Question 1

Which of the following best describes the "invisible hand" concept?

Accepted Answer

A)  Ample regulation of business by the government will maximize the public's best interests. 
B)  The market system works best when resources are free to move from one use to another. 
C)  The problem of scarcity can best be overcome in a system of mixed capitalism. 
D)  Self-interest in a market system will automatically promote the public interest as well. 
A)  Ample regulation of business by the government will maximize the public's best interests. 
B)  The market system works best when resources are free to move from one use to another. 
C)  The problem of scarcity can best be overcome in a system of mixed capitalism. 
D)  Self-interest in a market system will automatically promote the public interest as well.

Question 2

The most eﬃcient combination of resources in producing a given output is the combination that

Accepted Answer

A)  comes closest to using the same quantities of land, labor, capital, and entrepreneurial ability. 
B)  minimizes the cost per unit of output. 
C)  uses the smallest total quantity of all resources. 
D)  conserves most on the use of labor. 
A)  comes closest to using the same quantities of land, labor, capital, and entrepreneurial ability. 
B)  minimizes the cost per unit of output. 
C)  uses the smallest total quantity of all resources. 
D)  conserves most on the use of labor.

Question 3

Competition is more likely to exist when

Accepted Answer

A)  there is easy entry into and exit out of industries. 
B)  a government-issued license is required to set up a ﬁrm in an industry. 
C)  the government purchases most goods and services. 
D)  economic power is concentrated among a few large ﬁrms. 
A)  there is easy entry into and exit out of industries. 
B)  a government-issued license is required to set up a ﬁrm in an industry. 
C)  the government purchases most goods and services. 
D)  economic power is concentrated among a few large ﬁrms.

Question 4

Explain what is meant by a command economy.

Accepted Answer

A method of organizing an economy in whi

Question 5

Adam Smith in his 1776 book the Wealth of Nations describes the concept of "an invisible hand." Explain
what he means by an "invisible hand."

Accepted Answer

Firms and resource suppliers, seeking to

Question 6

In a market system, the "What will be produced?" question is ultimately decided by

Accepted Answer

A)  proﬁtability of products. 
B)  costs of production. 
C)  workers in the ﬁrms. 
D)  industry analysts. 
A)  proﬁtability of products. 
B)  costs of production. 
C)  workers in the ﬁrms. 
D)  industry analysts.

Question 7

Suppose a ?rm can produce 70 units of a product, Zenia, by combining labor, land, capital, and entrepreneurial ability, as in the four alternative techniques shown in the table below. Assume further
That the ?rm can hire labor at $3 per unit, land at $3 per unit, capital at $6 per unit, and entrepreneurship
At $9 per unit.
$~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~Techniques $
$\begin{array} { | l | c | c | c | c | } 
\hline & A & B & C & D \
\hline \text { Labor } & 4 & 10 & 6 & 5 \
\hline \text { Land } & 5 & 3 & 3 & 3 \
\hline \text { Capital } & 5 & 2 & 4 & 4 \
\hline \text { Entrepreneurship } & 1 & 1 & 1 & 1 \
\hline
\end{array}$ Refer to the provided table. If the price of labor declines from $3 to $2 per unit, then what is the least
Costly way of producing Zenias?

Accepted Answer

A)  A 
B)  B 
C)  C 
D)  D 
A)  A 
B)  B 
C)  C 
D)  D

Question 8

Firms are motivated to minimize production costs because

Accepted Answer

A)  it is the most environmentally friendly way to produce goods. 
B)  least-cost production techniques use the smallest total quantity of resources. 
C)  competitive pressures in the market will drive out higher-cost producers. 
D)  the government provides tax credits and subsidies to low-cost producers. 
A)  it is the most environmentally friendly way to produce goods. 
B)  least-cost production techniques use the smallest total quantity of resources. 
C)  competitive pressures in the market will drive out higher-cost producers. 
D)  the government provides tax credits and subsidies to low-cost producers.

Question 9

The term dollar votes in a market system means

Accepted Answer

A)  inﬂation will occur if consumers don't spend wisely. 
B)  voters may be offered dollars to help elect certain political candidates. 
C)  government is responsible for determining what will be considered legal tender. 
D)  consumers "vote" for certain products to be produced by how they spend their incomes. 
A)  inﬂation will occur if consumers don't spend wisely. 
B)  voters may be offered dollars to help elect certain political candidates. 
C)  government is responsible for determining what will be considered legal tender. 
D)  consumers "vote" for certain products to be produced by how they spend their incomes.

