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.
ANSWER: b
68. 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.
ANSWER: d
69. 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 high than when prices are low.
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.
ANSWER: d
70. 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
ANSWER: d
71. 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.
ANSWER: b
72. The "invisible hands" 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.
ANSWER: a
73. 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
ANSWER: c
74. In a market economy, economic activity is guided by
a. the government.
b. public-interest groups.
c. central planners.
d. self-interest and prices.
ANSWER: d
75. 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.
ANSWER: d
76. Prices direct economic activity in a market economy by
a. influencing the actions of buyers and sellers.
b. reducing scarcity of the goods and services produced.
c. reducing opportunity cost of goods and services produced.
d. allocating goods and services in the most equitable way.
ANSWER: a
77. If the government were to intervene in a market economy and fix the price of visiting a health care provider below the market price, then we would expect, relative to the market outcome,
a. an increase in the number of visits people want to make and an increase in the number of visits health care providers want to provide.
b. an increase in the number of visits people want to make and a decrease in the number of visits health care providers want to provide.
c. a decrease in the number of visits people want to make and an increase in the number of visits health care providers want to provide.