10. The US economy is called a \"mixed economy\" because (a) the output of the e
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10. The US economy is called a "mixed economy" because (a) the output of the economy is evenly "mixed between public goods and private goods (b) a large percentage of US companies have "mixed" ownership-half government ownership and half private ownership (c) resources are largely privately owned but resource use is largely regulated by government (d) all of the above 11. Which of the following is a "failure" of the market system (a) the production of some goods impose costs on individuals other than the producers and buyers of those goods (b) certain goods won't be produced because there is no way of excluding "free-riders" (c) certain beneficial goods are under-produced while certain harmful goods are over-produced Dall of the above 12. Adam Smith's characteristics of pure capitalism failed to take into account (a) the existence of natural monopolies (b) the "free-rider problem (c) the charitable motives of consumers and business firms (d) all of the above 13. The reason that "there ain't no such thing as a free lunch" in economics is marginal cost are used (c) the factors of production are scarce in all economies and therefore are expensive (d) normative economics allows us to make value judgments about how resources should be used always equals marginal utility (b) opportunity cost is involved whenever resources 14. Adam Smith's concept of"laissez-faire" was that the government should "leave" entrepreneurs "alone" to decide how resources are used, but the government should serve as a referee in determining which entrepreneur gets to use which resource. 15. In a market economy, consumers ultimately determine what is produced and how resources are used according to the concept of (a) the invisible hand (b) consumer sovereignty (c) laissez- faire (d) market competition The next five questions are based on the production possibilities curve model below for the Country Alpha - Cars compurters I2- iaExplanation / Answer
10. The US economy is called a "mixed economy" because the output of the economy is evenly "mixed" between public goods and private goods. Reason: The Mixed economy is the one where privately owned companies and government companies both play a significant role so the output in the economy is evenly mixed amongst public companies and privately owned companies. It does not mean that the companies are owned evenly owned by the private companies and government. Also, in mixed economies, what, how and for whom to produce is partly determined by the government and party by the private sector.
11. Which of the following is a "failure" of the market system? Answer: All of the options given. Reason: Market failure is a situation where there is an inefficient allocation of goods and services in a free market. The production of some goods impose costs on individuals other than individuals and buyers is a market failure of negative externalities where the consumers and producers fail to take into account the effects of their actions on the third-parties. Free rider problem occurs when individuals take advantage of a shared common resource by utilizing higher share of the resource than others without paying for it. Market failure also caused by incomplete markets where markets fail to produce enough merit goods and due to de-merit goods where markets fail to control manufacture of dangerous and harmful goods.
12. Adam Smith’s characteristics of pure capitalism failed to take into account all of the above options. Reason: According to pure capitalism theory the demand and supply are plays important roles in order to achieve the efficient level of production, and distribution of the good and services in the economy. Therefore, because of the price mechanism the theory did not account for existence of natural monopolies. Since because of price mechanism of demand and supply forces, the market would correct itself, the theory did not account for market failure due to inefficient allocation and therefore, failed to account for the free rider problem. Also, the consumers and producers in such a capitalism will try to maximize their self-interest through the exchange of goods and services thus, not accounting their charitable motives.
13. The reason that there is no such thing as free lunch in economics is because opportunity cost is involved whenever resources are used. Reason: Opportunity cost means is one must give up something because some other thing is initially purchased at a price. Thus, resources used have opportunity cost meaning that individuals have the cost of giving up some resources because of purchasing or choosing some other resources and therefore, it implies that there is no free lunch and that everything has a cost involved.
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