Question 1

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 2

Barter

Accepted Answer

A) is the major means of exchange in centrally planned economies. 
B) accounts for over 30 percent of the dollar volume of all exchange in the U.S. economy. 
C) entails the exchange of goods for goods. 
D) is used to circumvent the problem of a lack of coincidence of wants among potential buyers and sellers. 
A) is the major means of exchange in centrally planned economies. 
B) accounts for over 30 percent of the dollar volume of all exchange in the U.S. economy. 
C) entails the exchange of goods for goods. 
D) is used to circumvent the problem of a lack of coincidence of wants among potential buyers and sellers.

Question 3

Economic efficiency is the primary guide in answering which of the fundamental questions in a market economy?

Accepted Answer

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

Question 4

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 5

"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 6

Answer the question based on the following information: Suppose 30 units of product A can be produced by employing just labor and capital in the four ways shown below. Assume the prices of labor and capital are $4 and $3, respectively.   Which technique is economically most efficient in producing A?

Accepted Answer

A) III 
B) II 
C) I 
D) IV 
A) III 
B) II 
C) I 
D) IV

Question 7

"Consumer sovereignty" refers to the

Accepted Answer

A) fact that resource prices are higher than product prices in capitalistic economies. 
B) idea that the pursuit of self-interest is in the public interest. 
C) idea that the decisions of producers must ultimately conform to consumer demands. 
D) fact that a federal agency exists to protect consumers from harmful and defective products. 
A) fact that resource prices are higher than product prices in capitalistic economies. 
B) idea that the pursuit of self-interest is in the public interest. 
C) idea that the decisions of producers must ultimately conform to consumer demands. 
D) fact that a federal agency exists to protect consumers from harmful and defective products.

Question 8

Specialization is beneficial

Accepted Answer

A) at the individual firm level, but not at the national and international levels. 
B) at the individual, regional, and even international levels. 
C) only if there are differences in the abilities of resources. 
D) only as long as money and capital goods are employed. 
A) at the individual firm level, but not at the national and international levels. 
B) at the individual, regional, and even international levels. 
C) only if there are differences in the abilities of resources. 
D) only as long as money and capital goods are employed.

Question 9

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. 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 10

Describe the three major virtues of a market system.

Accepted Answer

The three major virtues of the market sy

Question 11

The major "success indicator" for business managers in command economies like the Soviet Union and China in the past was

Accepted Answer

A) the quantity or volume of production. 
B) product quality and variety. 
C) the amount of profits a producer makes. 
D) morale of workers in a firm. 
A) the quantity or volume of production. 
B) product quality and variety. 
C) the amount of profits a producer makes. 
D) morale of workers in a firm.

Question 12

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 13

Which of the following statements about markets and prices is correct?

Accepted Answer

A) In a market system, buyers and sellers must be in face-to-face contact with each other. 
B) Prices affect the distribution of goods in a market system, but not the allocation of resources. 
C) In a market system, prices serve to ration goods and services to consumers. 
D) The operation of a market system has little, if any, effect on the distribution of income in the economy. 
A) In a market system, buyers and sellers must be in face-to-face contact with each other. 
B) Prices affect the distribution of goods in a market system, but not the allocation of resources. 
C) In a market system, prices serve to ration goods and services to consumers. 
D) The operation of a market system has little, if any, effect on the distribution of income in the economy.

Question 14

Answer the question using the following data, which show all available techniques for producing 20 units of a particular commodity.   Assuming the firm is motivated by self-interest and that the 20 units that can be produced with each technique can be sold for $2 per unit, the firm will

Accepted Answer

A) realize an economic profit of $10. 
B) realize an economic profit of $4. 
C) not earn any economic profit. 
D) shut down rather than incur a loss by producing. 
A) realize an economic profit of $10. 
B) realize an economic profit of $4. 
C) not earn any economic profit. 
D) shut down rather than incur a loss by producing.

Question 15

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 16

Suppose that an individual sees a tremendous opportunity to produce and sell a new product but dismisses the idea because there is no way to exploit this opportunity for personal gain. This situation best identifies the

Accepted Answer

A) coordination problem under communist central planning. 
B) self-sufficiency dilemma under communism. 
C) asymmetric information problem under communism. 
D) incentive problem under communist central planning. 
A) coordination problem under communist central planning. 
B) self-sufficiency dilemma under communism. 
C) asymmetric information problem under communism. 
D) incentive problem under communist central planning.

Question 17

In a command economy, the head of each household makes the fundamental economic choices such as what to produce and how to produce output.

Accepted Answer

A) True 
 B)False

Question 18

Answer the question based on the following information: Suppose 10 units of product X can be produced by employing just labor and capital in the three ways shown below. Assume the prices of labor and capital are as shown.   Which technique is the most economically efficient?

Accepted Answer

A) Technique I with total costs of $18 
B) Technique I with total costs of $17 
C) Technique III with total costs of $13 
D) Technique II with total costs of $15 
A) Technique I with total costs of $18 
B) Technique I with total costs of $17 
C) Technique III with total costs of $13 
D) Technique II with total costs of $15

Question 19

In a competitive market economy, firms and resource suppliers seeking to further their own self-interest will end up, as though guided by an invisible hand, promoting the public interest.

Accepted Answer

A) True 
 B)False

Question 20

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

Exam 2: The Market System and the Circular Flow

Specialization in production is important primarily because it

Barter

Economic efficiency is the primary guide in answering which of the fundamental questions in a market economy?

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

"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

Answer the question based on the following information: Suppose 30 units of product A can be produced by employing just labor and capital in the four ways shown below. Assume the prices of labor and capital are $4 and $3, respectively. Which technique is economically most efficient in producing A?

"Consumer sovereignty" refers to the

Specialization is beneficial

Describe the three major virtues of a market system.

The major "success indicator" for business managers in command economies like the Soviet Union and China in the past was

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

Which of the following statements about markets and prices is correct?

Answer the question using the following data, which show all available techniques for producing 20 units of a particular commodity. Assuming the firm is motivated by self-interest and that the 20 units that can be produced with each technique can be sold for $2 per unit, the firm will

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

Suppose that an individual sees a tremendous opportunity to produce and sell a new product but dismisses the idea because there is no way to exploit this opportunity for personal gain. This situation best identifies the

In a command economy, the head of each household makes the fundamental economic choices such as what to produce and how to produce output.

Answer the question based on the following information: Suppose 10 units of product X can be produced by employing just labor and capital in the three ways shown below. Assume the prices of labor and capital are as shown. Which technique is the most economically efficient?

In a competitive market economy, firms and resource suppliers seeking to further their own self-interest will end up, as though guided by an invisible hand, promoting the public interest.

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.

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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