Question 1

Which of the following is assumed to be most limited in scope under a market system?

Accepted Answer

A)  entrepreneurship 
B)  self-interest 
C)  specialization 
D)  government 
A)  entrepreneurship 
B)  self-interest 
C)  specialization 
D)  government

Question 2

The term consumer sovereignty means that

Accepted Answer

A)  government is responsible for protecting consumers' interests. 
B)  what is produced is ultimately determined by what consumers buy. 
C)  there are no limits on what consumers may buy in a market system. 
D)  producers have strong control over what consumers buy. 
A)  government is responsible for protecting consumers' interests. 
B)  what is produced is ultimately determined by what consumers buy. 
C)  there are no limits on what consumers may buy in a market system. 
D)  producers have strong control over what consumers buy.

Question 3

According to the circular ﬂow model of the market system, when resource-owners' money income is
rising, then the costs to business ﬁrms that employ their resources must be falling.

Accepted Answer

A) True 
 B)False

Question 4

The distribution of income in a market system is a primary factor that resolves which of the following fundamental economic questions?

Accepted Answer

A)  What will be produced? 
B)  How will the output be produced? 
C)  How will the system accommodate change? 
D)  Who will get the output? 
A)  What will be produced? 
B)  How will the output be produced? 
C)  How will the system accommodate change? 
D)  Who will get the output?

Question 5

Which of the following is not a reason why specialization and trade are beneﬁcial to society?

Accepted Answer

A)  The total output of economic goods may be increased even without any increase in resources. 
B)  Scarce resources are utilized more eﬃciently by exploiting differences among them. 
C)  Specialization fosters learning by doing, thus lowering the unit-costs of products. 
D)  Firms and workers become less dependent on others for producing goods and services. 
A)  The total output of economic goods may be increased even without any increase in resources. 
B)  Scarce resources are utilized more eﬃciently by exploiting differences among them. 
C)  Specialization fosters learning by doing, thus lowering the unit-costs of products. 
D)  Firms and workers become less dependent on others for producing goods and services.

Question 6

The government may impose industrial safety regulations and occupational licensing requirements in which of the following economic systems?

Accepted Answer

A)  the laissez-faire economy 
B)  pure capitalism 
C)  a mixed-market economy 
D)  macroeconomic systems 
A)  the laissez-faire economy 
B)  pure capitalism 
C)  a mixed-market economy 
D)  macroeconomic systems

Question 7

Which of the following is the main problem with the barter system of exchange?

Accepted Answer

A)  It encourages self-interest. 
B)  It fosters the division of labor. 
C)  It requires a coincidence of wants. 
D)  It undermines the right to bequeath. 
A)  It encourages self-interest. 
B)  It fosters the division of labor. 
C)  It requires a coincidence of wants. 
D)  It undermines the right to bequeath.

Question 8

Which of the following statements about self-interest in a market system is false?

Accepted Answer

A)  Self-interest usually motivates an individual to deliver something of value to others. 
B)  Self-interest of entrepreneurs implies seeking maximum proﬁts or minimum losses. 
C)  Self-interest applies only to capitalists and entrepreneurs, not to workers employed by others. 
D)  In a market system, consumers are just like ﬁrms: self-interest is what motivates them. 
A)  Self-interest usually motivates an individual to deliver something of value to others. 
B)  Self-interest of entrepreneurs implies seeking maximum proﬁts or minimum losses. 
C)  Self-interest applies only to capitalists and entrepreneurs, not to workers employed by others. 
D)  In a market system, consumers are just like ﬁrms: self-interest is what motivates them.

Question 9

In a market system, which of the following is a major beneﬁt of making the ﬁrm's owners and investors exclusively shoulder the business risk?

Accepted Answer

A)  Those who deeply dislike business risk will not have anything to do with the business. 
B)  This allows ﬁrms to more easily attract labor and other suppliers of inputs. 
C)  This reduces the business risk in the economy. 
D)  It makes it easier for the government to monitor and manage the business risk. 
A)  Those who deeply dislike business risk will not have anything to do with the business. 
B)  This allows ﬁrms to more easily attract labor and other suppliers of inputs. 
C)  This reduces the business risk in the economy. 
D)  It makes it easier for the government to monitor and manage the business risk.

Question 10

The market system's answer to the fundamental question "Who will get the goods and services?" is essentially

Accepted Answer

A)  "Those most willing and able to pay for them." 
B)  "Those who physically produced them." 
C)  "Those who most need them." 
D)  "Those who get utility from them." 
A)  "Those most willing and able to pay for them." 
B)  "Those who physically produced them." 
C)  "Those who most need them." 
D)  "Those who get utility from them."

Question 11

The production technique that is most eﬃcient is the one that produces a given amount of output

Accepted Answer

A)  using the least amount of labor resources. 
B)  at the highest price per unit. 
C)  at the lowest cost per unit. 
D)  that yields the highest revenues. 
A)  using the least amount of labor resources. 
B)  at the highest price per unit. 
C)  at the lowest cost per unit. 
D)  that yields the highest revenues.

