Question 1

In a market economy, those who are willing and able to buy what is produced
A) receives what the government allows them to receive.
B) receive the most of what is produced.
C) receive no more than everyone else in the market.
D) solely determine what is produced.

Accepted Answer

In a market economy, those who are willing and able to buy what is produced receive the most of what is produced because producers aim to satisfy the demands of consumers in order to generate profit. This leads to a supply and demand mechanism that determines the price and quantity of goods and services produced, with those who are willing and able to pay more having a greater influence on the market.

Question 2

Trade-offs force society to make choices when answering what three fundamental questions?
A) What will be the prices of goods and services; how will these goods and services be produced; and who will receive them?
B) What goods and services to produce; how will these goods and services be produced; and who receives them?
C) Who gets jobs; what wages do workers earn; and who owns what property?
D) How much will be saved; what will be produced; and how can these goods and services be fairly distributed?

Accepted Answer

The three fundamental economic questions are what to produce, how to produce, and for whom to produce. Therefore, choice B correctly identifies the three questions and is the best answer. Choices A, C, and D are either incomplete or incorrect in their identification of the three fundamental economic questions.

Question 3

Which of the following statements is false?
A) Anytime you have to decide which action to take you are facing an economic trade-off.
B) Trade-offs do not apply when the consumers purchase a product for which there is excess supply, such as a stock clearance sale.
C) Every individual, no matter how rich or poor, is faced with making trade-offs.
D) Economics is a social science that studies the trade-offs we are forced to make because of scarcity.

Accepted Answer

Trade-offs always exist regardless of whether there is an excess supply of a product or not. In the case of a stock clearance sale, the consumer still has to decide whether to purchase the discounted item or save their money for something else. Therefore, statement B is false.

Question 4

Which of the following is correct about the economic decisions consumers, firms, and the government have to make?
A) Governments may face the problem of shortages but not scarcity in making economic decisions.
B) Only individuals face scarcity; firms and the government do not.
C) Firms and the government face scarcity; individuals only face shortages.
D) Each faces the problem of scarcity, which necessitates trade-offs in making economic decisions.

Accepted Answer

Scarcity is a fundamental economic concept that refers to the limited availability of resources relative to unlimited needs and wants, which necessitates trade-offs in making economic decisions. Therefore, all economic agents, including consumers, firms, and the government, face the problem of scarcity, and they have to make choices about how to allocate their scarce resources efficiently. Governments can also face scarcity as they may have limited budgets, manpower, and other resources to meet the needs of their citizens. It is also possible for individuals to face shortages, which refer to temporary imbalances between demand and supply, but this is not the same as scarcity.

Question 5

In a market economy, ________ interact in markets to decide the answers to the fundamental economic questions.
A) state and local governments
B) large corporations
C) households and firms
D) the judicial and legislative branches of the federal government

Accepted Answer

In a market economy, households (consumers) and firms (producers) interact in markets to decide the answers to the fundamental economic questions of what to produce, how to produce, and for whom to produce. This interaction is based on the forces of supply and demand, and prices play a crucial role in guiding the allocation of resources. State and local governments, large corporations, and the judicial and legislative branches of the federal government may all play a role in a market economy, but they do not interact directly in markets to determine the allocation of resources.

Question 6

Article Summary
In an August 2013 speech from the Lincoln Memorial, President Obama was expected to emphasize that increased economic equality is needed to improve racial equality. Economic gaps based on race have endured for 50 years, with the differences in unemployment rates between blacks and whites remaining virtually unchanged and the gap in wealth actually increasing. "If you look at 50 years after the 1960s civil rights movement, the most stubborn and persistent challenge when it comes to the nation's racial challenge remains in the areas of economics and wealth," said Marc Morial, president of the National Urban League.
Source: Zachary A. Goldfarb, "For Obama, 50 years after historic march, economic equality the path to racial justice," Washington Post, August 17, 2013.
-Refer to the Article Summary. The article mentions increased economic equality is needed in terms of wealth, and for some people this means a more equitable distribution of wealth. What is meant by a more equitable distribution of wealth?
A) a more allocatively efficient distribution of wealth
B) a more productively efficient distribution of wealth
C) a more fair distribution of wealth
D) wealth distributed based on income levels

Accepted Answer

A more equitable distribution of wealth means that wealth is distributed fairly among individuals, regardless of their race, gender, or other factors. This would reduce the economic gaps based on race and improve overall economic equality.

Question 7

Opportunity cost is defined as
A) the benefit of an activity.
B) the monetary expense associated with an activity.
C) the highest valued alternative that must be given up to engage in an activity.
D) the total value of all alternatives that must be given up to engage in an activity.

Accepted Answer

Opportunity cost is the value of the next-best alternative option that is not chosen. It represents the benefits and costs of pursuing one option versus another. Therefore, the highest valued alternative that must be given up to engage in an activity is the correct definition of opportunity cost.

Question 8

How are the fundamental economic decisions determined in Cuba?
A) Individuals, firms, and the government interact in a market to make these economic decisions.
B) These decisions are made by the country's elders who have had much experience in answering these questions.
C) The government decides because Cuba is a centrally planned economy.
D) The United Nations decides because Cuba is a developing economy.

