1) Which of the following roles of the government is most fundamental to a society’s ability to function safely and carry on normal economic and social life?
A) provider of health care
B) provider of education
C) provider of a justice system
D) holder of a monopoly of violence
E) regulator of free markets
2) The concept of “institution building” is becoming more prominent. Which of the following best describes the aim of institution building?
A) In Canada, for example, the strengthening of existing financial institutions is key to the country’s economic well-being.
B) Canada’s aid to developing countries is being focused on creating the economic institutions, such as a central bank, that are key to a country’s economic growth.
C) The rich, developed countries focus their assistance to developing countries on creating stable political infrastructures.
D) The rich, developed countries focus on the success of institutions that are global in nature, such as the United Nations, The World Bank and the International Monetary Fund.
3) Which of the following statements about free-market economies is false?
A) An efficiently functioning market economy will correct temporary shortages and surpluses.
B) Markets tend to be impersonal and to decentralize economic power.
C) The government has a role to play in correcting market failures.
D) In a free-market economy there is no role for government intervention.
E) The existence of profits and losses provides signals to other economic agents.
4) The essential coordinating mechanism of a free-market economy is
A) allocative efficiency.
B) productive efficiency.
C) profit maximization.
D) the price system.
E) opportunity cost.
5) The “formal defence” of free markets includes the argument that competitive markets
A) lead to allocative efficiency.
B) provide automatic coordination of the actions of decentralized decision makers.
C) provide a stimulus to innovation and economic growth because of the pursuit of profits.
D) permit a decentralization of economic power.
E) lead to political freedom.
6) The “informal defence” of free markets includes the argument that markets
A) provide automatic coordination of the actions of decentralized decision makers.
B) achieve the maximum feasible rate of economic growth.
C) lead to allocative efficiency.
D) permit a centralization of economic power.
E) lead to productive efficiency.
7) The “informal defence” of free markets includes the argument that competitive markets
1) lead to allocative efficiency;
2) provide automatic coordination of the actions of decentralized decision makers;
3) provide a stimulus to innovation and economic growth because of the pursuit of profits.
A) 1 only
B) 2 only
C) 3 only
D) 1 and 2
E) 2 and 3
8) Which of the following statements about market economies is true?
A) Most present-day economists advocate extensive government intervention in most parts of market economies.
B) Externalities make free-market outcomes socially efficient.
C) An important characteristic of the market system is its ability to set in motion forces that tend to correct disequilibrium.
D) Market failure means that a market economy is incapable of satisfying human wants.
E) Pure market economies provide the best social outcome.
9) In a competitive market economy with no externalities, allocative efficiency would exist if
A) prices equal total cost in all markets.
B) prices equal marginal revenue in all markets.
C) prices equal marginal costs in all markets.
D) prices equal average variable cost in all markets.
E) stringent government intervention exists.
10) Economic losses in an industry are a signal that
A) too few resources are allocated to the industry.
B) all of the firms should leave the industry.
C) a government subsidy is necessary.
D) will lead resources to leave the industry (until the losses disappear).
E) the economy is in a recession.
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