Question 12

The development of the digital video camera, which replaced ﬁlm video cameras, is an example of

Accepted Answer

A)  roundabout production. 
B)  derived demand. 
C)  creative destruction. 
D)  specialization. 
A)  roundabout production. 
B)  derived demand. 
C)  creative destruction. 
D)  specialization.

Question 13

The term "laissez-faire" suggests that

Accepted Answer

A)  land and other natural resources should be privately owned, but capital should be publicly owned. 
B)  land and other natural resources should be publicly owned, but capital should be privately owned. 
C)  government should not interfere with the operation of the economy. 
D)  government action is absolutely necessary if the economy is to achieve full employment and full production. 
A)  land and other natural resources should be privately owned, but capital should be publicly owned. 
B)  land and other natural resources should be publicly owned, but capital should be privately owned. 
C)  government should not interfere with the operation of the economy. 
D)  government action is absolutely necessary if the economy is to achieve full employment and full production.

Question 14

Selﬁshness and self-interest are identical concepts in economics.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following is a fundamental characteristic of the market system?

Accepted Answer

A)  property rights 
B)  central planning by government 
C)  unselﬁsh behavior 
D)  government-set wages and prices 
A)  property rights 
B)  central planning by government 
C)  unselﬁsh behavior 
D)  government-set wages and prices

Question 16

Which is one of the ﬁve fundamental questions that need to be dealt with in any economic system?

Accepted Answer

A)  What makes the rate of unemployment low? 
B)  Who will be the richest group in the economy? 
C)  How will goods and services be produced? 
D)  How high should the prices of goods and services be? 
A)  What makes the rate of unemployment low? 
B)  Who will be the richest group in the economy? 
C)  How will goods and services be produced? 
D)  How high should the prices of goods and services be?

Question 17

Refer to the diagram. Flow 2 represents

Accepted Answer

A)  wage, rent, interest, and proﬁt income. 
B)  land, labor, capital, and entrepreneurial ability. 
C)  goods and services. 
D)  consumer expenditures. 
A)  wage, rent, interest, and proﬁt income. 
B)  land, labor, capital, and entrepreneurial ability. 
C)  goods and services. 
D)  consumer expenditures.

Question 18

Consumers express self-interest when they

Accepted Answer

A)  seek the lowest price for a product. 
B)  reduce business losses. 
C)  collect economic proﬁts. 
D)  exclude others in their thinking. 
A)  seek the lowest price for a product. 
B)  reduce business losses. 
C)  collect economic proﬁts. 
D)  exclude others in their thinking.

Question 19

A market system tends to restrict business risk to owners and investors. This results in which of the following beneﬁts?

Accepted Answer

A)  a more stable macroeconomy with fewer recessions 
B)  Firms are better able to attract inputs, as these inputs do not have to share the risk. 
C)  Government agencies are better prepared to help when businesses fail. 
D)  consistently lower prices for consumers 
A)  a more stable macroeconomy with fewer recessions 
B)  Firms are better able to attract inputs, as these inputs do not have to share the risk. 
C)  Government agencies are better prepared to help when businesses fail. 
D)  consistently lower prices for consumers

Question 20

In analyzing a market system, economists often assume that ﬁrms will choose the production techniques
that will give them maximum revenues.

Accepted Answer

A) True 
 B)False

Exam 2: The Market System and the Circular Flow

Which of the following is assumed to be most limited in scope under a market system?

The term consumer sovereignty means that

According to the circular ﬂow model of the market system, when resource-owners' money income is rising, then the costs to business ﬁrms that employ their resources must be falling.

The distribution of income in a market system is a primary factor that resolves which of the following fundamental economic questions?

Which of the following is not a reason why specialization and trade are beneﬁcial to society?

The government may impose industrial safety regulations and occupational licensing requirements in which of the following economic systems?

Which of the following is the main problem with the barter system of exchange?

Which of the following statements about self-interest in a market system is false?

In a market system, which of the following is a major beneﬁt of making the ﬁrm's owners and investors exclusively shoulder the business risk?

The market system's answer to the fundamental question "Who will get the goods and services?" is essentially

The production technique that is most eﬃcient is the one that produces a given amount of output

The development of the digital video camera, which replaced ﬁlm video cameras, is an example of

The term "laissez-faire" suggests that

Selﬁshness and self-interest are identical concepts in economics.

Which of the following is a fundamental characteristic of the market system?

Which is one of the ﬁve fundamental questions that need to be dealt with in any economic system?

Refer to the diagram. Flow 2 represents

Consumers express self-interest when they

A market system tends to restrict business risk to owners and investors. This results in which of the following beneﬁts?

In analyzing a market system, economists often assume that ﬁrms will choose the production techniques that will give them maximum revenues.

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

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