Exam Prep Ch11 The Case For Free Markets The Price System - Microeconomics Principles and Policy 14e | Test Bank by Baumol by William J. Baumol. DOCX document preview.
Indicate whether the statement is true or false. |
1. With a monopoly, the producer’s surplus is lower than it would be with a perfectly competitive industry.
|
2. “Peak pricing” can often improve economic efficiency.
|
3. Under perfect competition, if marginal cost is below price, then a producer can benefit from increasing his or her output.
|
4. Scarcity is illustrated graphically by a production possibilities frontier.
|
5. With a monopoly, the total surplus is lower than it would be with a perfectly competitive industry.
|
6. Price increases always reduce economic efficiency.
|
7. “Fair” outcomes and “efficient” outcomes are always identical.
|
8. Input-output analysis is a technique used to solve complicated market equations.
|
9. Command economies strictly rely on sophisticated input-output analysis to allocate resources.
|
10. Prices influence the distribution of income by making the distribution fairer.
|
11. Higher prices for scarcer resources can improve the efficiency of an economy.
|
12. High prices do not occur in laissez-faire markets.
|
13. Lower prices are a signal of the scarcity of a resource.
|
14. Central planning systems were used in the former Soviet Union but since this union dissolved no other nations now use this allocation process.
|
15. The price system automatically leads to an efficient allocation of inputs among the different production processes.
|
16. Laissez-faire is a policy that espouses central planning.
|
17. Points below the production possibilities frontier are inefficient because it is possible to make someone better off without making anyone else worse off.
|
18. Uncoordinated decisions in perfect competition lead to mass confusion and inefficiency.
|
19. In a market system, prices are used to coordinate economic activity.
|
20. The distribution process performed by the price system is not as efficient as the distribution process of central planners.
|
21. Market systems can be evaluated as efficient or inefficient, but not as fair or unfair.
|
22. Centrally planned economies use free-market systems for their production planning.
|
23. Efficiency in the choice of outputs requires that marginal cost be equal to marginal revenue and nothing else.
|
24. Scarcity limits the volume of goods that an economic system can produce but does not limit the production of services.
|
25. To be efficient, outputs should be produced that minimize total cost.
|
26. Any increase in efficiency increases output available for distribution.
|
27. In a market system, the working of the price system only results in the distribution of income.
|
28. Higher efficiency in the economy can be reached if prices are held low by law.
|
29. A weakness of the price system is that it completely fails to take account consumer preferences in the distribution of goods and services.
|
30. Each point on a production possibilities frontier represents an efficient allocation of resources in an economy at one point in time.
|
31. Price decreases always increase economic efficiency.
|
32. Economists believe having higher prices for scarcer resources promotes efficiency.
|
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.
|
34. The perfect competition price system is the most efficient because it equates MC = P = MU.
|
35. 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.
|
36. There is only one efficient allocation of resources in an economy at one point in time.
|
37. The introduction of a tax in a perfectly competitive marketplace that is originally in equilibrium will only affect consumer’s surplus and not producer’s surplus.
|
38. Centrally planned economies do not use the price system for anything.
|
39. Before a market allocation of goods on the production possibilities curve can be judged efficient, one must evaluate “what” goods the market produced.
|
40. Lower prices are always better for society.
|
41. Under perfect competition, the lure of profits makes producers try to equate marginal cost and price.
|
42. Politicians and citizens may often choose policies that reduce economic efficiency because they are perceived as “fairer.”
|
43. The price system takes into account consumer preferences in the distribution of goods and services.
|
44. The allocation of resources is efficient under an idealized free market system.
|
45. Distribution is a major question to be answered by any economic system.
|
46. For any combination or outputs, there is an efficient allocation of income.
|
47. Command economies are able to achieve greater allocative efficiency than market economies.
|
48. “Peak pricing” can only work effectively if prices remain relatively low for scarce resources.
|
49. “Peak pricing” involves setting lower prices at peak times so that people can afford a good or service.
