Question 1

The market system's answer to the fundamental question "How will the system accommodate change?" is essentially:

Accepted Answer

A)  "Through government leadership and direction." 
B)  "Through the guiding function of prices and the incentive function of profits." 
C)  "Through training and retraining programs." 
D)  "Through trial and error." 
A)  "Through government leadership and direction." 
B)  "Through the guiding function of prices and the incentive function of profits." 
C)  "Through training and retraining programs." 
D)  "Through trial and error."

Question 2

Which of the following best describes the invisible-hand concept?

Accepted Answer

A)  The desires of resource suppliers and producers to further their own self-interest will automatically further the public interest. 
B)  The nonsubstitutability of resources creates a conflict between private and public interests and calls for government intervention. 
C)  The market system is the best system for overcoming the scarce resources-unlimited wants problem. 
D)  Central direction by the government will improve resource allocation in a capitalistic economy. 
A)  The desires of resource suppliers and producers to further their own self-interest will automatically further the public interest. 
B)  The nonsubstitutability of resources creates a conflict between private and public interests and calls for government intervention. 
C)  The market system is the best system for overcoming the scarce resources-unlimited wants problem. 
D)  Central direction by the government will improve resource allocation in a capitalistic economy.

Question 3

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 4

Copyrights and trademarks are examples of:

Accepted Answer

A)  capital goods. 
B)  human capital. 
C)  property rights. 
D)  public goods. 
A)  capital goods. 
B)  human capital. 
C)  property rights. 
D)  public goods.

Question 5

Examples of command economies are:

Accepted Answer

A)  the United States and Japan. 
B)  Sweden and Norway. 
C)  Mexico and Brazil. 
D)  Cuba and North Korea. 
A)  the United States and Japan. 
B)  Sweden and Norway. 
C)  Mexico and Brazil. 
D)  Cuba and North Korea.

Question 6

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 7

Which of the following is a distinguishing feature of a command system?

Accepted Answer

A)  Private ownership of all capital. 
B)  Central planning. 
C)  Heavy reliance on markets. 
D)  Widespread dispersion of economic power. 
A)  Private ownership of all capital. 
B)  Central planning. 
C)  Heavy reliance on markets. 
D)  Widespread dispersion of economic power.

Question 8

"Because the outputs of many industries are the inputs to other industries,the failure of any single industry to fulfill the output quantities specified in the central plan caused a chain reaction of adverse repercussions on production." This quotation best identifies the:

Accepted Answer

A)  incentive problem under central planning. 
B)  self-sufficiency dilemma under communism. 
C)  resource overcommitment problem under communism. 
D)  coordination problem under central planning. 
A)  incentive problem under central planning. 
B)  self-sufficiency dilemma under communism. 
C)  resource overcommitment problem under communism. 
D)  coordination problem under central planning.

Question 9

In a market system:

Accepted Answer

A)  firm owners and employees share business risk more or less equally. 
B)  a firm's employees and suppliers are largely shielded from risk. 
C)  employees and suppliers face the greatest risks because firms can shut down without notice and leave them unpaid. 
D)  a firm's owners are largely shielded from risk because they can walk away from the business at any time. 
A)  firm owners and employees share business risk more or less equally. 
B)  a firm's employees and suppliers are largely shielded from risk. 
C)  employees and suppliers face the greatest risks because firms can shut down without notice and leave them unpaid. 
D)  a firm's owners are largely shielded from risk because they can walk away from the business at any time.

Question 10

The use of money contributes to economic efficiency because:

Accepted Answer

A)  governmental direction of the production and distribution of output can be avoided by using money. 
B)  roundabout production could not occur without the availability of money. 
C)  it is necessary for the creation of capital goods. 
D)  it promotes specialization by overcoming the problems with barter. 
A)  governmental direction of the production and distribution of output can be avoided by using money. 
B)  roundabout production could not occur without the availability of money. 
C)  it is necessary for the creation of capital goods. 
D)  it promotes specialization by overcoming the problems with barter.

Question 11

Firms are motivated to minimize production costs because:

Accepted Answer

A)  it is the most environmentally friendly way to produce goods. 
B)  least-cost production techniques use the smallest total quantity of resources. 
C)  competitive pressures in the market will drive out higher-cost producers. 
D)  the government provides tax credits and subsidies to low-cost producers. 
A)  it is the most environmentally friendly way to produce goods. 
B)  least-cost production techniques use the smallest total quantity of resources. 
C)  competitive pressures in the market will drive out higher-cost producers. 
D)  the government provides tax credits and subsidies to low-cost producers.

Question 12

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 13

Broadly defined,competition involves:

Accepted Answer

A)  private property and freedom of expression. 
B)  independently acting buyers and sellers and freedom to enter or leave markets. 
C)  increasing opportunity costs and diminishing marginal utility. 
D)  capital goods and division of labor. 
A)  private property and freedom of expression. 
B)  independently acting buyers and sellers and freedom to enter or leave markets. 
C)  increasing opportunity costs and diminishing marginal utility. 
D)  capital goods and division of labor.

