Question 1

Which of the following is not one of the ﬁve fundamental questions?

Accepted Answer

A)  What prices will be charged for goods and services? 
B)  Who will get the goods and services? 
C)  What goods and services will be produced? 
D)  How will the system promote progress? 
A)  What prices will be charged for goods and services? 
B)  Who will get the goods and services? 
C)  What goods and services will be produced? 
D)  How will the system promote progress?

Question 2

Property rights are important because they

Accepted Answer

A)  ensure an equal distribution of income. 
B)  encourage cooperation by improving the chances of mutually agreeable transactions. 
C)  guarantee that any exchange will make all parties better off than prior to the exchange. 
D)  allow the government to control how resources are allocated. 
A)  ensure an equal distribution of income. 
B)  encourage cooperation by improving the chances of mutually agreeable transactions. 
C)  guarantee that any exchange will make all parties better off than prior to the exchange. 
D)  allow the government to control how resources are allocated.

Question 3

The government may not implement policies intended to redistribute income in which of the following economic systems?

Accepted Answer

A)  laissez-faire capitalism 
B)  command systems 
C)  a mixed economy 
D)  the market system 
A)  laissez-faire capitalism 
B)  command systems 
C)  a mixed economy 
D)  the market system

Question 4

In a capitalist system, the decisions and actions of millions of consumers and ﬁrms are highly coordinated by

Accepted Answer

A)  the state governments. 
B)  markets and prices. 
C)  a central planning agency. 
D)  an international organization. 
A)  the state governments. 
B)  markets and prices. 
C)  a central planning agency. 
D)  an international organization.

Question 5

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

Accepted Answer

A)  It encourages more people to become entrepreneurs. 
B)  Firms have to pay more to attract inputs, as these inputs have to share the risk. 
C)  Firms focus attention on prudent risk management, as it is proﬁtable to manage risk. 
D)  Income becomes more equally distributed. 
A)  It encourages more people to become entrepreneurs. 
B)  Firms have to pay more to attract inputs, as these inputs have to share the risk. 
C)  Firms focus attention on prudent risk management, as it is proﬁtable to manage risk. 
D)  Income becomes more equally distributed.

Question 6

The dollar votes of consumers ultimately determine the composition of output and the allocation of resources in a market economy. This statement best describes the concept of

Accepted Answer

A)  derived demand. 
B)  consumer sovereignty. 
C)  the invisible hand. 
D)  market failure. 
A)  derived demand. 
B)  consumer sovereignty. 
C)  the invisible hand. 
D)  market failure.

Question 7

The market system's answer to the fundamental question "What will be produced?" is essentially

Accepted Answer

A)  "Goods and services that are proﬁtable." 
B)  "Low-cost goods and services." 
C)  "Goods and services that can be produced using large amounts of capital." 
D)  "Goods and services that possess lasting value." 
A)  "Goods and services that are proﬁtable." 
B)  "Low-cost goods and services." 
C)  "Goods and services that can be produced using large amounts of capital." 
D)  "Goods and services that possess lasting value."

Question 8

Market economies use capital goods because they improve productive eﬃciency.

Accepted Answer

A) True 
 B)False

Question 9

Deﬁne the term economic system. Discuss the two ways in which economic systems can differ.

Accepted Answer

An economic system is a particular set o

Question 10

According to the circular ﬂow model, product markets are where

Accepted Answer

A)  households earn their money incomes. 
B)  households acquire economic resources from businesses. 
C)  businesses acquire their inputs from households. 
D)  businesses earn their revenues from households. 
A)  households earn their money incomes. 
B)  households acquire economic resources from businesses. 
C)  businesses acquire their inputs from households. 
D)  businesses earn their revenues from households.

Question 11

Which of the following is one of the Five Fundamental Questions?

Accepted Answer

A)  Which products will be in scarce supply and which in excess supply? 
B)  Who should appoint the head of the central bank? 
C)  How much should society save? 
D)  What goods and services will be produced? 
A)  Which products will be in scarce supply and which in excess supply? 
B)  Who should appoint the head of the central bank? 
C)  How much should society save? 
D)  What goods and services will be produced?

Question 12

The wants of consumers are expressed in the product market with "dollar votes."

Accepted Answer

A) True 
 B)False

Question 13

(Consider This) Without government subsidized property insurance, people are more likely to be
cognizant of the risks of building and living in ﬁre-prone or ﬂood-prone areas because their insurance
costs will be higher.