|
50. For a rational consumer, the consumer’s surplus will never be a negative number.
|
51. Politicians always agree with economists about the most efficient way of doing things.
|
52. Central planning is an efficient method for making coordination decisions.
|
53. 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.
|
54. Total surplus is the sum of producer’s surplus and consumer’s surplus.
|
55. Whenever MC of the last unit produced of a good is greater than its MU, society can benefit from decreasing the output of that good.
|
56. The laissez-faire system relies on the price mechanism to allocate resources.
|
57. A consumer who buys any amount of a good will realize a positive consumer’s surplus from that good.
|
58. Laissez-faire refers to a program of minimal interference in the market system.
|
59. Efficient allocation of resources makes everyone better off.
|
60. The “invisible hand” refers to the control that government must exercise over a market economy.
|
61. When total surplus is maximized, then this implies that the output level will be produced where MC = MU.
|
62. Free markets produce allocatively efficient outcomes and have no flaws.
|
63. Mutually beneficial trade is impossible when different persons have different preferences about goods and services.
|
64. For an efficient outcome, MR must exceed MC.
|
65. With a monopoly, the consumer’s surplus is lower than it would be with a perfectly competitive industry.
|
66. Economists can objectively evaluate the desirability of the distribution of income.
|
67. Prices set too low can actually be against the public interest.
|
68. If the allocation of resources is efficient, then a market economy will maximize the difference between total utility and total cost.
|
69. Allocations that are inefficient are sometimes chosen by policy makers as a way of improving fairness.
|
70. The introduction of a tax in a perfectly competitive marketplace that is originally in equilibrium will lower total surplus.
|
71. It is in society’s best interest that the MC of the last unit produced of a good is equal to its MU.
|
72. Fixed prices in a free-market economy can increase efficiency.
|
73. Goods are distributed efficiently if everyone gets an equal share of each good.
|
74. Production at points beyond the production possibilities frontier cannot be attained unless there is an increase in resources or an improvement in technology.
|
75. Any increase in efficiency increases only profits of producers, with no increase in output.
|
76. Free markets produce relatively high levels of efficiency but low rates of growth.
|
77. In a laissez-faire system, the price mechanism dictates the production planning decisions.
|
78. The introduction of a subsidy in a perfectly competitive marketplace that is originally in equilibrium will raise total surplus.
|
79. Economics tells us which resource allocations are preferable.
|
80. Production planning without the market mechanism is very efficiently handled by central planners.
|
81. Higher prices can discourage use/consumption, which in turn may better allocate scarce resources.
|
82. Mutually beneficial trade is possible because of differing marginal utilities.
|
83. Input-output analysis is commonly used in production decisions.
|
84. Under a system of laissez-faire, output selection is determined by consumers’ wants.
|
Indicate the answer choice that best completes the statement or answers the question. |
85. The graphical device that illustrates the concept of scarce resources being efficiently utilized in the economy is a(n)
|
86. Which central coordination task has claimed the most attention of central planners?
|
87. The existence of a universal law of scarcity creates pressures on societies to
|
88. 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
|
89. When the price of the product falls
|
90. Division of iron ore between the production of bridge girders and tanker drums is an example of
|
91. When all prices are set equal to marginal costs,
|
92. Higher prices may serve the public interest when
|
93. If a production possibilities frontier is a downward sloping straight line, it
|
94. The free-market system coordinates output decisions by pushing
|
95. Input-output analysis is rarely used because
|
96. Prohibiting price increases in situations of true scarcity
|
97. Under perfect competition, the market mechanism, without any government regulation, is capable of
|
98. Under a laissez-faire system,
|
99. An efficient allocation of resources is demonstrated by a point
|
100. In an idealized laissez-faire world, the distribution of products is
|
101. The saying “the lower the price, the better” may not always be correct for an economy’s public interest because
|
102. Under laissez-faire, the allocation of scarce resources among the different industries
|
103. Which of the following carries out the distribution process by rationing goods on the basis of preferences and relative incomes?
|
104. 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?
