Question 1

The two basic markets shown by the simple circular flow model are:

Accepted Answer

A)  capital goods and consumer goods. 
B)  free and controlled. 
C)  product and resource. 
D)  household and business. 
A)  capital goods and consumer goods. 
B)  free and controlled. 
C)  product and resource. 
D)  household and business.

Question 2

Central planning in the Soviet Union and pre-reform China emphasized the expansion of the production of consumer goods to raise the domestic standard of living.

Accepted Answer

A) True 
 B)False

Question 3

Answer the question using the following data,which show all available techniques for producing 20 units of a particular commodity: $\begin{array}{c}
\quad\quad\quad\quad\quad\quad\quad\text {Resource}\quad\quad\quad\quad\quad\text { Possible Production Techniques }\
\begin{array}{lll}
\
\underline{\text {Resource}}\
 \text {Land}\
 \text {Labor}\
 \text {Capital}\
 \text {Entrepreneurial Ability}
\end{array}
\begin{array}{c}
\
\underline{\text {Prices}}\
\$ 4\
3\
3\
2
\end{array}
\begin{array}{c}
\
\quad\quad\quad\quad\quad\quad\quad\quad\quad\underline{\# 1} \
 \quad\quad\quad\quad\quad\quad\quad\quad\quad2 \
\quad\quad\quad\quad\quad\quad\quad\quad\quad1 \
\quad\quad\quad\quad\quad\quad\quad\quad\quad5 \
\quad\quad\quad\quad\quad\quad\quad\quad\quad3
\end{array}
\begin{array}{c}
\
\underline{\# 2 }\
 4 \
2 \
2 \
1
\end{array}
\begin{array}{c}
\
\underline{\#3 }\
 2 \
4 \
3 \
1
\end{array}
\begin{array}{c}
\
\underline{\# 4 }\
 4 \
1 \
1 \
4
\end{array}
\begin{array}{c}
\
\underline{\# 5 }\
 4 \
3 \
2 \
1
\end{array}
\end{array}$
 Refer to the data.In view of the indicated resource prices,the economically most efficient production technique(s)is (are)technique(s):

Accepted Answer

A)  #1. 
B)  #2 and #4. 
C)  #3. 
D)  #1 and #3. 
A)  #1. 
B)  #2 and #4. 
C)  #3. 
D)  #1 and #3.

Question 4

In a competitive market economy,firms select the least-cost production technique because:

Accepted Answer

A)  such choices will result in full employment of available resources. 
B)  to do so will maximize the firms' profits. 
C)  this will prevent new firms from entering the industry. 
D)  "dollar voting" by consumers mandates such a choice. 
A)  such choices will result in full employment of available resources. 
B)  to do so will maximize the firms' profits. 
C)  this will prevent new firms from entering the industry. 
D)  "dollar voting" by consumers mandates such a choice.

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)  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 6

Competition means that:

Accepted Answer

A)  sellers can manipulate market price by causing product scarcities. 
B)  there are independently acting buyers and sellers in each market. 
C)  a product can be purchased at a number of different prices. 
D)  there is more than one seller in a market. 
A)  sellers can manipulate market price by causing product scarcities. 
B)  there are independently acting buyers and sellers in each market. 
C)  a product can be purchased at a number of different prices. 
D)  there is more than one seller in a market.

Question 7

If a competitive industry is neither expanding nor contracting,we would expect:

Accepted Answer

A)  total revenue to be zero. 
B)  economic profits to be zero. 
C)  total opportunity cost to be zero. 
D)  more resources to flow to that industry. 
A)  total revenue to be zero. 
B)  economic profits to be zero. 
C)  total opportunity cost to be zero. 
D)  more resources to flow to that industry.

Question 8

Specialization may expand total output even though the individuals involved may have identical abilities.

Accepted Answer

A) True 
 B)False

Question 9

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.If the price of product A is $0.50,the firm will realize:

Accepted Answer

A)  an economic profit of $4. 
B)  an economic profit of $2. 
C)  an economic profit of $6. 
D)  a loss of $3. 
A)  an economic profit of $4. 
B)  an economic profit of $2. 
C)  an economic profit of $6. 
D)  a loss of $3.

Question 10

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 11

(Last Word)According to economist Donald Boudreaux:

Accepted Answer

A)  private property eliminates the possibility that resource arrangements will be random. 
B)  the market system threatens to do irreparable harm to the world's ecosystem. 
C)  arranging resources under the market system is much like shuffling a deck of cards. 
D)  the market system works wondrously for advanced industrial nations but not for developing nations. 
A)  private property eliminates the possibility that resource arrangements will be random. 
B)  the market system threatens to do irreparable harm to the world's ecosystem. 
C)  arranging resources under the market system is much like shuffling a deck of cards. 
D)  the market system works wondrously for advanced industrial nations but not for developing nations.

Question 12

Which of the following statements is true about risk management in market systems versus command systems?

