Question

5.   A friend of yours asks you why market prices are better than government-determined prices. What do you say?

a.	because they generally reflect the value of a good to society, but not the cost of making it
b.	because they generally reflect the cost to society of making a good, but not its value
c.	because they generally reflect both the value of a good to society and the cost of making it
d.	because they generally reflect neither the value of a good to society nor the cost of making it

____    6.   How does the invisible hand direct economic activity?

a.	through advertising
b.	through prices
c.	through central planning
d.	through government regulations

____    7.   What is a primary function of prices in a market economy?

a.	to provide participants with economic information
b.	to provide participants with spending limits
c.	to provide participants with accounting capabilities
d.	to provide participants with an equitable distribution of goods

____    8.   Which of these consumption activities will most likely impose an external cost?

a.	An executive plays a vigorous game of golf.
b.	A student in a dorm plays her CDs at 120 decibels late at night.
c.	A young mother exercises to an aerobics video.
d.	A construction worker eats a sandwich during his lunch break.

____    9.   A typical worker in Italy can produce 24 units of product in an eight-hour day, where a typical worker in Poland produces 25 units of product in a ten-hour day. What can we conclude?

a.	Worker productivity in Poland is higher than in Italy.
b.	The standard of living will be higher in Italy than in Poland.
c.	Productivity for the Polish worker is 3 units per hour and 2.5 units per hour for the Italian worker.
d.	There will be no difference between the standard of living in Italy and Poland.

Answer 1

5) The answer is C

If a friend of mine asks me why market prices are better than government determined prices. Then i will say that market determined prices are better than government determined price because they generally reflect both the value of a good to society and the cost of making it.

2) the answer is B

The prices are the instruments which are used by invisible hand to direct the economy.

3) The answer is D

Price of goods plays an important role in determining an equitable distribution of resources in a market system.

4) the answer is B

120 decibel music will disturb the neighbors and their sleep.