|
105. Total surplus is in which type of market will be highest?
|
106. Under laissez-faire, society’s decisions about how much of every product to produce depend on
|
107. Which type of economic system will produce the highest degree of allocative efficiency?
|
108. In a free-market economy, prices coordinate society’s decisions about
|
109. Which of the following is concerned with the distribution part of resource allocation?
|
Figure 11-1  |
110. In Figure 11-1, a technological breakdown in calculator production would cause which movement?
|
111. The selection of particular products’ production processes
|
112. An efficient solution to a pricing problem
|
113. Which of the following holds true in a market when the invisible hand functions properly?
|
114. If parking spaces on a college campus are scarce, with quantity demanded during the “peak” hours, from 8 a.m. to 11 a.m., far greater than the number of spaces, an economist would propose as an efficient solution,
|
115. The coordination task of any economy that answers the question of how output shall be divided among consumers may best be described as
|
116. To promote economic efficiency, government should
|
117. The coordination task of dividing products among consumers is a problem of
|
118. An unplanned economy operating under laissez-faire
|
Figure 11-2  |
119. Using the information in Figure 11-2, which point or points represents an inefficient allocation of resources?
|
120. In a free market, a given unit of an input will be used by the firm that
|
121. Using prices to promote efficiency in the utilization of bridges,
|
122. 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
|
123. ”Peak” pricing can best be defined as
|
124. The questions of what to produce, how to produce, and for whom are answered by
|
125. If the marginal cost of producing steel exceeds the marginal utility of using steel, then for economic efficiency,
|
126. Under a laissez-faire system,
|
127. In a market system, the mechanism that coordinates economic activity is
|
128. Under laissez-faire, output selection is determined by
|
Figure 11-1 |
129. In Figure 11-1, a change in consumer tastes favoring calculators will lead to which movement?
|
130. 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
|
Figure 11-2 |
131. In Figure 11-2, which of the points are efficient allocations of resources?
|
132. Laissez-faire refers to a situation in which there is ____ with the workings of the market system.
|
133. In a free-market economy, the pricing mechanism always operates to
|
134. The price system rations goods among consumers in such a way that
|
135. Total surplus is
|
136. 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 ____.
|
137. The government’s role in a laissez-faire system includes
|
138. Keeping landing fees low at airports during the “peak” hours
|
139. In a planned economy,
|
140. Higher prices
|
141. Which of the following statements is correct?
|
142. The price of a ride on the Washington, D.C. metro depends on the time of day you ride. This is an example of
|
143. 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
|
144. The city of London imposes congestion fees on cars and trucks that drive in central London. The charge is higher Monday through Friday than on weekends. This example of
|
145. Economics can decide
|
146. The laissez-faire free-market system is
|
147. Under laissez-faire, the force that drives the economy toward an efficient outcome is
|
148. 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
|
149. When the invisible hand is at work,
|
150. The technique called input-output analysis relies heavily on
|
151. In order for the price system to have satisfied the exacting requirements for efficiency,
|
152. Many persons object to the results of the competitive market system because
|
153. MC and MU are set equal to one another in a market economy because
|
154. When the price of a good is below its equilibrium level under perfect competition,
|
155. 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
|
156. Government-imposed limits on price movements are likely to
|
157. The task of deciding which consumer gets each of the goods produced in a free-market economy is solved by
|
158. When a shortage occurs in the market for a good, quantity
|
159. Questions of what to produce, how much to produce, and who will get the output must be faced by
|
160. The market allocates goods to individuals according to the individuals’
|
161. 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
|
162. In a planned economy, the concept of efficiency is
|
163. Marxists and leaders of communist economies actually often admire the market mechanism for its
|
164. An optimal allocation of resources is one which is
|
165. Inefficient allocation of resources occurs when
|
166. If the poor cannot afford proper medical treatment, an economist, for reasons of efficiency, would favor
|
167. In a competitive market economy, a resource in short supply will be allocated
|
168. The metaphor used to describe the working of the price system to achieve efficiency in a free market is
|
169. An economist would say the price is too high for a certain service if
|
170. The basic forces driving the “invisible hand” are
|
171. If MU = MC = P, an economist can judge with certainty that the distribution of output is
|
172. The term “laissez-faire” was given to a system of free markets by
|
Figure 11-2 |
173. As we move down the production possibilities schedule in Figure 11-2, each successive point is
|
174. In a competitive economy, the questions of what, how, and for whom to produce tend to be regulated by
|
175. To efficiently manage traffic on a system of bridges,
|
176. We observe that the price per ounce of milk in a quart container is higher than the price per ounce in a gallon container. What is the likely reason for this?