Accepted Answer

A)  Market systems manage risk better because entrepreneurs taking risks bear the costs of poor decisions,where in command systems government decision makers don't bear those costs. 
B)  Neither system is better than the other in terms of risk management;both systems are equally susceptible to natural disasters and changes in consumer preferences. 
C)  Command systems manage risk better because the government controls most economic activity and can therefore eliminate risk. 
D)  Market systems face risk because of the possibility of profits and losses;command systems don't face risk because they are not profit driven. 
A)  Market systems manage risk better because entrepreneurs taking risks bear the costs of poor decisions,where in command systems government decision makers don't bear those costs. 
B)  Neither system is better than the other in terms of risk management;both systems are equally susceptible to natural disasters and changes in consumer preferences. 
C)  Command systems manage risk better because the government controls most economic activity and can therefore eliminate risk. 
D)  Market systems face risk because of the possibility of profits and losses;command systems don't face risk because they are not profit driven.

Question 13

"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 14

The invisible hand refers to the:

Accepted Answer

A)  fact that the U.S.tax system redistributes income from rich to poor. 
B)  notion that,under competition,decisions motivated by self-interest promote the social interest. 
C)  tendency of monopolistic sellers to raise prices above competitive levels. 
D)  fact that government controls the functioning of the market system. 
A)  fact that the U.S.tax system redistributes income from rich to poor. 
B)  notion that,under competition,decisions motivated by self-interest promote the social interest. 
C)  tendency of monopolistic sellers to raise prices above competitive levels. 
D)  fact that government controls the functioning of the market system.

Question 15

(Consider This)Martha's Milkshake Company buys earthquake insurance from the Stable Ground Insurance Company.Based on this purchase,economists would conclude that:

Accepted Answer

A)  Martha's believes a damaging earthquake is imminent. 
B)  Stable Ground believes no damaging earthquakes will occur. 
C)  Martha's has a lower tolerance for earthquake risk than Stable Ground. 
D)  Martha's has a greater tolerance for earthquake risk than Stable Ground. 
A)  Martha's believes a damaging earthquake is imminent. 
B)  Stable Ground believes no damaging earthquakes will occur. 
C)  Martha's has a lower tolerance for earthquake risk than Stable Ground. 
D)  Martha's has a greater tolerance for earthquake risk than Stable Ground.

Question 16

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 17

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 18

(Last Word)According to economist Donald Boudreaux,the world's tens of billions of individual resources get arranged productively:

Accepted Answer

A)  because government has become highly effective at central planning. 
B)  because private property encourages people to consider the alternative uses of their resources and select those that provide the most rewards. 
C)  because people tend to be creative and orderly. 
D)  through random trial and error. 
A)  because government has become highly effective at central planning. 
B)  because private property encourages people to consider the alternative uses of their resources and select those that provide the most rewards. 
C)  because people tend to be creative and orderly. 
D)  through random trial and error.

Question 19

The regulatory mechanism of the market system is:

Accepted Answer

A)  self-interest. 
B)  private property. 
C)  competition. 
D)  specialization. 
A)  self-interest. 
B)  private property. 
C)  competition. 
D)  specialization.

Question 20

(Consider This)Since World War II:

Accepted Answer

A)  North Korea's command economy has significantly outperformed South Korea's market economy. 
B)  South Korea's command economy has significantly outperformed North Korea's market economy. 
C)  North Korea's market economy has significantly outperformed South Korea's command economy. 
D)  South Korea's market economy has significantly outperformed North Korea's command economy. 
A)  North Korea's command economy has significantly outperformed South Korea's market economy. 
B)  South Korea's command economy has significantly outperformed North Korea's market economy. 
C)  North Korea's market economy has significantly outperformed South Korea's command economy. 
D)  South Korea's market economy has significantly outperformed North Korea's command economy.

The two basic markets shown by the simple circular flow model are:

Central planning in the Soviet Union and pre-reform China emphasized the expansion of the production of consumer goods to raise the domestic standard of living.

In a competitive market economy,firms select the least-cost production technique because:

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

Competition means that:

If a competitive industry is neither expanding nor contracting,we would expect:

Specialization may expand total output even though the individuals involved may have identical abilities.

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

(Last Word)According to economist Donald Boudreaux:

Which of the following statements is true about risk management in market systems versus command systems?

"Consumer sovereignty" refers to the:

The invisible hand refers to the:

(Consider This)Martha's Milkshake Company buys earthquake insurance from the Stable Ground Insurance Company.Based on this purchase,economists would conclude that:

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

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

(Last Word)According to economist Donald Boudreaux,the world's tens of billions of individual resources get arranged productively:

The regulatory mechanism of the market system is:

(Consider This)Since World War II:

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 two basic markets shown by the simple circular flow model are:

Central planning in the Soviet Union and pre-reform China emphasized the expansion of the production of consumer goods to raise the domestic standard of living.

In a competitive market economy,firms select the least-cost production technique because:

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

Competition means that:

If a competitive industry is neither expanding nor contracting,we would expect:

Specialization may expand total output even though the individuals involved may have identical abilities.

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

(Last Word)According to economist Donald Boudreaux:

Which of the following statements is true about risk management in market systems versus command systems?

"Consumer sovereignty" refers to the:

The invisible hand refers to the:

(Consider This)Martha's Milkshake Company buys earthquake insurance from the Stable Ground Insurance Company.Based on this purchase,economists would conclude that:

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

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

(Last Word)According to economist Donald Boudreaux,the world's tens of billions of individual resources get arranged productively:

The regulatory mechanism of the market system is:

(Consider This)Since World War II:

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