Question 1

How does human specialization contribute toward increasing an economy's output?

Accepted Answer

A) It exploits the differences in abilities. 
B) It is a process of creative destruction. 
C) It pushes each worker to master the whole product. 
D) It encourages people to be a "jack-of-all-trades." 
A) It exploits the differences in abilities. 
B) It is a process of creative destruction. 
C) It pushes each worker to master the whole product. 
D) It encourages people to be a "jack-of-all-trades."

Question 2

Economic efficiency entails producing a certain output with the minimum number of units of inputs.

Accepted Answer

A) True 
 B)False

Question 3

Central planning often suffers from a coordination problem and an incentive problem.

Accepted Answer

A) True 
 B)False

Question 4

In the circular flow diagram, firms get their ability to pay for the costs of production from the

Accepted Answer

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

Question 5

Refer to the diagram. Arrows (1)and (3)are associated with

Accepted Answer

A) the money market. 
B) the resource market. 
C) the product market. 
D) international trade. 
A) the money market. 
B) the resource market. 
C) the product market. 
D) international trade.

Question 6

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 7

The problems of central planning become less complex as an economy expands over time.

Accepted Answer

A) True 
 B)False

Question 8

An increase in the demand for a product and a reduction in its costs of production would

Accepted Answer

A) decrease the profits of producers. 
B) encourage firms to leave an industry. 
C) encourage firms to enter an industry. 
D) cause a shortage of the product. 
A) decrease the profits of producers. 
B) encourage firms to leave an industry. 
C) encourage firms to enter an industry. 
D) cause a shortage of the product.

Question 9

Selfishness and self-interest are identical concepts in economics.

Accepted Answer

A) True 
 B)False

Question 10

Describe two types of specialization in production.

Accepted Answer

One type of specialization is human spec

Question 11

Two major virtues of the market system are that it

Accepted Answer

A) allocates resources efficiently and allows economic freedom. 
B) results in an equitable personal distribution of income and always maintains full employment. 
C) results in price-level stability and a fair personal distribution of income. 
D) eliminates discrimination and minimizes environmental pollution. 
A) allocates resources efficiently and allows economic freedom. 
B) results in an equitable personal distribution of income and always maintains full employment. 
C) results in price-level stability and a fair personal distribution of income. 
D) eliminates discrimination and minimizes environmental pollution.

Question 12

Specialization-the division of labor-enhances productivity and efficiency by

Accepted Answer

A) allowing workers to take advantage of existing differences in their abilities and skills. 
B) avoiding the time loss involved in shifting from one production task to another. 
C) allowing workers to develop skills by working on one, or a limited number, of tasks. 
D) all of the means identified in the other answers. 
A) allowing workers to take advantage of existing differences in their abilities and skills. 
B) avoiding the time loss involved in shifting from one production task to another. 
C) allowing workers to develop skills by working on one, or a limited number, of tasks. 
D) all of the means identified in the other answers.

Question 13

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 14

The fact that the major indicator of enterprise success in the Soviet Union and pre-reform China was the quantity of output implied that

Accepted Answer

A) product quality was neglected. 
B) production costs were minimized. 
C) product mix met consumer needs. 
D) technological advance was too rapid. 
A) product quality was neglected. 
B) production costs were minimized. 
C) product mix met consumer needs. 
D) technological advance was too rapid.

Question 15

Refer to the diagram. Flow 3 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 16

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 17

Suppose a firm 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 firm can hire labor at $3 per unit, land at $3 per unit, capital at $6 per unit, and entrepreneurship at $9 per unit.   Refer to the provided table. Which technique is the most economically efficient way of producing Zenia?

Accepted Answer

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

Question 18

Which of the following guides sensible decisions regarding the management of business risk in a market system?

Accepted Answer

A) the profit and loss system 
B) the "invisible hand" 
C) taxes and subsidies 
D) consumer sovereignty 
A) the profit and loss system 
B) the "invisible hand" 
C) taxes and subsidies 
D) consumer sovereignty

Question 19

Continued losses in an industry will cause some firms to reduce output or eventually leave the industry.

Accepted Answer

A) True 
 B)False

Question 20

Market economies use capital goods because they improve productive efficiency.

Accepted Answer

A) True 
 B)False

Exam 2: The Market System and the Circular Flow

How does human specialization contribute toward increasing an economy's output?

Economic efficiency entails producing a certain output with the minimum number of units of inputs.

Central planning often suffers from a coordination problem and an incentive problem.

In the circular flow diagram, firms get their ability to pay for the costs of production from the

Refer to the diagram. Arrows (1)and (3)are associated with

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

The problems of central planning become less complex as an economy expands over time.

An increase in the demand for a product and a reduction in its costs of production would

Selfishness and self-interest are identical concepts in economics.

Describe two types of specialization in production.

Two major virtues of the market system are that it

Specialization-the division of labor-enhances productivity and efficiency by

The term dollar votes in a market system means

The fact that the major indicator of enterprise success in the Soviet Union and pre-reform China was the quantity of output implied that

Refer to the diagram. Flow 3 represents

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

Which of the following guides sensible decisions regarding the management of business risk in a market system?

Continued losses in an industry will cause some firms to reduce output or eventually leave the industry.

Market economies use capital goods because they improve productive efficiency.

Limits, Alternatives, and Choices

Demand, Supply, and Market Equilibrium

Market Failures Caused by Externalities Asymmetric Information

Public Goods, Public Choice, and Government Failure

Elasticity

Utility Maximization

Behavioral Economics

Businesses and the Costs of Production

Pure Competition in the Short Run

Pure Competition in the Long Run

Pure Monopoly

Monopolistic Competition

Oligopoly and Strategic Behavior

Technology, RD, and Efficiency

The Demand for Resources

Wage Determination

Rent, Interest, and Profit

Natural Resource and Energy Economics

Public Finance: Expenditures and Taxes

Antitrust Policy and Regulation

Agriculture: Economics and Policy

Income Inequality, Poverty, and Discrimination

Health Care

Immigration

International Trade

The Balance of Payments, Exchange Rates, and Trade Deficits

The Economics of Developing Countries

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