1. Subsidizing failing firms is a necessary condition for the process of creative destruction.

a. True

b. False

2. In a prosperous market economy, one would expect

a. High levels of economic freedom

b. Enforcement of property rights.

c. A legal and regulatory environment that is nonexistent

d. Both a) and b) are correct.

3. If you were a manager of a Soviet firm, your main goal would be to

a. Satisfy consumer demand.

b. Meet the production target.

c. Use marginal analysis so that the marginal benefits of the last good produced is equal to the marginal cost.

d. Both b) and c) are correct.

4. In class we talked about the former Civil Aeronautics Board (CAB) and how it protected the airlines from competition instead its supposed purpose to protect the general public. This can best be described as

a. Informational problems.

b. Cost of complying with government bureaucracy.

c. Kieptocracy.

d. Regulatory capture.