Question 1

When the United States trades with China,
A)both countries will likely benefit.
B)only United States will benefit.
C)only China will benefit.
D)neither country will benefit.

Accepted Answer

When the United States trades with China, both countries will likely benefit. Trade allows for the exchange of goods and services between countries, allowing for greater efficiency and specialization. The United States can sell goods and services to China, generating revenue and creating jobs, while China can provide the United States with cheaper goods and materials, helping to keep prices low for American consumers. This mutually beneficial relationship can lead to increased economic growth and prosperity for both countries.

Question 2

Prior to the collapse of communism, communist countries worked on the premise that economic well-being could be best attained by
A)a market economy.
B)a strong reliance on prices and individuals' self-interests.
C)a system of large privately-owned firms.
D)the actions of government central planners.

Accepted Answer

Communist countries believed that the government should control and plan the economy in order to achieve economic well-being for all citizens. This is known as a command economy, where the government owns and controls all resources and production. Prices are set by the government and there is no reliance on individual self-interests or private firms.

Question 3

The failure of communism in a large number of countries is at least partly explained by
A)the fact that those countries relied absolutely on the invisible hand.
B)the fact that those countries did little or nothing to restrict trade with other countries.
C)the lack of information, on the part of central planners in those countries, about tastes and preferences in their economies.
D)the lack of information, on the part of central planners in those countries, about how much authority the government had in affecting economic outcomes.

Accepted Answer

The failure of communism in a large number of countries can be attributed to the central planning system, which did not take into account the market preferences and tastes of the consumers. The state-controlled economies could not produce goods and services that met the needs of the people, leading to inefficiency and lack of incentives. This lack of information on the part of central planners about the consumers' preferences led to the collapse of communism in these countries.

Question 4

Trade between countries tends to
A)reduce both competition and specialization.
B)reduce competition and increase specialization.
C)increase competition and reduce specialization.
D)increase both competition and specialization.

Accepted Answer

Trade between countries allows each country to specialize in producing goods and services that they are most efficient at, thereby increasing specialization. This leads to increased competition as countries strive to produce the best and most cost-effective goods and services, leading to innovation and better quality products.

Question 5

The collapse of communism in the Soviet Union and Eastern Europe took place mainly in the
A)1960s.
B)1970s.
C)1980s.
D)1990s.

Accepted Answer

The collapse of communism in the Soviet Union and Eastern Europe began in the late 1980s, with the fall of the Berlin Wall in 1989 and the dissolution of the Soviet Union in 1991 marking the end of the process.

Question 6

Market economies are distinguished from other types of economies largely on the basis of
A)the political affiliations of government officials.
B)the process by which government officials are elected or appointed.
C)the ways in which scarce resources are allocated.
D)the number of retail outlets available to consumers.

Accepted Answer

Market economies are distinguished from other types of economies by the ways in which scarce resources are allocated. In a market economy, resources are allocated based on the forces of supply and demand, rather than by government control or central planning. This means that prices, rather than a central authority, guide the allocation of resources. In contrast, in a command economy, government planners decide how resources are allocated, while in a traditional economy, resources are allocated based on long-standing customs and traditions. The political affiliations or process of selecting government officials, as well as the number of retail outlets available, have little to do with whether an economy is a market economy.

Question 7

One advantage market economies have over centrally-planned economies is that market economies
A)provide an equal distribution of goods and services to households.
B)establish a significant role for government in the allocation of resources.
C)solve the problem of scarcity.
D)are more efficient.

Accepted Answer

Market economies are known for their efficiency due to the competitive nature of the market, where businesses strive to produce goods and services at the lowest possible cost while maximizing profits. In contrast, centrally-planned economies often suffer from inefficiencies due to the lack of market competition and incentives for innovation and efficiency. Therefore, D is the correct choice as market economies have an advantage over centrally-planned economies due to their efficiency.

Question 8

Trade
A)allows specialization, which increases costs.
B)allows specialization, which reduces costs.
C)reduces specialization, which increases costs.
D)reduces specialization, which reduces costs.

