISC: Utility and consumer choic – DISC: Utility and consumer choice
United States – BPROG: Analytic
Utility and consumer choice
Scarcity and the Need to Coordinate Economic Decisions
145. An optimal allocation of resources is one which is:
a.
unfair.
b.
fair.
c.
efficient.
d.
inefficient.
c
Moderate
DISC: Efficiency and equity
United States – BPROG: Reflective Thinking – BPROG: Analysis
Efficiency and equity
Scarcity and the Need to Coordinate Economic Decisions
146. The market allocates goods to individuals according to the individuals’
a.
desire for the good.
b.
ability to pay for the good.
c.
desire and ability to pay for the good.
d.
political influence.
c
Moderate
DISC: Supply and demand
United States – BPROG: Analytic
Supply and demand
Scarcity and the Need to Coordinate Economic Decisions
147. The task of deciding which consumer gets each of the goods produced in a free-market economy is solved by
a.
the price system.
b.
the industries which produce the goods.
c.
the central planners.
d.
citizens with political power.
a
Easy
DISC: Supply and demand
United States – BPROG: Analytic
Supply and demand
Scarcity and the Need to Coordinate Economic Decisions
148. The coordination task of dividing products among consumers is a problem of
a.
output selection.
b.
production planning.
c.
distribution.
d.
market segmentation.
c
Moderate
DISC: Costs of production
United States – BPROG: Analytic
Costs of production
Scarcity and the Need to Coordinate Economic Decisions
149. It is true that the distribution process carried out by the price system
a.
accomplishes the task more efficiently than central planners would.
b.
favors the rich.
c.
is superior to other rationing mechanisms because it is able to pay attention to individual consumer
preferences.
d.
All of the above are true.
Moderate
DISC: Costs of production
United States – BPROG: Analytic
Costs of production
Scarcity and the Need to Coordinate Economic Decisions
150. Prices
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.
Easy
DISC: Supply and demand
United States – BPROG: Analytic
Supply and demand
Scarcity and the Need to Coordinate Economic Decisions
151. Which of the following carries out the distribution process by rationing goods on the basis of preferences and relative
incomes?
a.
Administered system
b.
Government
c.
Price system
d.
Central planning
c
Easy
DISC: Supply and demand
United States – BPROG: Analytic
Supply and demand
Scarcity and the Need to Coordinate Economic Decisions
152. Which central coordination task has claimed the most attention of central planners?
a.
Output selection
b.
Production planning
c.
Distribution
d.
Rationing
Moderate
DISC: Costs of production
United States – BPROG: Analytic
Costs of production
Scarcity and the Need to Coordinate Economic Decisions
153. Input-output analysis is rarely used because
a.
it requires tremendously complex calculations.
b.
it requires large amounts of data.
c.
market economies can instead rely on the price mechanism to organize production.
d.
All of the above are correct.
Moderate
DISC: Costs of production
United States – BPROG: Analytic
Costs of production
Scarcity and the Need to Coordinate Economic Decisions
154. The technique called input-output analysis was invented by
a.
Adam Smith.
b.
Milton Friedman.
c.
Wassily Leontief.
d.
Mountifort Longfield.
United States – BPROG: Analytic
Understanding and applying econo – Understanding and applying economic models
Scarcity and the Need to Coordinate Economic Decisions
155. The assignment of inputs to specific industries by central planners is made difficult by
a.
the interdependency among industries.
b.
lack of data for decision making.
c.
the danger of a chain reaction among industries if an error is made at any point.
d.
All of the above are correct.
DISC: Productivity and growth
United States – BPROG: Analytic
Productivity and growth
Scarcity and the Need to Coordinate Economic Decisions
156. The technique that addresses the problem of assigning inputs to specific industries is
a.
known as laissez faire.
b.
input-output analysis.
c.
cost-benefit analysis.
d.
a production possibilities frontier.
DISC: Supply and demand
United States – BPROG: Analytic
Supply and demand
Scarcity and the Need to Coordinate Economic Decisions
157. Which of the following holds true in a market when the invisible hand functions properly?
a.