|
177. Prices
|
178. The production possibilities frontier illustrates
|
179. For economic efficiency, which of the following conditions should be met?
|
180. The issue of fairness versus efficiency arises
|
181. In a free market, economic activity is coordinated by
|
182. The technique that addresses the problem of assigning inputs to specific industries is
|
183. Economists favor the use of peak-load pricing since it can
|
184. Which of the following functions is not performed by prices in a free market?
|
185. When prices of products are set below equilibrium,
|
186. In the case of the production of electronic calculators, introduced in the United States in the 1960s,
|
187. To equalize traffic on transportation routes, a pricing arrangement called “peak, off-peak pricing” would most likely be proposed by
|
188. Free-market economies have led to
|
189. If arrival and departure delays are frequent early in the morning and late afternoons, but there are no delays during the evening hours, we can conclude that the airport authority
|
Figure 11-2 |
190. In Figure 11-2, which movement would represent an improvement for all individuals?
|
191. If a technological breakthrough reduces input quantities needed to produce some item,
|
192. What is the order in which an economy tries to solve the issue of resource allocation?
|
193. Under laissez-faire, the allocation of resources among different products depends on
|
194. In a free-market system, producers will react to an increase in demand when
|
195. Prohibiting price increases in situations of true scarcity could best be described as
|
196. It is true that the distribution process carried out by the price system
|
197. In an efficient market, a scarce good generally has a ____ than a less-scarce good.
|
198. Prices are useful in coordinating society’s economic planning because
|
199. In order for a central planner to achieve the invisible-hand type efficiency of a free market, the planner would
|
200. In a market system, the primary instruments used to coordinate economic activity are
|
201. Which of the following is least likely to be an example of peak/off-peak pricing?
|
202. 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
|
203. Which nation listed below is successfully transitioning from a planned economy to a hybrid market economy?
|
204. The production possibilities frontier illustrates
|
205. Central planners in command economies
|
206. The idea of the invisible hand was introduced by
|
207. In a laissez-faire economy, the price system plays a key role in
|
208. The assignment of inputs to specific industries by central planners is made difficult by
|
209. Most economists support the idea of peak-load pricing on the grounds of
|
210. An economy is judged efficient if
|
211. An example of peak pricing is charging
|
212. When an economy operates efficiently,
|
213. Under a pure system of laissez-faire, the government would not do which of the following?
|
214. Which of the proposals for education reform is likely to be supported by an economist concerned with efficiency?
|
215. An efficient allocation of resources exists if
|
216. In a market economy, goods are allocated to
|
217. The nation listed below whose economy currently comes closest to a free market is
|
Figure 11-1 |
218. In Figure 11-1, what can be concluded about the economy if production moves from Point D to Point A?
|
219. Prices can work to benefit the public interest by
|
220. The invisible hand enforces the tendency toward
|
221. The MU of computers is initially larger than the MC of producing them in a free market. We may expect output of computers to