Accepted Answer

A) True 
 B)False

Question 14

Refer to the diagram. Arrows (1) and (2) represent

Accepted Answer

A)  goods and resources, respectively. 
B)  money incomes and output, respectively. 
C)  output and money incomes, respectively. 
D)  resources and goods, respectively. 
A)  goods and resources, respectively. 
B)  money incomes and output, respectively. 
C)  output and money incomes, respectively. 
D)  resources and goods, respectively.

Question 15

If products were in short or surplus supply in the Soviet Union,

Accepted Answer

A)  price and proﬁt signals eliminated those shortages and surpluses. 
B)  price and proﬁt signals intensiﬁed those shortages and surpluses. 
C)  producers would not react because no price or proﬁt signals occurred. 
D)  the planners would immediately adjust production to achieve equilibrium. 
A)  price and proﬁt signals eliminated those shortages and surpluses. 
B)  price and proﬁt signals intensiﬁed those shortages and surpluses. 
C)  producers would not react because no price or proﬁt signals occurred. 
D)  the planners would immediately adjust production to achieve equilibrium.

Question 16

Costs can be deﬁned as total payments made to workers, landowners, and capital suppliers less
payments to the entrepreneur for organizing and combining the other resources used to produce a
good.

Accepted Answer

A) True 
 B)False

Question 17

What advantage does a money economy have over a barter economy?

Accepted Answer

In economies where people use money as t

Question 18

"For whom is a given mix of goods and services to be produced? How, in other words, are the society's outputs to be distributed among its members?" In a market economy, this question is resolved primarily
In the

Accepted Answer

A)  public sector through the mechanism of central planning. 
B)  business sector through the mechanism of advertising. 
C)  private sector through the earning and spending of income. 
D)  money market through borrowing and saving by households and businesses. 
A)  public sector through the mechanism of central planning. 
B)  business sector through the mechanism of advertising. 
C)  private sector through the earning and spending of income. 
D)  money market through borrowing and saving by households and businesses.

Question 19

The market system is an economic system that

Accepted Answer

A)  produces more consumer goods than capital goods. 
B)  produces more capital goods than consumer goods. 
C)  gives private individuals the right to own resources used in production. 
D)  emphasizes the government's power to control markets and direct economic activity. 
A)  produces more consumer goods than capital goods. 
B)  produces more capital goods than consumer goods. 
C)  gives private individuals the right to own resources used in production. 
D)  emphasizes the government's power to control markets and direct economic activity.

Question 20

Consumer sovereignty and "dollar votes" guide the market system in dealing with which fundamental economic question?

Accepted Answer

A)  Which output will be produced? 
B)  How is the output to be produced? 
C)  How can the system accommodate change? 
D)  Who is to receive the output? 
A)  Which output will be produced? 
B)  How is the output to be produced? 
C)  How can the system accommodate change? 
D)  Who is to receive the output?

Exam 2: The Market System and the Circular Flow

Which of the following is not one of the ﬁve fundamental questions?

Property rights are important because they

The government may not implement policies intended to redistribute income in which of the following economic systems?

In a capitalist system, the decisions and actions of millions of consumers and ﬁrms are highly coordinated by

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

The dollar votes of consumers ultimately determine the composition of output and the allocation of resources in a market economy. This statement best describes the concept of

The market system's answer to the fundamental question "What will be produced?" is essentially

Market economies use capital goods because they improve productive eﬃciency.

Deﬁne the term economic system. Discuss the two ways in which economic systems can differ.

According to the circular ﬂow model, product markets are where

Which of the following is one of the Five Fundamental Questions?

The wants of consumers are expressed in the product market with "dollar votes."

(Consider This) Without government subsidized property insurance, people are more likely to be cognizant of the risks of building and living in ﬁre-prone or ﬂood-prone areas because their insurance costs will be higher.

Refer to the diagram. Arrows (1) and (2) represent

If products were in short or surplus supply in the Soviet Union,

Costs can be deﬁned as total payments made to workers, landowners, and capital suppliers less payments to the entrepreneur for organizing and combining the other resources used to produce a good.

What advantage does a money economy have over a barter economy?

"For whom is a given mix of goods and services to be produced? How, in other words, are the society's outputs to be distributed among its members?" In a market economy, this question is resolved primarily In the

The market system is an economic system that

Consumer sovereignty and "dollar votes" guide the market system in dealing with which fundamental economic question?

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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