Accepted Answer

Cuba is a centrally planned economy where the government is responsible for making fundamental economic decisions.

Question 9

Article Summary
In an August 2013 speech from the Lincoln Memorial, President Obama was expected to emphasize that increased economic equality is needed to improve racial equality. Economic gaps based on race have endured for 50 years, with the differences in unemployment rates between blacks and whites remaining virtually unchanged and the gap in wealth actually increasing. "If you look at 50 years after the 1960s civil rights movement, the most stubborn and persistent challenge when it comes to the nation's racial challenge remains in the areas of economics and wealth," said Marc Morial, president of the National Urban League.
Source: Zachary A. Goldfarb, "For Obama, 50 years after historic march, economic equality the path to racial justice," Washington Post, August 17, 2013.
-Refer to the Article Summary. The article mentions increased economic equality is needed in terms of wealth, and for some people this means a more equitable distribution of wealth. Would an equitable distribution of wealth necessarily be the most efficient distribution of wealth?
A) Yes, equitable and efficient are two different words which have the same definition.
B) Yes, in order for the distribution to be equitable, it must also be efficient.
C) No, it is impossible to have an economically efficient distribution which is also an equitable distribution.
D) No, an economically efficient distribution of wealth would not necessarily be equitable.

Accepted Answer

An economically efficient distribution of wealth may not necessarily be equitable because efficiency is concerned with maximizing the total welfare or utility, while equity is concerned with fairness in distributing the wealth. Therefore, it is possible to have a distribution of wealth that is economically efficient but not equitable.

Question 10

How does a market system prevent people from getting as many goods and services as they wish?
A) Governments interfere with the market mechanism to influence the allocation of goods and services.
B) In a market system, firms can charge any price they want, thus preventing poor people from getting as many goods and services as they wish.
C) The market system allocates goods and services to those who are able to pay for those products and therefore income is a limiting factor.
D) The government imposes taxes on those who earn beyond a certain amount of income.

Accepted Answer

In a market system, goods and services are allocated based on the ability to pay. This means that individuals who do not have enough income will not be able to purchase as many goods and services as they wish, as income is a limiting factor. While governments can influence the allocation of goods and services, taxes are not directly related to preventing people from getting as many goods and services as they wish. The ability of firms to charge any price they want may also contribute to this issue, but it is not the main reason.

Question 11

Which of the following is an example of an economic trade-off that a firm has to make?
A) whether it is cheaper to produce with more machines or with more workers
B) deciding why consumers want its products
C) whether or not consumers will buy its products
D) deciding what profit margin it desires for its products

Accepted Answer

A firm has to make a trade-off between the cost of producing with more machines or with more workers. By using machines, the production cost per unit may be lower, but the initial investment and maintenance costs may be higher. On the other hand, by using more workers, the initial investment and maintenance costs may be lower, but the production cost per unit may be higher due to the cost of labor. Therefore, a firm has to decide which option is more cost-effective based on its budget and the demand for its products.

Question 12

The town of Harmonia gives away all 500 tickets to its annual Founder's Day Free Concert-in-the-Park to local residents. Each year, more than 500 people wish to attend the concert, so some of the residents who receive the free tickets sell them for as much as $75 each. Is a transaction where someone pays a resident $75 for a "free ticket" economically efficient?
A) No, people should never be allowed to sell items they received for free.
B) Yes, it was a voluntary exchange that benefited both parties.
C) No, the buyer paid too much for the ticket.
D) Yes, it is efficient only from the perspective of the seller and not from the perspective of the buyer.

Accepted Answer

The transaction was voluntary and both parties benefited. The seller received money for an item they did not need or want, and the buyer was able to secure a ticket to the event. Although the buyer may have paid a higher price than the actual value of the ticket, the transaction was still efficient since it allowed for the allocation of resources to their highest value uses. Additionally, attempting to prevent people from selling items they received for free would be difficult to enforce and could inhibit economic activity.

Question 13

Consider the following economic agents: a. the government
B. consumers
C. producers
Who, in a modern mixed economy, decides what goods and services will be produced with the scarce resources available in that economy?
A) the government
B) producers
C) consumers
D) consumers and producers
E) the government, consumers and producers

Accepted Answer

In a modern mixed economy, the decision of what goods and services will be produced with the scarce resources available is made by a combination of the government, consumers and producers. The government establishes policies that affect the allocation of resources, producers respond to market signals and consumer demand, and consumers make choices based on their preferences and budget constraints. All three agents contribute to the overall allocation of resources in the economy.

Question 14

Every society faces economic trade-offs. This means
A) some people live better than others do.
B) not everyone can have enough goods to survive.
C) producing more of one good means less of another good can be produced.
D) society's output cannot be made available to all.

Accepted Answer

Economic trade-offs refer to the fact that producing more of one good means less of another good can be produced. This is because resources (such as time, money, and labor) are limited, so using them to produce more of one good necessarily means that there are fewer resources available to produce other goods. This is a fundamental aspect of all economic systems, and societies must make choices about how to allocate their resources to produce the goods and services that they need and want. Thus, choice C is the best answer.

