Deck 2: Economic Decision Making and Economic Systems

Question 1

The three basic economic decisions are:

A) what to produce, how to produce, and what prices to charge.
B) how to produce, who should produce, and what they should be paid.
C) what to produce, how to produce, and who receives what has been produced.
D) what goods and services should be consumed, what these goods and services should cost, and how much people should earn.

Answer 1

what to produce, how to produce, and who receives what has been produced.

Question 2

The basic economic decisions are faced:

A) in every economy because of scarcity.
B) in every economy because every society has a formal government.
C) only in market economies since no decision making is allowed in planned economies.
D) only in advanced economies where enough goods and services are produced to force people to make choices.

Answer 2

in every economy because of scarcity.

Question 3

The basic economic decisions:

A) apply only to less-developed economies where scarcity is a real problem.
B) relate to what is to be produced and how well it satisfies consumer demand.
C) are decisions about production and distribution that must be made by every society.
D) differ in every society; that is, some societies face only one basic decision while others face two or three.

Answer 3

are decisions about production and distribution that must be made by every society.

Question 4

Which of the following is NOT a basic economic decision that must be made by every society?

A) What goods and services will be produced.
B) What goods and services consumers will need most.
C) Who will receive the goods and services that are produced.
D) What factors of production and methods will be used in producing goods and services.

Question 5

Every country in the world, regardless of its political or economic system, must determine:

A) how goods and services will be produced.
B) what goods and services will be produced.
C) who will receive the goods and services that are produced.
D) all of the above.

Question 6

The way a society is organized to make the basic economic decisions is referred to as its:

A) output strategy.
B) economic system.
C) production network.
D) social-economic structure.

Question 7

Decisions about what goods and services will be produced, how they will be produced, and who will get them, must be made in:

A) all economies.
B) market economies, but not in planned economies.
C) socialist economies, but not in capitalist economies.
D) economies based on individual decision making, but not in economies based on collective decision making.

Question 8

With reference to the basic economic decisions, all economies must determine:

A) what goods and services households want to purchase.
B) what methods and techniques to use to produce goods and services.
C) how taxes will be used to redistribute income among the population.
D) how much control elected officials have in deciding what goods and services to produce.

Question 9

A society's economic system is defined by:

A) the degree of scarcity it faces.
B) the way in which basic economic decisions are made.
C) the forms into which its businesses are legally organized.
D) its type of government; that is, whether it has a dictatorship or a democracy.

Question 10

The way in which a country makes the basic economic decisions depends on:

A) which basic economic decisions it must make.
B) whether or not it has solved the scarcity problem.
C) how the economic relationships among its households, businesses, and government are organized.
D) all of the above.

Question 11

Which of the following statements best describes the relationship among scarcity, economic decisions, and economic systems?

A) The economic system that a society chooses determines whether or not it faces a scarcity problem.
B) The choice of an economic system depends on which basic economic decisions a society must make.
C) Scarcity forces a society to choose an economic system which, in turn, defines which economic decisions it must make.
D) Scarcity imposes basic economic decisions on a society that are made through the type of economic system it chooses.

Question 12

Which of the basic economic decisions always requires a dependence on markets, regardless of the type of system an economy has?

A) How goods and services will be produced.
B) What goods and services will be produced.
C) How many goods and services will be produced.
D) None of the above.

Question 13

An economy that relies largely on custom or ritual when making economic decisions:

A) is a command economy.
B) has never existed in history.
C) is best described as being traditional or agrarian.
D) none of the above.

Question 14

The economic systems of people such as some early Native American tribes that were small, focused on agriculture, and operated with production methods not changed for generations are best characterized as:

A) mixed economies
B) market economies.
C) command economies.
D) traditional or agrarian economies.

Question 15

You would expect a society with a traditional economy to have most of its economic activity directed toward:

A) agriculture.
B) manufacturing.
C) production of services.
D) real estate management.

Question 16

Which of the following statements about traditional economies is true?

A) Workers' responsibilities tend to be tied to long-standing family or gender roles.
B) They often rely on barter, or the direct exchange of goods and services, to meet people's needs.
C) They typically rely on historical, social, political, or religious arrangements to decide what to produce and how it will be distributed.
D) All of the above.

Question 17

Up for Debate, "Is Western-Style Development Appropriate for Other Cultures?" discusses the high standards of living for people in the United States and Western Europe and

A) gives arguments on both sides of the issue of whether western-style systems and institutions can be successful in all countries regardless of the history and culture
B) concludes that western-style structures and markets are the best choice for any economy regardless of the history and culture
C) concludes that western-style structures and markets will never work in non-western nations
D) debates the merits of measuring living standards by data

Question 18

Which of the following statements describing a market economy is FALSE?

A) Households only buy and businesses only sell.
B) Price is the language through which buyers and sellers communicate.
C) The basic economic decisions are made by households and businesses.
D) Households and businesses interact in markets to make economic decisions.

Question 19

In a market economy the three basic economic decisions are made by the:

A) government, based on voter preferences.
B) interaction of individual buyers and sellers based on prices.
C) government, based on the power of government office holders.
D) interaction of individual buyers and sellers based on the effectiveness of advertising.

Question 20

In a market economy, the willingness and ability of buyers to purchase goods and services helps to:

A) set the prices of those goods and services.
B) determine who gets the goods and services.
C) determine what goods and services will be produced and in what quantities.
D) all of the above.