Accepted Answer

Trade allows different countries to specialize in producing goods and services that they can produce more efficiently than others due to their resources, technology, or skills. This results in lower costs of producing goods and services which decreases the final price of the product. Therefore, trade allows specialization and reduces costs.

Question 9

Central planning refers to
A)markets guiding economic activity. Today many countries that had this system have abandoned it.
B)markets guiding economic activity. Today many countries that did not have this system have implemented it.
C)government guiding economic activity. Today many countries that had this system have abandoned it.
D)government guiding economic activity. Today many countries that did not have this system have implemented it.

Accepted Answer

Central planning refers to government guiding economic activity. Today many countries that had this system have abandoned it, meaning it was implemented in the past but later abandoned. Therefore, option C is the best choice. Options A and B are incorrect as they both refer to market guiding economic activity, which is the opposite of central planning. Option D is also incorrect as it states that countries have implemented central planning, which is not accurate.

Question 10

Trade makes costs
A)higher and reduces the variety of goods and services available.
B)higher but raises the variety of goods and services available.
C)lower but reduces the variety of goods and services available.
D)lower and raises the variety of goods and services available.

Accepted Answer

Trade allows for specialization and comparative advantage, meaning that countries can focus on producing what they are best at and trade with other countries for the goods and services they need. This often results in lower costs and an increase in the variety of goods and services available.

Question 11

The economy of the former Soviet Union is best described as a
A)primitive economy.
B)market economy.
C)hybrid economy.
D)centrally-planned economy.

Accepted Answer

The economy of the former Soviet Union was centrally-planned with the government controlling all economic decisions and resources.

Question 12

The basic principles of economics suggest that
A)markets are seldom, if ever, a good way to organize economic activity.
B)government should become involved in markets when trade between countries is involved.
C)government should become involved in markets when those markets fail to produce efficient or fair outcomes.
D)All of the above are correct.

Accepted Answer

The basic principles of economics suggest that markets are generally efficient and effective in allocating resources. However, there may be instances when markets fail to produce efficient or fair outcomes, such as in cases of externalities, public goods, and market power. In such cases, government intervention may be necessary to correct for these market failures and promote efficient and equitable outcomes. This view is supported by most mainstream economists and is consistent with the notion of a mixed economy, where both markets and government play complementary roles in promoting economic growth and development.

Question 13

The idea that only the government can organize economic activity in a way that promotes economic well-being for a country as a whole
A)is a basic principle regarding individual decisionmaking.
B)amounts to a denial of one of the basic principles regarding interactions among people.
C)supports the idea that the "invisible hand" should guide economic activity.
D)was promoted by the economist Adam Smith in a well-known 1776 book.

Accepted Answer

The idea that only the government can organize economic activity in a way that promotes economic well-being for a country as a whole goes against the basic principle of interactions among people, which allows for voluntary exchange and specialization. It suggests that individuals and private businesses cannot effectively coordinate economic activity on their own, which is a common argument for government intervention in the economy. This view contrasts with the idea of the "invisible hand," which suggests that the market can guide economic activity without the need for central planning. While the economist Adam Smith did argue for the importance of government intervention in some areas, his overall perspective emphasized the importance of competition and individual self-interest in promoting economic growth and prosperity.

Question 14

When Ukraine trades with Italy,
A)both countries are likely made better off.
B)only Italy benefits since Ukraine can produce all goods at a higher level of quality than Italy.
C)only Ukraine benefits since Italy's low wages guarantee that Italian firms will be profitable regardless of trade.
D)neither country will benefit since Ukraine is more efficient than Italy in the production of all goods.

Accepted Answer

When two countries engage in trade, they are able to specialize in producing the goods that they are relatively more efficient at and then trade with each other for the other goods that they need. This allows for both countries to increase their overall production and consumption. In this scenario, both Ukraine and Italy are likely to benefit from trading with each other as they can each produce different goods at a relatively lower cost than the other country.

