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.
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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.
d. a decrease in the number of visits people want to make and a decrease in the number of visits health care
providers want to provide.
ANSWER: b
78. If the government were to intervene and set a wage for unskilled labor above the market wage, then we would expect,
relative to the market outcome,
a. an increase in the number of unskilled jobs available.
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b. a decrease in the number of unskilled jobs available.
c. a decrease in the number of workers wanting unskilled jobs.
d. an increase in the number of businesses using unskilled workers.
ANSWER: b
79. When the government prevents prices from adjusting naturally to supply and demand, it
a. equates the amount buyers want to buy with the amount sellers want to sell.
b. adversely affects the allocation of resources.
c. improves equality and efficiency.
d. improves efficiency but reduces equality.
ANSWER: b
80. The ability of an individual to own and exercise control over scarce resources is called
a. market failure.
b. property rights.
c. externality.
d. market power.
ANSWER: b
81. The term used to describe a situation in which markets do not allocate resources efficiently is
a. economic meltdown.
b. market failure.
c. equilibrium.
d. the effect of the invisible hand.
ANSWER: b
82. The term market failure refers to
a. a situation in which the market on its own fails to allocate resources efficiently.
b. an unsuccessful advertising campaign which reduces demand for a product.
c. a situation in which competition among firms becomes ruthless.
d. a firm that is forced out of business because of losses.
ANSWER: a
83. Which of the following do economists not generally regard as a legitimate reason for the government to intervene in a
market?
a. To promote efficiency