MC = MU = P
b.
P = MRS
c.
P = MC but not P = MU
d.
P = MU but not P = MC
DISC: Utility and consumer choic – DISC: Utility and consumer choice
United States – BPROG: Reflective Thinking – BPROG: Analysis
Utility and consumer choice
How Perfect Competition Achieves Optimal Output: Marginal Analysis
158. There are only two people in the world (Adam and Eve) and only one good (apples). Adam has four apples and a
total utility in money terms from apple consumption of $16; Eve has four apples and a total utility from apple
consumption of $20. Which of the following statements must be true?
a.
Eve’s marginal utility from consuming her fourth apple must be greater than Adam’s marginal utility from
consuming his fourth apple.
b.
The total utility of society will rise if Adam gives Eve one apple.
c.
If Adam and Eve each always has a positive marginal utility from consuming apples, the total utility of society
can only be increased by an increase in the total number of apples available for consumption.
d.
Adam’s average utility from consuming apples is greater than Eve’s average utility from consuming apples.
DISC: Utility and consumer choic – DISC: Utility and consumer choice
United States – BPRPOG: Analysis
Utility and consumer choice
How Perfect Competition Achieves Optimal Output: Marginal Analysis
159. If the marginal cost of producing steel exceeds the marginal utility of using steel, then for economic efficiency,
a.
the price of steel should fall.
b.
society should produce less steel.
c.
the price of goods made with steel should fall.
d.
society should direct resources toward steel production and away from the production of other goods.
DISC: Utility and consumer choic – DISC: Utility and consumer choice
United States – BPROG: Reflective Thinking – BPROG: Analysis
Utility and consumer choice
How Perfect Competition Achieves Optimal Output: Marginal Analysis
160. If the marginal utility of apples exceeds the marginal cost of producing apples, then in a free market production of
apples will ____, with the likely result that marginal utility will ____.
a.
rise; fall
b.
fall; rise
c.
rise; rise
d.
fall; fall
a
Moderate
DISC: Utility and consumer choic – DISC: Utility and consumer choice
United States – BPROG: Reflective Thinking – BPROG: Analysis
Utility and consumer choice
How Perfect Competition Achieves Optimal Output: Marginal Analysis
161. Which of the following is least likely to be an example of peak/off-peak pricing?
a.
breakfast cereals
b.
hotels
c.
wireless service
d.
electricity
a
Moderate
DISC: Supply and demand
United States – BPROG: Analytic
Supply and demand
How Perfect Competition Achieves Optimal Output: Marginal Analysis
162. When an economy operates efficiently,
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.
Moderate
DISC: Utility and consumer choic – DISC: Utility and consumer choice
United States – BPROG: Analytic
Utility and consumer choice
How Perfect Competition Achieves Optimal Output: Marginal Analysis
163. When the price of a good is below its equilibrium level under perfect competition,
a.
consumers would benefit from an expansion of output.
b.
some consumers are earning larger consumer’s surpluses than they would in equilibrium.
c.
the market is not operating at maximum efficiency.
d.
All of the above are correct.
DISC: Perfect competition
United States – BPROG: Analytic
Perfect competition
How Perfect Competition Achieves Optimal Output: Marginal Analysis
164. When the price of the product falls
a.
consumer’s surplus remains the same.
b.
producers’ surplus increases.
c.
consumer’s surplus falls.
d.
producer’s surplus falls.
DISC: Utility and consumer choic – DISC: Utility and consumer choice
United States – BPROG: Analytic
Utility and consumer choice
How Perfect Competition Achieves Optimal Output: Marginal Analysis
165. An economy is judged efficient if
a.
it is good at producing what people want.
b.
it produces things that people may not want but in the least wasteful way.
c.
produces whatever people want in a way that may not be the least wasteful.
d.
it is a free-market economy and not a command market.
