Question 1

In any economic system,scarce resources have to be allocated among competing uses.Market economies harness the forces of&#10;A)government to allocate scarce resources.&#10;B)supply and demand to allocate scarce resources.&#10;C)credit cards to allocate scarce resources.&#10;D)nature to allocate scarce resources.

Accepted Answer

Market economies use the laws of supply and demand to allocate scarce resources. Prices, determined by the market, signal to producers and consumers how best to use these resources in order to satisfy the wants and needs of society. The government may have a role to play in regulating markets to ensure their fairness and efficiency, but it is ultimately the market that allocates resources in a market economy. Credit cards are simply a means of payment and have no role in allocating resources, and nature does not have the ability to allocate resources.

Question 2

Suppose the United States had a short-term shortage of farmers.Which mechanisms would adjust to remove the shortage?&#10;A)The government would provide tax incentives to encourage people to become farmers.&#10;B)The government would subsidize the production of food.&#10;C)The prices of food and the wages of farmers would adjust.&#10;D)There are no mechanisms to remove the shortage.

Accepted Answer

In a market economy, the shortage of farmers would cause the wages of farmers to increase and the prices of food to rise. This would incentivize more people to become farmers, ultimately eliminating the shortage. Therefore, the market mechanism of price adjustment is the most likely to remove the shortage. The government could also potentially provide some support through education and training programs, but tax incentives and subsidies may not be the most effective long-term solution.

Question 3

Who gets scarce resources in a market economy?&#10;A)the government&#10;B)whoever the government decides gets them&#10;C)whoever wants them&#10;D)whoever is willing and able to pay the price

Accepted Answer

In a market economy, resources are allocated based on the principle of supply and demand. Whoever is willing and able to pay the market price for a resource will receive it, while those who are not able to pay will not receive it. This means that the allocation of resources is determined by consumers who are free to choose which goods and services to purchase, and producers who are free to decide what to produce and how much to charge for their goods and services.

Question 4

The signals that guide the allocation of resources in a market economy are&#10;A)surpluses and shortages.&#10;B)quantities.&#10;C)government policies.&#10;D)prices.

Accepted Answer

In a market economy, prices serve as signals for the allocation of resources. When a good or service is in high demand, the price will increase, which signals to producers that there is a profit opportunity and they should allocate more resources towards producing that good or service. On the other hand, when a good or service is not in high demand, the price will decrease, which signals to producers to allocate fewer resources towards that good or service. Therefore, prices serve as an important guide for resource allocation in a market economy.

Question 5

Adam Smith suggested that an invisible had guides market economies.In this analogy,what is the baton that the invisible hand uses to conduct the economic orchestra?&#10;A)the government&#10;B)prices&#10;C)subsidies&#10;D)the Federal Reserve

Accepted Answer

According to Adam Smith, prices act as signals that coordinate production and consumption decisions in a market economy. The invisible hand guides individuals to pursue their own self-interest in a competitive marketplace, and prices adjust to match consumers' preferences with the available supply of goods and services. Therefore, the baton that the invisible hand uses to conduct the economic orchestra is the price system.

Deck 4: 5: Sec 45 Mc Conclusion How Prices Allocate Resources