Question 10

A market system is characterized by the private ownership of resources and the use of prices to
coordinate economic activity.

Accepted Answer

A) True 
 B)False

Question 11

The main mechanism that regulates the market system is

Accepted Answer

A)  self-interest. 
B)  private property. 
C)  competition. 
D)  freedom of enterprise and choice. 
A)  self-interest. 
B)  private property. 
C)  competition. 
D)  freedom of enterprise and choice.

Question 12

A fundamental difference between the command system and laissez-faire capitalism is that, in command systems,

Accepted Answer

A)  the division of output is decided by central planning rather than by individuals operating freely through markets. 
B)  all economic decisions are made by the government, whereas there is no government in laissez-faire capitalism. 
C)  scarcity does not exist, whereas it does in laissez-faire capitalism. 
D)  money is not used, whereas it is in laissez-faire capitalism. 
A)  the division of output is decided by central planning rather than by individuals operating freely through markets. 
B)  all economic decisions are made by the government, whereas there is no government in laissez-faire capitalism. 
C)  scarcity does not exist, whereas it does in laissez-faire capitalism. 
D)  money is not used, whereas it is in laissez-faire capitalism.

Question 13

In the circular ﬂow diagram, households get their ability to pay for their consumption expenditures from the

Accepted Answer

A)  revenues they receive for their products. 
B)  costs they incur for resources. 
C)  incomes they earn for their resources. 
D)  goods and services they get in the product markets. 
A)  revenues they receive for their products. 
B)  costs they incur for resources. 
C)  incomes they earn for their resources. 
D)  goods and services they get in the product markets.

Question 14

In a market economy, the distribution of output will be determined primarily by

Accepted Answer

A)  consumer needs and preferences. 
B)  the quantities and prices of the resources that households supply. 
C)  government regulations that provide a minimum income for all. 
D)  a social consensus as to which distribution of income is most equitable. 
A)  consumer needs and preferences. 
B)  the quantities and prices of the resources that households supply. 
C)  government regulations that provide a minimum income for all. 
D)  a social consensus as to which distribution of income is most equitable.

Question 15

Which of the following is true of an economy that operates entirely through central planning?

Accepted Answer

A)  An individual's success in business is based on political savvy rather than economic proﬁtability. 
B)  There is relative ease in matching resource allocation to consumer demand by the central planners. 
C)  Central planners receive market information and coordinate economic activity through the price mechanism. 
D)  The system adapts easily to technological change, because there is a healthy entrepreneurial spirit. 
A)  An individual's success in business is based on political savvy rather than economic proﬁtability. 
B)  There is relative ease in matching resource allocation to consumer demand by the central planners. 
C)  Central planners receive market information and coordinate economic activity through the price mechanism. 
D)  The system adapts easily to technological change, because there is a healthy entrepreneurial spirit.

Question 16

What are the two main problems that have caused the demise of the command systems?

Accepted Answer

The ﬁrst diﬃculty was the coordination p

Question 17

Businesses seeking higher proﬁts and resource suppliers seeking higher incomes lead to changes in the allocation of resources among different ﬁrms and end up with

Accepted Answer

A)  consumers at the losing end. 
B)  output that society wants. 
C)  unnecessary conﬂict and turmoil. 
D)  a need for government action. 
A)  consumers at the losing end. 
B)  output that society wants. 
C)  unnecessary conﬂict and turmoil. 
D)  a need for government action.

Question 18

In a market system, entrepreneurs start businesses in order to earn a high salary.

Accepted Answer

A) True 
 B)False

Question 19

Specialization in production is important primarily because it

Accepted Answer

A)  results in greater total output. 
B)  allows society to avoid the coincidence-of-wants problem. 
C)  allows society to trade by barter. 
D)  allows society to have fewer capital goods. 
A)  results in greater total output. 
B)  allows society to avoid the coincidence-of-wants problem. 
C)  allows society to trade by barter. 
D)  allows society to have fewer capital goods.