DISC: Measuring the Economy
United States – BPROG: Analytic
Measuring the Economy
How Perfect Competition Achieves Optimal Output: Marginal Analysis
166. When an economy is operating with maximum efficiency, the production of more of commodity A will entail the
production of less of commodity B because
a.
resources are specialized and are not shiftable.
b.
resources are limited.
c.
the structure of demand is fixed at any point in time.
d.
material wants are insatiable.
Easy
DISC: Costs of production
United States – BPROG: Analytic
Costs of production
How Perfect Competition Achieves Optimal Output: Marginal Analysis
167. In a competitive economy, the questions of what, how, and for whom to produce tend to be regulated by
a.
the government.
b.
businessmen.
c.
the price system.
d.
workers.
c
Easy
DISC: Measuring the Economy
United States – BPROG: Analytic
Measuring the Economy
How Perfect Competition Achieves Optimal Output: Marginal Analysis
168. Efficiency in output requires which of the following?
a.
MC = MRP.
b.
MC = MFC.
c.
MC = MU.
d.
MC = AVC.
c
Moderate
DISC: Marginal costs & benefits
United States – BPROG: Analytic
Marginal costs & benefits
How Perfect Competition Achieves Optimal Output: Marginal Analysis
169. Under perfect competition, the market mechanism, without any government regulation, is capable of
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.
a
Moderate
DISC: Perfect competition
United States – BPROG: Analytic
Perfect competition
How Perfect Competition Achieves Optimal Output: Marginal Analysis
170. In a laissez-faire economy, the price system plays a key role in
a.
selecting outputs.
b.
selecting inputs.
c.
distributing outputs.
d.
All of the above are correct.
DISC: Measuring the Economy
United States – BPROG: Analytic
Measuring the Economy
How Perfect Competition Achieves Optimal Output: Marginal Analysis
171. If the marginal utility of a product exceeds its MC, we would want, on efficiency grounds, to
a.
increase production.
b.
decrease production.
c.
leave production constant.
d.
One cannot tell without knowing the price.
DISC: Utility and consumer choic – DISC: Utility and consumer choice
United States – BPROG: Analytic
Utility and consumer choice
How Perfect Competition Achieves Optimal Output: Marginal Analysis
172. If both the MU and MC of flower pots is $1.50 and the MU and MC of coffee cups is $2, then economic efficiency
would require
a.
increased production of flower pots.
b.
increased production of coffee cups.
c.
the price of coffee cups to exceed the price of flower pots.
d.
the price of flower pots to exceed the price of coffee cups.
DISC: Marginal costs & benefits
United States – BPROG: Reflective Thinking – BPROG: Analysis
Marginal costs & benefits
How Perfect Competition Achieves Optimal Output: Marginal Analysis
173. In an idealized laissez-faire world, the distribution of products is
a.
the most efficient.
b.
the most fair.
c.
purely random.
d.
unpredictable.
a
Easy
DISC: Efficiency and equity
United States – BPROG: Analytic
Efficiency and equity
How Perfect Competition Achieves Optimal Output: Marginal Analysis
174. If the MU of half gallon of milk is $3.50 and the MU of gallon of milk is $3.25, and they both sell for the same price,
we would expect consumers to
a.
increase their purchases of gallons of milk.
b.
increase their purchases of half gallons of milk.
c.
not change their purchasing habits.
d.
buy only gallons of milk.
Moderate
DISC: Utility and consumer choic – DISC: Utility and consumer choice
United States – BPROG: Reflective Thinking – BPROG: Analysis
Utility and consumer choice
How Perfect Competition Achieves Optimal Output: Marginal Analysis
175. MC and MU are set equal to one another in a market economy because
a.
producers and consumers are free to communicate with one another.
b.
producers and consumers both respond to the same price.
c.
consumers must accept the prices set by producers.
d.
producers must accept the price set by consumers.
