Test Bank Chapter 8 The Power And Limits Of Markets

c08; Chapter 8: The Power and Limits of Markets

Learning Objectives:

LO-1: Describe the resource allocation and resource ownership decisions facing societies

LO-2: Classify the basic types of economic systems

LO-3: Describe the differences in types of ownership of resources

LO-4: Describe the differences in types of decision making about resource allocation

LO-5: Evaluate the tradeoffs between efficiency and equity; security and liberty

LO-6: Understand the concept of market failure

1. Resource allocation and resource ownership choices include decisions about each of the following except
   1. What to produce
   2. How to produce
   3. Where to produce
   4. For whom to produce

LO-1

Level: Moderate

1. This is a rationing process that provides an incentive to be efficient with use of resources.
   1. Prices
   2. Government laws and policy
   3. Community mandates
   4. Governmental committees

LO-1

Level: Moderate

1. The __________________ decisions of a society determine how the resources are shared among society’s citizens.
   1. resource ownership
   2. resource allocation
   3. resource income
   4. resource transfer

LO-1

Level: Easy

1. The _______________________ decisions of a society determine the property rights over the resources in a society.
   1. resource ownership
   2. resource allocation
   3. resource income
   4. resource transfer

LO-1

Level: Easy

1. This type of economic system uses private property ownership and private resource allocation decisions.
   1. Command capitalism
   2. Market socialism
   3. Command socialism
   4. Market capitalism

LO-2

Level: Easy

1. This type of economic system uses private property ownership and public resource allocation decisions.
   1. Command capitalism
   2. Market socialism
   3. Command socialism
   4. Market capitalism

LO-2

Level: Easy

1. This type of economic system uses public property ownership and private resource allocation decisions.
   1. Command capitalism
   2. Market socialism
   3. Command socialism
   4. Market capitalism

LO-2

Level: Easy

1. This type of economic system uses public property ownership and public resource allocation decisions.
   1. Command capitalism
   2. Market socialism
   3. Command socialism
   4. Market capitalism

LO-2

Level: Easy

1. All of the following are considered primary tradeoffs when one economic system is emphasized over another except
   1. efficiency.
   2. equity.
   3. conformity.
   4. liberty.

LO-2

Level: Medium

1. Efficient markets are considered rationing devices because
   1. consumers how value the good or service the most will be the one who get it.
   2. suppliers can produce the good or service at the lowest cost ensuring a lower price.
   3. the equality of the market allows for all to benefit.
   4. of government decree.

LO-5

Level: Difficult

1. All of the following indicate resource ownership except having
   1. the right to consume the good.
   2. the right to keep it.
   3. the right to sell it.
   4. the need to seek permission.

LO-3

Level: Easy

1. This system provides for a public rationing.
   1. Market system
   2. Command system
   3. Capitalist system
   4. Socialist system

LO-1

Level: Moderate

1. Black Friday has become an American tradition that signals the start of the holiday shopping season. This event provides special sales for consumers and is an example of _______________ system resource allocation.
   1. Command
   2. Socialist
   3. Market
   4. Capitalist

LO-1

Level: Difficult

Reference: Use the following spectrum diagram to answer questions 14-15.

1. If A on the spectrum above represents a resource ownership system where resources are jointly owned by the public and held by the government, what type of resource ownership system is represented by B?
   1. Command
   2. Socialist
   3. Market
   4. Capitalist

LO-3

Level: Difficult

1. If B on the spectrum above represents a resource ownership system where individual people, household, or businesses have tradable ownership rights to resources, what type of resource ownership system is represented by A?
   1. Command
   2. Socialist
   3. Market
   4. Capitalist

LO-3

Level: Difficult

Reference: Use the figure to answer questions 16-19.

