Question 1

Both The Wealth of Nations and the Declaration of Independence share the point of view that
A)every person is entitled to life, liberty, and the pursuit of happiness.
B)individuals are best left to their own devices without the government guiding their actions.
C)the government plays a central role in organizing a market economy.
D)because of human nature a strong legal system is necessary for a market system to survive.

Accepted Answer

Both The Wealth of Nations by Adam Smith and the Declaration of Independence advocate for a laissez-faire approach to economics, meaning that individuals are best left to their own devices without government intervention or guidance. This is evidenced by Adam Smith's famous "invisible hand" concept, which suggests that individuals pursuing their own self-interest in a competitive market will ultimately benefit society as a whole. Similarly, the Declaration affirms the idea that all individuals are endowed with certain inalienable rights, including the pursuit of happiness, which implies a degree of individual autonomy and self-determination.

Question 2

In a market economy, who makes the decisions that guide most economic activity?
A)firms only
B)households only
C)firms and households
D)government

Accepted Answer

In a market economy, most economic decisions are made by both firms and households through the forces of supply and demand. Firms produce goods and services based on what they believe consumers will purchase, and households make purchases based on what they want and need. The government may have some influence through regulations and taxes, but it is not the primary decision-maker in a market economy.

Question 3

When the "invisible hand" guides economic activity, prices of products reflect
A)only the values that society places on those products.
B)only the costs to society of producing those products.
C)both the values that society places on those products and the costs to society of producing those products.
D)none of the above; when the "invisible hand" guides economic activity, prices of products are set by the government in a manner that is thought to be "fair."

Accepted Answer

The "invisible hand" refers to the idea that the pursuit of individual self-interest in a free market system results in the most efficient allocation of resources and the best outcomes for society as a whole. In this system, prices are determined by the interaction of supply and demand, which reflects both the values that society places on products and the costs of producing them. Therefore, choice C is the best answer.

Question 4

Which of the following statements about market economies is correct?
A)In a market economy, no one is looking out for the economic well-being of society as a whole.
B)Market economies are characterized by decentralized decision making and self-interested decision makers.
C)Market economies have proven remarkably successful in promoting overall economic well-being.
D)All of the above are correct.

Accepted Answer

The answer of Which of the following statements about market...

Question 5

In a market economy, economic activity is guided by
A)the government.
B)central planners.
C)large businesses.
D)prices and self-interest.

Accepted Answer

In a market economy, economic activity is guided by prices and self-interest. Businesses and consumers make their own decisions based on the signals they receive from the market, such as price fluctuations and supply and demand. The government does not play a significant role in directing economic activity in a market economy. Central planners are not involved in a market economy as it is a free-market system. While large businesses may have influence in certain industries, they do not guide all economic activity in a market economy.

Question 6

The "invisible hand" directs economic activity through
A)advertising.
B)prices.
C)central planning.
D)government regulations.

Accepted Answer

The "invisible hand" is a term coined by Adam Smith to describe how individual self-interest and competition in a free market economy can lead to economic efficiency and prosperity without the need for central planning or government intervention. Prices, determined by the interplay of supply and demand, are the mechanism that guides individual choices and directs economic activity in a decentralized way.

Question 7

In a market economy, economic activity is guided by
A)the government.
B)public-interest groups.
C)central planners.
D)self-interest and prices.

Accepted Answer

In a market economy, economic activity is guided by self-interest and prices. The market participants—consumers and producers—act in their own interest to buy and sell goods and services at prices that are determined by supply and demand. The market, therefore, decides what gets produced, how it gets produced, and who gets to consume the product. Unlike a centrally planned economy, market economies do not rely on government intervention or public-interest groups to guide economic activity.

Question 8

The "invisible hand" refers to
A)the government.
B)the free market.
C)central planners.
D)large businesses.

Accepted Answer

The "invisible hand" is an economic concept introduced by economist Adam Smith to describe the self-regulating nature of the market. It refers to how the market, through the actions of individuals and businesses seeking their own self-interest, can achieve the most efficient allocation of resources without the need for central planning.

Question 9

The famous observation that households and firms interacting in markets act as if they are guided by an "invisible hand" that leads them to desirable market outcomes comes from whose 1776 book?
A)David Ricardo
B)Thorstein Veblen
C)John Maynard Keynes
D)Adam Smith

Accepted Answer

The observation that households and firms interacting in markets act as if they are guided by an "invisible hand" that leads them to desirable market outcomes comes from Adam Smith's 1776 book, "The Wealth of Nations."

Question 10

The invisible hand's ability to coordinate the decisions of the firms and households in the economy can be hindered by
A)government actions that distort prices.
B)increased competition in markets.
C)enforcement of property rights.
D)too much attention paid to efficiency.

Accepted Answer

Government actions that distort prices can lead to misallocation of resources and prevent the invisible hand from coordinating the decisions of the firms and households in the economy. For example, price controls or subsidies can make it difficult for firms to determine the true market demand for their products or to efficiently allocate resources.

Question 11

Adam Smith's book The Wealth of Nations was published in
A)1692.
B)1776.
C)1816.
D)1936.

Accepted Answer

The Wealth of Nations was published in 1776.

Question 12

The self-interest of the participants in an economy is guided into promoting general economic self-interest by
A)the invisible hand.
B)market power.
C)government intervention.
D)oikonomos.

Accepted Answer

The term "invisible hand" was coined by economist Adam Smith to describe how individuals acting in their own self-interest in a free market economy can unintentionally promote the general interest of society. As individuals pursue their own economic self-interest, they will produce goods and services that others want, thereby creating demand for those goods and services. This will lead to the creation of more jobs, increased economic activity, and greater economic prosperity for all. Therefore, the invisible hand guides the self-interest of participants in an economy towards promoting general economic self-interest.

