Question 1

In a market economy, the incomes of consumers depend primarily upon

Accepted Answer

A)  government policies in setting wages and interest rates. 
B)  the quantity and prices of resources that they possess. 
C)  the amount of savings that they have accumulated. 
D)  how closely connected they are to government and business leaders. 
A)  government policies in setting wages and interest rates. 
B)  the quantity and prices of resources that they possess. 
C)  the amount of savings that they have accumulated. 
D)  how closely connected they are to government and business leaders.

Question 2

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

Question 3

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 4

If the total costs of producing 1,500 units of output is $15,000 and this output sold to consumers for a total of $16,500, then the firm would earn profits of

Accepted Answer

A)  $31,500. 
B)  $16,500. 
C)  $1,500. 
D)  $15,000. 
A)  $31,500. 
B)  $16,500. 
C)  $1,500. 
D)  $15,000.

Question 5

Why might a company use barter rather than money to make a trade?

Accepted Answer

A)  Barter trade is generally more efficient than money-based trade. 
B)  Barter can enable two firms to trade when their cash flows are limited. 
C)  Money requires a coincidence of wants; barter is more direct. 
D)  Money is efficient only for large transactions, so barter is preferred for smaller transactions. 
A)  Barter trade is generally more efficient than money-based trade. 
B)  Barter can enable two firms to trade when their cash flows are limited. 
C)  Money requires a coincidence of wants; barter is more direct. 
D)  Money is efficient only for large transactions, so barter is preferred for smaller transactions.

Question 6

"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 7

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, and suppose that the firm uses production technique D If each of the 70 units of Zenia that are produced sells for $1 apiece, then how much will be the total profits of the firm from 70 units of Zenia?

Accepted Answer

A)  $70 
B)  $57 
C)  $13 
D)  $83 
A)  $70 
B)  $57 
C)  $13 
D)  $83

Question 8

In the circular flow model, households act as buyers in the resource markets.

Accepted Answer

A) True 
 B)False

Question 9

In terms of the circular flow diagram, households make expenditures in the market and receive income through the market.

Accepted Answer

A)  product; financial 
B)  resource; product 
C)  product; resource 
D)  capital; product 
A)  product; financial 
B)  resource; product 
C)  product; resource 
D)  capital; product

Question 10

The Heritage Foundation in 2015 ranked which of the following economies to have the highest economic freedom?

Accepted Answer

A)  the United States 
B)  Germany 
C)  Japan 
D)  Hong Kong 
A)  the United States 
B)  Germany 
C)  Japan 
D)  Hong Kong

Question 11

The presence of market failures implies that

Accepted Answer

A)  money is not an effective tool for exchange in a market system. 
B)  there is an active role for government, even in a market system. 
C)  individuals and firms should strive to be self-sufficient rather than specialize. 
D)  command systems are superior to market systems in the allocation of resources. 
A)  money is not an effective tool for exchange in a market system. 
B)  there is an active role for government, even in a market system. 
C)  individuals and firms should strive to be self-sufficient rather than specialize. 
D)  command systems are superior to market systems in the allocation of resources.

Question 12

Which of the following characteristics is least unique to a market system?

Accepted Answer

A)  private ownership of property resources 
B)  competition among buyers and sellers pursuing monetary returns 
C)  the widespread use of money 
D)  freedom of enterprise and choice 
A)  private ownership of property resources 
B)  competition among buyers and sellers pursuing monetary returns 
C)  the widespread use of money 
D)  freedom of enterprise and choice

Question 13

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

Question 14

Economic systems differ according to which two main characteristics?

Accepted Answer

A)  who owns the factors of production and the methods used to coordinate economic activity 
B)  the technology used in production and the quantity and quality of natural resources 
C)  how goods are produced and who gets them 
D)  the political system in place and the degree of scarcity facing the economy 
A)  who owns the factors of production and the methods used to coordinate economic activity 
B)  the technology used in production and the quantity and quality of natural resources 
C)  how goods are produced and who gets them 
D)  the political system in place and the degree of scarcity facing the economy

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

McDonald's introduced the Big Mac in 1968, and it turned out to be a hit. However, the Arch Deluxe, introduced in 1996, was not. The success or failure of a product in the market system is determined by

Accepted Answer

A)  capitalism and entrepreneurship. 
B)  specialization and exchange. 
C)  consumer sovereignty and dollar votes. 
D)  capital goods and roundabout production. 
A)  capitalism and entrepreneurship. 
B)  specialization and exchange. 
C)  consumer sovereignty and dollar votes. 
D)  capital goods and roundabout production.

Question 17

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 18

The market system communicates changes in market conditions and elicits appropriate responses from businesses and resource suppliers through changes in prices. This is known as the

Accepted Answer

A)  guiding function of prices. 
B)  monetary function of prices. 
C)  circular flow of income. 
D)  market determination of prices. 
A)  guiding function of prices. 
B)  monetary function of prices. 
C)  circular flow of income. 
D)  market determination of prices.

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

Private property and freedom of choice in a market system have the following implications, except

Accepted Answer

A)  individuals are free to take on the financial risks involved in a business. 
B)  trades that take place in the economy are mutually agreeable transactions among individuals. 
C)  economic agents are allowed to act in their own self-interest. 
D)  large firms are allowed to coerce other firms and individuals. 
A)  individuals are free to take on the financial risks involved in a business. 
B)  trades that take place in the economy are mutually agreeable transactions among individuals. 
C)  economic agents are allowed to act in their own self-interest. 
D)  large firms are allowed to coerce other firms and individuals.

Exam 2: The Market System and the Circular Flow

In a market economy, the incomes of consumers depend primarily upon

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

Specialization in production is important primarily because it

If the total costs of producing 1,500 units of output is $15,000 and this output sold to consumers for a total of $16,500, then the firm would earn profits of

Why might a company use barter rather than money to make a trade?

"Consumer sovereignty" refers to the

In the circular flow model, households act as buyers in the resource markets.

In terms of the circular flow diagram, households make expenditures in the market and receive income through the market.

The Heritage Foundation in 2015 ranked which of the following economies to have the highest economic freedom?

The presence of market failures implies that

Which of the following characteristics is least unique to a market system?

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

Economic systems differ according to which two main characteristics?

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

McDonald's introduced the Big Mac in 1968, and it turned out to be a hit. However, the Arch Deluxe, introduced in 1996, was not. The success or failure of a product in the market system is determined by

Consumers express self-interest when they

The market system communicates changes in market conditions and elicits appropriate responses from businesses and resource suppliers through changes in prices. This is known as the

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

Private property and freedom of choice in a market system have the following implications, except

Limits, Alternatives, and Choices

Demand, Supply, and Market Equilibrium

Market Failures: Public Goods and Externalities

Governments Role 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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