In an Economy in Which Decisions Are Guided by Prices

question 21

Multiple Choice

In an economy in which decisions are guided by prices and individual self-interest,there is

• A)the potential to achieve efficiency in production.
• B)a strong need for government intervention in the market.
• C)less efficiency than would be observed in a centrally-planned economy.
• D)more need for a strong legal system to control individual greed than would be needed in a centrally-planned economy.

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Definitions:

Variable Overhead

Costs that fluctuate with production volume, such as utilities or materials used in production.

Direct Labour Hours

are the hours worked by employees directly involved in the production of goods and services.

Standard Quantity

The predetermined or estimated amount of materials or inputs needed to produce a single unit of output.

Direct Materials

Basic substances that can be directly linked to the production of a particular item.