Question 15

In a market economy, who decides what goods and services will be produced?
A) only the producers
B) only consumers
C) consumers and producers
D) the government

Accepted Answer

In a market economy, both consumers and producers play a role in determining what goods and services will be produced. Consumers send signals to producers about what they want through their purchasing decisions, and producers respond by supplying those goods and services that are in demand. This is how the market mechanism works to allocate resources in the most efficient manner possible. The government can also play a role by regulating certain industries or providing subsidies to specific sectors, but ultimately it is the consumers and producers who make the decisions about what gets produced.

Question 16

It is necessary for all economic systems to provide people with goods and services and also restrict them from getting as much of these goods and services as they wish, because failure to do this could ________ the efficiency of the system by producing some goods and services that are ________.
A) reduce; not as highly valued as others
B) increase; not as highly valued as others
C) reduce; valued more than others
D) increase; valued more than others

Accepted Answer

If individuals were allowed to consume as much as they wanted, there would be a shortage of certain goods and services which will lead to an increase in their prices. Consequently, only those who could afford them would have access to them. Therefore, providing too much of any good or service could reduce the efficiency of the system by producing some goods and services that are not as highly valued as others.

Question 17

The Stogie Shop, a cigar store in the mall, sells hand-rolled cigars for $10.00 and machine-made cigars for $2.50 each. What is the opportunity cost of buying a hand-rolled cigar?
A) 4 machine-made cigars
B) 1/4 of a machine-made cigar
C) $10.00
D) $2.50

Accepted Answer

The opportunity cost of buying a hand-rolled cigar is the value of the next best alternative that could have been chosen instead. In this case, the next best alternative is the machine-made cigar, which costs $2.50 each. Therefore, the opportunity cost of buying a hand-rolled cigar is $2.50. To buy a hand-rolled cigar, one has to give up the opportunity to buy a machine-made cigar for $2.50. As such, the answer is A, which represents 4 machine-made cigars.

Question 18

Who receives the goods and services produced in the United States depends largely on
A) how income is distributed.
B) how the goods and services are produced.
C) what goods and services are produced.
D) government redistribution.

Accepted Answer

The distribution of income in the United States determines who receives the goods and services produced, as those with higher incomes have more purchasing power and access to more goods and services. The other options (B, C, and D) are important factors but do not directly determine who receives the produced goods and services.

Question 19

Fast food restaurants produce a range of menu items such as hamburgers, chicken sandwiches, salads, and french fries. What fundamental economic question are they addressing by offering this range of items?
A) How to produce goods that consumers want?
B) Why produce a variety of menu items?
C) What to produce?
D) Who to produce the menu items for?

Accepted Answer

Fast food restaurants decide on the variety of menu items to offer based on consumer demand and preferences, addressing the fundamental economic question of "What to produce?" to meet market needs.

Question 20

Ted quits his $60,000-a-year job to be a stay-at-home dad. What is the opportunity cost of his decision?
A) 0 since he will no longer be earning a salary
B) depends on the "going rate" for stay-at-home dads
C) at least $60,000
D) the value he attributes to the joy of parenting

Accepted Answer

The opportunity cost of Ted's decision is the value of his next best alternative, which in this case is the salary he was earning before becoming a stay-at-home dad. Therefore, the opportunity cost is at least $60,000. Option A is incorrect because opportunity cost is not just about monetary earnings. Option B is incorrect because there is no established "going rate" for stay-at-home dads. Option D is incorrect because the joy of parenting is not an opportunity cost, but rather a benefit that Ted receives from his decision.

Quiz 1: Economics: Foundations and Models

In a market economy, those who are willing and able to buy what is produced

Trade-offs force society to make choices when answering what three fundamental questions?

Which of the following statements is false?

Which of the following is correct about the economic decisions consumers, firms, and the government have to make?

In a market economy, ________ interact in markets to decide the answers to the fundamental economic questions.

Opportunity cost is defined as

How are the fundamental economic decisions determined in Cuba?

How does a market system prevent people from getting as many goods and services as they wish?

Which of the following is an example of an economic trade-off that a firm has to make?

Consider the following economic agents: a. the government B. consumers C. producers Who, in a modern mixed economy, decides what goods and services will be produced with the scarce resources available in that economy?

Every society faces economic trade-offs. This means

In a market economy, who decides what goods and services will be produced?

It is necessary for all economic systems to provide people with goods and services and also restrict them from getting as much of these goods and services as they wish, because failure to do this could the efficiency of the system by producing some goods and services that are .

The Stogie Shop, a cigar store in the mall, sells hand-rolled cigars for $10.00 and machine-made cigars for $2.50 each. What is the opportunity cost of buying a hand-rolled cigar?

Who receives the goods and services produced in the United States depends largely on

Fast food restaurants produce a range of menu items such as hamburgers, chicken sandwiches, salads, and french fries. What fundamental economic question are they addressing by offering this range of items?

Ted quits his $60,000-a-year job to be a stay-at-home dad. What is the opportunity cost of his decision?