1. Letter A represents this type of economic system.
   1. Market Socialism
   2. Command Capitalism
   3. Market Capitalism
   4. Command socialism

LO-2

Level: Easy

1. Letter B represents this type of economic system.
   1. Market Socialism
   2. Command Capitalism
   3. Market Capitalism
   4. Command socialism

LO-2

Level: Easy

1. Letter C represents this type of economic system.
   1. Market Socialism
   2. Command Capitalism
   3. Market Capitalism
   4. Command socialism

LO-2

Level: Easy

1. Letter D represents this type of economic system.
   1. Market Socialism
   2. Command Capitalism
   3. Market Capitalism
   4. Command Socialism

LO-2

Level: Easy

1. Economic Efficiency can be attained when
   1. marginal benefit is greater than marginal cost.
   2. marginal benefit is less than marginal cost.
   3. marginal benefit equals marginal cost.
   4. marginal cost is zero.

LO-5

Level: Easy

1. Which of the following statements is true concerning economic efficiency?
   1. Equilibriums that achieve economic efficiency generate maximum net benefit possible from a given set of resources.
   2. Equilibriums that achieve economic efficiency generate maximum net profit possible from a given set of resources.
   3. Equilibriums that achieve economic efficiency generate minimum marginal cost possible from a given set of resources.
   4. Equilibriums that achieve economic efficiency generate maximum marginal benefit possible from a given set of resources.

LO-5

Level: Moderate

1. Adam Smith’s invisible hand implied that efficiency could be attained if
   1. A Government committee coordinate production based on people’s comparative advantage
   2. Government coordinated the price and quantities of goods and services produced
   3. Government would leave the price and output decisions to the market capitalist system
   4. Government provided subsidies and other incentives for production

LO-5

Level: Difficult

1. One criticism of market capitalism is
   1. It generates efficient resource allocation
   2. Producers are provided incentive to find the lowest cost method of producing goods and services
   3. Goods and services are produced according to comparative advantage
   4. They are unlikely to produce many goods and services for the poor because the poor lack the ability to pay for the goods and services.

LO-5

Level: Moderate

1. An egalitarian system is one that is
   1. Based on economic efficiency
   2. Based on economic equity
   3. Based on economic comparative advantage
   4. Based on economic surplus

LO-5

Level: Easy

1. An economic trade-off for liberty is
   1. authority.
   2. liberation.
   3. security.
   4. individuality.

LO-5

Level: Easy

1. Each of the following is a trade-off for some of our economic liberty in an effort to increase our economic security except
   1. mandatory Social Security taxes.
   2. worker’s compensation insurance.
   3. speed limits.
   4. deregulation.

LO-5

Level: Moderate

1. A market failure will occur when
   1. an efficient amount of goods and services is not provided.
   2. new laws regulating taxes and subsidies are created.
   3. government involvement is minimal.
   4. when the mall does not open on time.

LO-6

Level: Moderate

1. When decision makers are not faced with full costs or benefits of their actions, the result is the market system
   1. will generate sufficient allocation of goods or services for society.
   2. generates an inefficient allocation of goods or services.
   3. generates sufficient quantities of goods and services for consumers.
   4. generates an efficient allocation of goods and services.

LO-6

Level: Easy

1. Each of the follow is a source of market failure except
   1. public goods.
   2. externalities.
   3. monopolies.
   4. inferior goods.

LO-6

Level: Easy

1. Pollution would be an example of a market failure because it
   1. represents imperfect information.
   2. is often caused by firms that are a monopolies.
   3. is a non-excludable public good.
   4. represents an externality where costs of production are born by someone other than the producer.

LO-6

Level: Easy

Essay

1. Explain the three basic questions fundamental to all economies and provide explanations for each question for both resource allocation systems.

LO-1

Level: Moderate

1. (Relating this Chapter to Chapter 4: Consumer Surplus) Explain why the following statement is accurate. The sum of consumer surplus and producer surplus is maximized when economic efficiency is achieved.

LO-5

Level: Difficult

1. Explain why Adam Smith’s invisible hand represents the efficiency a market achieves without government interference.

LO-5

Level: Moderate

1. Explain why market-based systems tend to generate more personal liberty than do command-based systems.

LO-5

Level: Moderate

1. How is economic security measured?

LO-5

Level: Difficult