Question 20

An economic system in which money is not used as a medium of exchange is a

Accepted Answer

A)  planned economy. 
B)  market economy. 
C)  mixed economy. 
D)  barter economy. 
A)  planned economy. 
B)  market economy. 
C)  mixed economy. 
D)  barter economy.

Which of the following best describes the "invisible hand" concept?

The most eﬃcient combination of resources in producing a given output is the combination that

Competition is more likely to exist when

Explain what is meant by a command economy.

Adam Smith in his 1776 book the Wealth of Nations describes the concept of "an invisible hand." Explain what he means by an "invisible hand."

In a market system, the "What will be produced?" question is ultimately decided by

Firms are motivated to minimize production costs because

The term dollar votes in a market system means

A market system is characterized by the private ownership of resources and the use of prices to coordinate economic activity.

The main mechanism that regulates the market system is

A fundamental difference between the command system and laissez-faire capitalism is that, in command systems,

In the circular ﬂow diagram, households get their ability to pay for their consumption expenditures from the

In a market economy, the distribution of output will be determined primarily by

Which of the following is true of an economy that operates entirely through central planning?

What are the two main problems that have caused the demise of the command systems?

Businesses seeking higher proﬁts and resource suppliers seeking higher incomes lead to changes in the allocation of resources among different ﬁrms and end up with

In a market system, entrepreneurs start businesses in order to earn a high salary.

Specialization in production is important primarily because it

An economic system in which money is not used as a medium of exchange is a

Demand, Supply, and Market Equilibrium

Market Failures Caused by Externalities Asymmetric Information

Public Goods, Public Choice, and Government Failure

An Introduction to Macroeconomics

Measuring Domestic Output and National Income

Economic Growth

Business Cycles, Unemployment, and Inflation

Basic Macroeconomic Relationships

The Aggregate Expenditures Model

Aggregate Demand and Aggregate Supply

Fiscal Policy, Deficits, and Debt

Money, Banking, and Financial Institutions

Money Creation

Interest Rates and Monetary Policy

Financial Economics

Extending the Analysis of Aggregate Supply

Current Issues in Macro Theory and Policy

International Trade

The Balance of Payments, Exchange Rates, and Trade Deficits

The Economics of Developing Countries

Filters

Exam 2: The Market System and the Circular Flow

Which of the following best describes the "invisible hand" concept?

The most eﬃcient combination of resources in producing a given output is the combination that

Competition is more likely to exist when

Explain what is meant by a command economy.

Adam Smith in his 1776 book the Wealth of Nations describes the concept of "an invisible hand." Explain what he means by an "invisible hand."

In a market system, the "What will be produced?" question is ultimately decided by

Firms are motivated to minimize production costs because

The term dollar votes in a market system means

A market system is characterized by the private ownership of resources and the use of prices to coordinate economic activity.

The main mechanism that regulates the market system is

A fundamental difference between the command system and laissez-faire capitalism is that, in command systems,

In the circular ﬂow diagram, households get their ability to pay for their consumption expenditures from the

In a market economy, the distribution of output will be determined primarily by

Which of the following is true of an economy that operates entirely through central planning?

What are the two main problems that have caused the demise of the command systems?

Businesses seeking higher proﬁts and resource suppliers seeking higher incomes lead to changes in the allocation of resources among different ﬁrms and end up with

In a market system, entrepreneurs start businesses in order to earn a high salary.

Specialization in production is important primarily because it

An economic system in which money is not used as a medium of exchange is a

Demand, Supply, and Market Equilibrium

Market Failures Caused by Externalities Asymmetric Information

Public Goods, Public Choice, and Government Failure

An Introduction to Macroeconomics

Measuring Domestic Output and National Income

Economic Growth

Business Cycles, Unemployment, and Inflation

Basic Macroeconomic Relationships

The Aggregate Expenditures Model

Aggregate Demand and Aggregate Supply

Fiscal Policy, Deficits, and Debt

Money, Banking, and Financial Institutions

Money Creation

Interest Rates and Monetary Policy

Financial Economics

Extending the Analysis of Aggregate Supply

Current Issues in Macro Theory and Policy

International Trade

The Balance of Payments, Exchange Rates, and Trade Deficits

The Economics of Developing Countries

Filters