Moderate
DISC: Utility and consumer choic – DISC: Utility and consumer choice
United States – BPROG: Reflective Thinking – BPROG: Analysis
Utility and consumer choice
How Perfect Competition Achieves Optimal Output: Marginal Analysis
176. An economist would say the price is too high for a certain service if
a.
poor people couldn’t afford to buy it.
b.
nobody could afford to buy it.
c.
the price was above marginal cost.
d.
it is an essential service and consumes a significant share of income.
DISC: Utility and consumer choic – DISC: Utility and consumer choice
United States – BPROG: Reflective Thinking – BPROG: Analysis
Utility and consumer choice
How Perfect Competition Achieves Optimal Output: Marginal Analysis
177. In a free-market system, producers will react to an increase in demand when
a.
the price goes up.
b.
the government announces the increased demand.
c.
their costs increase.
d.
the free press publishes news of the increased demand.
DISC: Supply and demand
United States – BPROG: Analytic
Supply and demand
How Perfect Competition Achieves Optimal Output: Marginal Analysis
178. 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
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.
DISC: Utility and consumer choic – DISC: Utility and consumer choice
United States – BPROG: Reflective Thinking – BPROG: Analysis
Utility and consumer choice
How Perfect Competition Achieves Optimal Output: Marginal Analysis
179. The MU of computers is initially larger than the MC of producing them in a free market. We may expect output of
computers to
a.
fall, MC to rise, and MU to rise.
b.
rise, MC to fall, and MU to fall.
c.
rise, MC to rise, and MU to fall.
d.
fall, MC to fall, and MU to rise.
DISC: Marginal costs & benefits
United States – BPROG: Reflective Thinking – BPROG: Analysis
Marginal costs & benefits
How Perfect Competition Achieves Optimal Output: Marginal Analysis
180. In order for the price system to have satisfied the exacting requirements for efficiency,
a.
MU must equal MC for each and every commodity.
b.
the average cost of producing each good must be equal to its MU.
c.
the maximum possible of total economic profit must be produced.
d.
every consumer’s MU will be equal to marginal physical product
DISC: Utility and consumer choic – DISC: Utility and consumer choice
United States – BPROG: Reflective Thinking – BPROG: Analysis
Utility and consumer choice
How Perfect Competition Achieves Optimal Output: Marginal Analysis
181. The invisible hand enforces the tendency toward
a.
MR = MU.
b.
MC = P = MU.
c.
MC = MPP = P.
d.
MRP = MPP = P.
DISC: Marginal costs & benefits
United States – BPROG: Analytic
Marginal costs & benefits
How Perfect Competition Achieves Optimal Output: Marginal Analysis
182. When the invisible hand is at work,
a.
the price system will sometimes give incorrect cost signals to consumers.
b.
the price system will allocate resources based only on consumer need.
c.
all prices will be set equal to marginal costs.
d.
there will be some shortages and surpluses that cannot be avoided.
DISC: Marginal costs & benefits
United States – BPROG: Analytic
Marginal costs & benefits
How Perfect Competition Achieves Optimal Output: Marginal Analysis
183. The basic forces driving the “invisible hand” are
a.
government and business.
b.
information and computer technology.
c.
competition and self-interest.
d.
cooperation and altruism.
DISC: Marginal costs & benefits
United States – BPROG: Analytic
Utility and consumer choice
How Perfect Competition Achieves Optimal Output: Marginal Analysis
184. In order for a central planner to achieve the invisible-hand type efficiency of a free market, the planner would
a.
need masses of statistics.
b.
be required to makes enormous calculations.
c.
need to be able to measure a consumer’s marginal utility in order to equate MU with MC.
d.
All of the above would be required.
United States – BPROG: Reflective Thinking – BPROG: Analysis
Understanding and applying econo – Understanding and applying economic models
How Perfect Competition Achieves Optimal Output: Marginal Analysis
185. The metaphor used to describe the working of the price system to achieve efficiency in a free market is
a.
Occam’s razor.
b.
the prisoner’s dilemma.
c.
the invisible hand.
d.
the benefit principle.
DISC: Supply and demand
United States – BPROG: Analytic
Supply and demand