Exam 2: The Market System and the Circular Flow

Specialization is beneficial:

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.

Which of the following statements is correct?

Economic systems differ from one another based on who own the factors of production and:

The economy of the United States can best be described as laissez-faire capitalism.

Which of the following does not foster innovation and technological advance?

Which of the following is not one of the five fundamental questions that an economy must deal with?

In the circular flow model of the market system, business firms:

The market system is also known as:

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:

Refer to the above figure. If box A represents households, B the product market, and C businesses, then flow (2) and flow (4) would represent:

In a market system, which of the following is a major benefit of making the firm's owners and investors exclusively shoulder the business risk?

Property rights give the government the right to own, use, and dispose of resources in an economy.

Even if prices are fixed and competition is restricted by the government, the "invisible hand" will still work in the economy and lead to economic efficiency.

In a market system, the distribution of goods and services among consumers is largely determined by:

Have a high fixed salary is what motivates entrepreneurs to make prudent decisions is dealing with business risk.

International specialization and trade:

In a market system, which of the following will eliminate high-cost producers, and allow only the low-cost producers to survive?

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 above table. If the price of labor declines from $3 to $2 per unit, then what is the least costly way of producing Zenias?

Maximum profits are what motivate consumers to decide who will get the goods and services in a market system.