Question : 11) If typical firms in a competitive industry earning economic : 1384306

11) If typical firms in a competitive industry are earning economic profits, the industry

A) is in a long-run equilibrium.

B) has too many resources allocated to it.

C) must be experiencing an increase in monopoly power

D) can be expected to experience the entry of new firms.

E) is allocatively efficient.

12) Which of the following statements about the price system is most accurate? The price system

A) is automatic and functions perfectly in reallocating economic resources.

B) is automatic, although it does not function perfectly.

C) depends on planned coordination between firms and governments.

D) operates only in a laissez-faire economy.

E) is the only feasible method of allocating resources.

13) Economists describe prices as “signals” in a market economy because

A) prices are the only mechanism through which supply and demand will balance.

B) changes in these signals bring about changes in economic behaviour.

C) changes in these signals bring about changes in market structure.

D) they tell consumers how to act to keep the market system functioning well.

E) they tell government agents how to act to keep the market system functioning well.

14) One part of the “informal defence” of the market system is the argument, made forcefully by the late Milton Friedman, that free markets provide for the

A) greatest equality in income distribution.

B) decentralization of economic power.

C) greatest security for members of society.

D) government with the highest tax revenues.

E) greatest scope for international trade.

15) Profit-motivated product and process innovation is primarily a characteristic of ________ systems.

A) market

B) centrally planned

C) oligopolistic

D) socialist

E) monopolistic

16) In a free-market economy,

A) temporary shortages and surpluses become permanent.

B) economic power is centralized.

C) market failures are automatically corrected.

D) there is no role for government intervention.

E) the existence of profits and losses provide signals to other economic agents.

17) When prices are determined in a free-market system

A) changes in the economy can be foreseen by officials.

B) resources are allocated without conscious central coordination.

C) firms respond to changes in the economy mainly by altering the wage rate.

D) demand shifts, caused by price changes, coordinate all necessary changes in the economy.

E) supply shifts, caused by price changes, coordinate all necessary changes in the economy.

18) In a free-market economy that is continually adjusting toward equilibrium, a primary force driving this adjustment is

A) opportunity costs.

B) diminishing returns.

C) the pursuit of allocative efficiency.

D) the scarcity of resources.

E) the pursuit of profits.

19) In a free-market system, a disequilibrium in one market

A) provides evidence that the market system does not work.

B) shows that government intervention is always necessary to restore the market to equilibrium.

C) suggests that no seller or buyer has an incentive to alter his or her behaviour.

D) produces forces that eventually bring that market back to equilibrium.

E) means that the economy will fall into chaos.

20) Economists use the term “market failure” to refer to those free-market situations where

A) income is not distributed equitably.

B) allocatively efficient outcomes are not achieved.

C) externalities are present in the economy.

D) the economy is not in equilibrium.

E) government has intervened in the economy.