Question 14

In what type of business do the owners bear no personal financial responsibility for the company's debts and obligations?

Accepted Answer

A)  Partnerships. 
B)  Corporations. 
C)  Sole proprietorships. 
D)  In all of the businesses listed in the other answers. 
A)  Partnerships. 
B)  Corporations. 
C)  Sole proprietorships. 
D)  In all of the businesses listed in the other answers.

Question 15

Answer the question on the basis of 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 $2 and $3 respectively. $\quad $$\quad $$\quad $$\quad $$\underline{\text { Production Techniques: }}$ 
$\begin{array}{c}
\begin{array}{lll}
\
\text {  Labor}\
\text {  Capital} 
\end{array}
\begin{array}{c}
1\
\hline 4 \
2
\end{array}
\begin{array}{c}
II  \
\hline 3 \
3 
\end{array}
\begin{array}{c}
III\
\hline2 \
5
\end{array}
\begin{array}{c}
 IV \
\hline 5 \
1 
\end{array} 
\end{array}$
 Refer to the information.Which technique is economically most efficient in producing A?

Accepted Answer

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

Question 16

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 17

Economic profits in an industry suggest the industry:

Accepted Answer

A)  can earn more profits by increasing product price. 
B)  should be larger to better satisfy consumers' desire for the product. 
C)  has excess production capacity. 
D)  is the size that consumers want it to be. 
A)  can earn more profits by increasing product price. 
B)  should be larger to better satisfy consumers' desire for the product. 
C)  has excess production capacity. 
D)  is the size that consumers want it to be.

Question 18

The market system's answer to the fundamental question "How will the system promote progress?" is essentially:

Accepted Answer

A)  "Through government-funded research programs." 
B)  "Through redistribution of income to promote greater equality." 
C)  "Through training and retraining programs." 
D)  "Through the profit potential that encourages development of new technology." 
A)  "Through government-funded research programs." 
B)  "Through redistribution of income to promote greater equality." 
C)  "Through training and retraining programs." 
D)  "Through the profit potential that encourages development of new technology."

Question 19

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 20

A fundamental difference between the command system and laissez-faire capitalism is that,in command systems:

Accepted Answer

A)  the division of output is decided by central planning rather than by individuals operating freely through markets. 
B)  all economic decisions are made by the government,whereas there is no government in laissez-faire capitalism. 
C)  scarcity does not exist,whereas it does in laissez-faire capitalism. 
D)  money is not used,whereas it is in laissez-faire capitalism. 
A)  the division of output is decided by central planning rather than by individuals operating freely through markets. 
B)  all economic decisions are made by the government,whereas there is no government in laissez-faire capitalism. 
C)  scarcity does not exist,whereas it does in laissez-faire capitalism. 
D)  money is not used,whereas it is in laissez-faire capitalism.

The market system's answer to the fundamental question "How will the system accommodate change?" is essentially:

Which of the following best describes the invisible-hand concept?

The term "laissez-faire" suggests that:

Copyrights and trademarks are examples of:

Examples of command economies are:

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

Which of the following is a distinguishing feature of a command system?

"Because the outputs of many industries are the inputs to other industries,the failure of any single industry to fulfill the output quantities specified in the central plan caused a chain reaction of adverse repercussions on production." This quotation best identifies the:

In a market system:

The use of money contributes to economic efficiency because:

Firms are motivated to minimize production costs because:

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

Broadly defined,competition involves:

In what type of business do the owners bear no personal financial responsibility for the company's debts and obligations?

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

Economic profits in an industry suggest the industry:

The market system's answer to the fundamental question "How will the system promote progress?" is essentially:

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

A fundamental difference between the command system and laissez-faire capitalism is that,in command systems:

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 Cost of Production

Pure Competition in the Short Run

Pure Competition in the Long Run

Pure Monopoly

Monopolistic Competition and Oligopoly

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

Filters

Exam 2: The Market System and the Circular Flow

The market system's answer to the fundamental question "How will the system accommodate change?" is essentially:

Which of the following best describes the invisible-hand concept?

The term "laissez-faire" suggests that:

Copyrights and trademarks are examples of:

Examples of command economies are:

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

Which of the following is a distinguishing feature of a command system?

"Because the outputs of many industries are the inputs to other industries,the failure of any single industry to fulfill the output quantities specified in the central plan caused a chain reaction of adverse repercussions on production." This quotation best identifies the:

In a market system:

The use of money contributes to economic efficiency because:

Firms are motivated to minimize production costs because:

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

Broadly defined,competition involves:

In what type of business do the owners bear no personal financial responsibility for the company's debts and obligations?

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

Economic profits in an industry suggest the industry:

The market system's answer to the fundamental question "How will the system promote progress?" is essentially:

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

A fundamental difference between the command system and laissez-faire capitalism is that,in command systems:

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 Cost of Production

Pure Competition in the Short Run

Pure Competition in the Long Run

Pure Monopoly

Monopolistic Competition and Oligopoly

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

Filters

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