|
222. If the marginal utility of a product exceeds its MC, we would want, on efficiency grounds, to
|
223. Prices serve the public interest by
|
224. The slope of a typical production possibilities frontier reflects the fact that
|
225. What does the production possibilities frontier imply about the resource allocation?
|
226. The price system is sometimes criticized in that it
|
227. Efficiency in output requires which of the following?
|
228. Which of the following industries relies heavily on peak/off-peak pricing?
|
229. An efficient distribution of goods requires that
|
230. The degree to which an economic system approaches a market economy depends on the degree to which
|
Figure 11-1 |
231. In Figure 11-1, a cost-reducing technological breakthrough in calculator production would cause which movement?
|
232. The necessity for choice, in economics, arises from
|
233. The production possibilities frontier cannot be used to show
|
234. Which of the following statements concerning efficiency is correct?
|
235. Perfect central planning is nearly impossible for all of these reasons except
|
Figure 11-5  |
236. Figure 11-5 contains a production possibilities frontier for wheat and milk production. Explain why Point C is not a point where resources are being used efficiently. |
237. Define the following terms and explain why they are important in the study of economics. a. Efficient allocation b. Laissez-faire c. Peak pricing d. Input-output analysis e. Coordination tasks |
238. The rule for efficient output selection is stated as MC = MU. Explain how the rule results in economic efficiency. |
239. How does the task of production planning happen in a laissez-faire economy? |
Figure 11-3  |
240. In Figure 11-3, if person 1 and person 2 have the indicated quantities of cheese and crackers and are on the indicated indifference curves, is there the possibility of mutually beneficial trade? Explain. |
241. An economy consists of two goods: beef and lamb. Of all the points on this economy’s production possibilities frontier, which one is best in terms of efficiency? |
242. What makes production planning a daunting task for central planners? |
243. Jupiter likes moons more than rings and gets marginal utility worth $5 from the last moon, and $2 from the last ring. Saturn prefers rings, getting MU = $3 from the last ring and $1 from moons. Describe a trade that would increase efficiency. |
244. Is a benevolent command economy likely to achieve greater efficiency than a purely competitive market system? Explain. |
245. How does a laissez-faire economy decide which consumer gets each of the goods that has been produced? |
246. Is peak pricing economically efficient? Explain. Give an example to illustrate your answer. |
247. Is an efficient market allocation fair? Explain. |
248. In many cities, the price of summer pops concerts has risen. In Charlotte, North Carolina, and Columbus, Ohio, for example, concerts that were once free now cost $5. If there are only fixed costs and no variable costs nor marginal costs in an orchestra concert, what is the efficient price? Explain the reason why some people will find the efficient price unfair. |
249. How does a free-market system address the output selection task? |
250. What is the rule for efficient output selection and how does the competitive market achieve it? |
251. Differentiate between consumer’s surplus and producer’s surplus. For a rational consumer, consumer’s surplus will never be a negative number. Why? |
Figure 11-4  |
252. In Figure 11-4, if the cheese industry and the cracker industry have the indicated quantities of capital and labor and are on the indicated production indifference curves, is there the possibility of mutually beneficial trade in inputs? Explain. |
253. After the Arab oil embargoes, there was concern about the impact of higher gas prices on the low-income worker. The government imposed price controls on oil to protect the poor from this situation. Explain the inefficiency of this price ceiling and how taxes, rather than prices, could be used to solve the problem. |
254. Some years ago New York City imposed rent controls in an effort to provide housing at “fair” prices for as many people as possible. The result was a serious shortage of housing and deterioration of existing rental properties. How would an economist have described the result in terms of economic efficiency? |
255. Milk costs $2 and the last unit provides $4 in marginal utility. Cheese costs $4 and the last unit provides $2 in marginal utility. Is this an efficient allocation of resources? If so, why? If not, why not? |
256. Explain how the free-market mechanism adjusts prices so that resource allocation is economically efficient. |
257. Explain why movie theaters charge more for evening performances than for matinees. |
258. Assuming one can derive a correct input-output table, are there still any reasons to prefer the market to central planning? |
259. In an effort to prepare for war, the Defense Department is required by Congress to stockpile helium, once used to provide lift for blimps (phased out in the 1960s). About 100 years of total U.S. usage of helium is in storage. The Pentagon agrees to buy helium from producers at a price above what would otherwise prevail in the marketplace. Is this likely to result in efficiency? Explain. |
Document Information
Connected Book
Microeconomics Principles and Policy 14e | Test Bank by Baumol
By William J. Baumol