Question

In a free enterprise economy, if one firm out of many producing the same product uses a combination or resources that leads to inefficient production then?

A. The firm will be forced to make resource owners accept lower payments for their resources so the firm can remain in business.

B. Consumers will complain until the firm changes to the least-costly combination of resources.

C. Consumers will refuse to buy from the high-cost producer and the firm will have to change its production processes or go out of business.

D. The government will force the firm to alter its production process so that is, too, will produce efficiently.

An opportunity must exist for both the buyer and the seller to be better off after a transaction between them has occurred otherwise no exchange will occur. Which of the following characteristics of free enterprise is described BEST by the previous statement?

A. Competition.

B. Cooperation.

C. Limited role of government.

D. Private property rights.

Which of the following is a flaw of market capitalism?

A. Massive inefficiency results due to the lack of technological and organizational knowledge needed to plan an economy.  

B. Individuals have very limited opportunities to make choices.

C. The preferences of consumers are ignored so that resources can be allocated by a select few who have a better understanding of economics.  

D. None of these describe a flaw of capitalism.

Answer 1

1.
When a firm produces particular output at higher rates or could produce more output at the same cost, then such a situation is called inefficiency.  

As it is given in the question that is a free market enterprise economy. The most appropriate answer would be :
C. Consumers will refuse to buy from the high-cost producer and the firm will have to change its production processes or go out of business.

In a free-market economy there is no or rather very less scope for governments interference, hence this automatically cancelled the option d.

And in the above case scenario consumer will not bother about complaining rather will go for other products available in a free-market economy. So this also wrongs option B.

In the case of option A, a firm can't force resource owners to make lower payments because it's against the law. Hence option A is also not true.

2.
A situation when both buyer and seller can be better off after a transaction is possible in a free-market economy.
And the limited government is characteristic of the free-market economy where buyer and seller make their transaction without the interference of any third party to better off each other's positions, hence option C: Limited Government is the correct option.

3.  
In this question, the correct option is D because none of the above options is flaws of capitalism. Let's examine each one by one :

A. Many discoveries in science and management have made it possible for capitalism to sustain Hence given statement is not true to reality.

In the free market actually, indivisibles have many choices to make given the text that they have purchasing capacity. Hence options B and C are not appropriate.