Question 15

Which of the following statements about markets is most accurate?
A)Markets are usually a good way to organize economic activity.
B)Markets are usually inferior to central planning as a way to organize economic activity.
C)Markets fail and are therefore not an acceptable way to organize economic activity.
D)Markets are a good way to organize economic activity in developed nations, but not in less developed nations.

Accepted Answer

This statement is most accurate as markets, through the forces of supply and demand, can efficiently allocate resources and goods without the need for central planning. While markets may not always function perfectly due to externalities or market failures, they are generally the best way to organize economic activity. There is no evidence to suggest that markets are inferior to central planning, nor is there evidence to suggest that markets are only effective in developed nations.

Question 16

Suppose Country A has a high average wage level and a high level of output per person, while Country B has a low average wage level and a low level of output per person. Which country can benefit from trade?
A)Only Country A can benefit.
B)Only Country B can benefit.
C)Both Country A and Country B can benefit.
D)Neither Country A nor Country B can benefit.

Accepted Answer

Both countries can benefit from trade. Country A can benefit by outsourcing its low-wage and low-skilled labor-intensive tasks to Country B, which can then produce goods at lower costs. Country B can benefit by exporting its products to Country A, earning higher revenues and stimulating its economy. Through trade, both countries can specialize in their areas of comparative advantage and increase their overall economic welfare.

Question 17

Benefits from trade would not include
A)the ability of people and nations to specialize.
B)a greater variety of goods and services becoming available.
C)less competition.
D)lower prices.

Accepted Answer

Trade increases competition, which can lead to higher quality goods and services at lower prices. Therefore, less competition is not a benefit of trade.

Question 18

In communism, central planners decide which of the following?
A)what goods and services will be produced
B)how much will be produced
C)who will produce and consume the goods and services
D)All of the above are correct.

Accepted Answer

In communism, all three decisions - what goods and services will be produced, how much will be produced, and who will produce and consume the goods and services - are made by central planners.

Question 19

Which of the following statements best characterizes a basic difference between market economies and centrally planned economies?
A)Society relies more upon prices to allocate resources when the economy is centrally-planned than when it is market-based.
B)The self-interest of households is reflected more fully in the outcome of a centrally-planned economy than in the outcome of a market economy.
C)Government plays a larger role in the economic affairs of a market economy than in the economic affairs of a centrally planned economy.
D)None of the above are correct.

Accepted Answer

The answer of Which of the following statements best characterizes...

Question 20

Communist countries worked under the premise that
A)people, when left on their own without government intervention, will find the best use of available resources
B)central planners were in the best position to determine the allocation of scarce resources in the economy.
C)households and firms, guided by an "invisible hand," could achieve the most efficient allocation of scarce resources.
D)allowing the market forces of supply and demand to operate with no government intervention would achieve the most efficient allocation of scarce resources.

Accepted Answer

Communist countries believed that central planners, working on behalf of the government, were in the best position to determine the allocation of scarce resources in the economy. They believed that this central planning would create a fairer and more equal society than relying on market forces alone.

Quiz 1: Ten Principles of Economics

When the United States trades with China,

Prior to the collapse of communism, communist countries worked on the premise that economic well-being could be best attained by

The failure of communism in a large number of countries is at least partly explained by

Trade between countries tends to

The collapse of communism in the Soviet Union and Eastern Europe took place mainly in the

Market economies are distinguished from other types of economies largely on the basis of

One advantage market economies have over centrally-planned economies is that market economies

Trade

Central planning refers to

Trade makes costs

The economy of the former Soviet Union is best described as a

The basic principles of economics suggest that

The idea that only the government can organize economic activity in a way that promotes economic well-being for a country as a whole

When Ukraine trades with Italy,

Which of the following statements about markets is most accurate?

Suppose Country A has a high average wage level and a high level of output per person, while Country B has a low average wage level and a low level of output per person. Which country can benefit from trade?

Benefits from trade would not include

In communism, central planners decide which of the following?

Which of the following statements best characterizes a basic difference between market economies and centrally planned economies?

Communist countries worked under the premise that