Question 13

Which of the following observations was made famous by Adam Smith in his book The Wealth of Nations?
A)There is no such thing as a free lunch.
B)People buy more when prices are low than when prices are high.
C)No matter how much people earn, they tend to spend more than they earn.
D)Households and firms interacting in markets are guided by an "invisible hand" that leads them to desirable market outcomes.

Accepted Answer

The concept of the "invisible hand" guiding markets to desirable outcomes is a famous observation made by Adam Smith in his book The Wealth of Nations.

Question 14

According to Adam Smith, the success of decentralized market economies is primarily due to
A)the basic benevolence of society.
B)society's legal system.
C)individuals' pursuit of self-interest.
D)partnerships that are forged between business and government.

Accepted Answer

According to Adam Smith's theory of capitalism, individuals' pursuit of self-interest leads to the maximizing of societal benefit, as people in a market economy are incentivized to produce goods and services that others desire in order to profit. This pursuit of self-interest ultimately results in the efficient allocation of resources and economic growth.

Question 15

The "invisible hand" works to promote general well-being in the economy primarily through
A)government intervention.
B)the political process.
C)people's pursuit of self-interest.
D)altruism.

Accepted Answer

The concept of the "invisible hand" was introduced by economist Adam Smith to explain how individuals pursuing their own self-interest in a free market can lead to positive outcomes for society as a whole. Smith argued that when individuals seek to maximize their own profits or satisfaction, they inadvertently contribute to the overall well-being of society by engaging in mutually beneficial voluntary exchanges that create wealth, encourage innovation, and promote efficiency. Thus, the "invisible hand" is the mechanism that ensures that resources are allocated efficiently and that goods and services are produced and distributed according to people's preferences and willingness to pay. This is why government intervention or altruistic behavior are not necessary to promote general well-being in a market economy, since the pursuit of self-interest can lead to beneficial outcomes for all.

Question 16

In a market economy,
A)households decide which firms to work for and what to buy with their incomes.
B)firms decide whom to hire and what to make.
C)a central planner makes decisions about production and consumption.
D)Both a and b are correct.

Accepted Answer

In a market economy, both households and firms have a degree of autonomy in making economic decisions. Households decide what to buy with their income and which firms to work for, while firms determine which resources to employ and what goods and services to produce. This results in a decentralized economic system where prices and production levels are largely determined by the forces of supply and demand rather than by a central authority.

Question 17

In an economy in which decisions are guided by prices and individual self-interest, there is
A)the potential to achieve efficiency in production.
B)a strong need for government intervention in the market.
C)less efficiency than would be observed in a centrally-planned economy.
D)more need for a strong legal system to control individual greed than would be needed in a centrally-planned economy.

Accepted Answer

In an economy in which decisions are guided by prices and individual self-interest, there is the potential to achieve efficiency in production. This is because individuals are incentivized to produce goods or services that are in demand and can fetch a higher price, leading to the efficient allocation of resources. Government intervention may be needed in certain cases, but overall, the market mechanism can lead to efficient outcomes.

Question 18

The "invisible hand" refers to
A)how central planners made economic decisions.
B)how the decisions of households and firms lead to desirable market outcomes.
C)the control that large firms have over the economy.
D)government regulations without which the economy would be less efficient.

Accepted Answer

The "invisible hand" is a metaphor that describes how the decisions of households and firms, guided by self-interest and market prices, can lead to efficient market outcomes without the need for central planning or government intervention. This idea was first introduced by Adam Smith in his book "The Wealth of Nations" and is a cornerstone of classical economic theory.

Question 19

Which of the following statements does not apply to a market economy?
A)Firms decide whom to hire and what to produce.
B)The "invisible hand" usually maximizes the income of society as a whole.
C)Households decide which firms to work for and what to buy with their incomes.
D)Government policies are the primary forces that guide the decisions of firms and households.

Accepted Answer

In a market economy, government policies do not play a primary role in guiding the decisions of firms and households. Instead, decisions are largely driven by market forces such as supply and demand.

Question 20

The term "invisible hand" was coined by
A)Adam Smith.
B)David Ricardo.
C)Karl Marx.
D)Benjamin Franklin.

Accepted Answer

The term "invisible hand" was first introduced by Adam Smith in his book 'The Wealth of Nations', published in 1776.

Quiz 1: Ten Principles of Economics

Both The Wealth of Nations and the Declaration of Independence share the point of view that

In a market economy, who makes the decisions that guide most economic activity?

When the "invisible hand" guides economic activity, prices of products reflect

Which of the following statements about market economies is correct?

In a market economy, economic activity is guided by

The "invisible hand" directs economic activity through

In a market economy, economic activity is guided by

The "invisible hand" refers to

The famous observation that households and firms interacting in markets act as if they are guided by an "invisible hand" that leads them to desirable market outcomes comes from whose 1776 book?

The invisible hand's ability to coordinate the decisions of the firms and households in the economy can be hindered by

Adam Smith's book The Wealth of Nations was published in

The self-interest of the participants in an economy is guided into promoting general economic self-interest by

Which of the following observations was made famous by Adam Smith in his book The Wealth of Nations?

According to Adam Smith, the success of decentralized market economies is primarily due to

The "invisible hand" works to promote general well-being in the economy primarily through

In a market economy,

In an economy in which decisions are guided by prices and individual self-interest, there is

The "invisible hand" refers to

Which of the following statements does not apply to a market economy?

The term "invisible hand" was coined by