Question 21

A "price system"is most closely associated with:

A) socialism.
B) a market economy.
C) a command economy.
D) all of the above.

Question 22

For a pure market economy to work:

A) buyers and sellers must be able to communicate through prices.
B) business owners must be free to make their own decisions and operate with a profit motive.
C) individuals must have private property rights to own and dispose of goods, services, and resources.
D) all of the above.

Question 23

Private property rights:

A) are one of the defining elements of capitalism.
B) are essential to the operation of a market economy.
C) allow individuals to own and use resources, goods, and services as they choose.
D) all of the above.

Question 24

Free enterprise refers to the right of:

A) businesses to make their own decisions and operate with a profit motive.
B) society to demand that certain essential products be made available free of charge.
C) businesses that produce products that help the poor to be exempt from paying taxes.
D) none of the above.

Question 25

An economic system with free enterprise, private property rights, and economic decision-making in a market environment is:

A) socialism.
B) capitalism.
C) individualism.
D) none of the above.

Question 26

Capitalism is an economic system where:

A) there is free enterprise.
B) there are private property rights.
C) economic decisions are made in a market environment.
D) all of the above.

Question 27

The basic circular flow model includes:

A) businesses, households, and government.
B) businesses, households, input markets, and output markets.
C) businesses, government, input markets, and output markets.
D) businesses, households, input markets, output markets, and government.

Question 28

In a circular flow model of a market economy, households:

A) are sellers and businesses are buyers in input markets.
B) are sellers and businesses are buyers in output markets.
C) buy resources from businesses in output markets.
D) buy goods and services from businesses in input markets.

Question 29

In a circular flow model of a market economy, households:

A) are buyers and businesses are sellers in input markets.
B) are buyers and businesses are sellers in output markets.
C) sell resources to businesses in output markets.
D) sell goods and services to businesses in input markets.

Question 30

In a circular flow model of a market economy, businesses:

A) sell goods to households in output markets.
B) buy goods from households in output markets.
C) sell resources to households in output markets.
D) buy resources from households in output markets.

Question 31

In a circular flow model of a market economy, households:

A) sell goods to businesses in input markets.
B) buy goods from businesses in input markets.
C) sell resources to businesses in input markets.
D) buy resources from businesses in input markets.

Question 32

Which of the following transactions would occur in a resource market?

A) Taking a job designing websites.
B) Renting an automobile while on vacation.
C) Taking your dog to the vet for a check-up.
D) Purchasing a computer to do your class assignments.

Question 33

Which of the following transactions would occur in a product market?

A) Getting a job at the local ice cream shop.
B) Paying tuition at a local college so that you can take an art course that you'd really enjoy.
C) Contracting with someone to develop a website for a business you run out of your home.
D) Selling a machine you designed to a manufacturer so that it can lower its costs of production.

Question 34

In input markets:

A) all factors except entrepreneurship are sold.
B) households are buyers and businesses are sellers.
C) there is an income flow of wages, rents, interest, and profit to households.
D) all of the above.

Question 35

In output markets:

A) households are buyers and businesses are sellers.
B) there is a flow of payments from businesses to households.
C) all products except banking and financial services are sold.
D) all of the above.

Question 36

In the circular flow model:

A) resources go from businesses to households in input markets.
B) income flows to households from businesses in output markets.
C) households are buyers and businesses are sellers in input markets.
D) businesses are sellers and households are buyers in output markets.

Question 37

According to the circular flow model, money flows from households to businesses in:

A) input markets.
B) output markets.
C) both input and output markets.
D) neither input nor output markets.

Question 38

According to the circular flow model, money flows from businesses to households in:

A) input markets.
B) output markets.
C) both input and output markets.
D) neither input nor output markets.

Question 39

According to the circular flow model, money flows from households to businesses, and resources flow from households to businesses in:

A) input markets.
B) output markets.
C) input markets and output markets, respectively.
D) output markets and input markets, respectively.

Question 40

According to the circular flow model, money flows from businesses to households, and goods and services flow from businesses to households in:

A) input markets.
B) output markets.
C) input markets and output markets, respectively.
D) output markets and input markets, respectively.

Question 41

According to the circular flow model, land, labor, capital, and entrepreneurship flow from:

A) households to businesses in input markets.
B) businesses to households in input markets.
C) households to businesses in output markets.
D) businesses to households in output markets.

Question 42

According to the circular flow model, rent, wages, interest, and profit flow from:

A) households to businesses in input markets.
B) businesses to households in input markets.
C) households to businesses in output markets.
D) businesses to households in output markets.

Question 43

According to the circular flow model, payments for goods and services flow from:

A) households to businesses in input markets.
B) businesses to households in input markets.
C) households to businesses in output markets.
D) businesses to households in output markets.

Question 44

An example of a transaction in an input market is:

A) the rental of a building to a firm.
B) the purchase of land by a business.
C) an individual offering labor to a business.
D) all of the above.

Question 45

An example of a transaction in an output market is:

A) the purchase of labor services by a business.
B) the purchase of a new home by an individual.
C) the purchase of a building by an auto dealership.
D) all of the above.

Question 46

Circular flow model.


-The flow of land, labor, capital, and entrepreneurship is shown by line:

A) (1).
B) (2).
C) (3).
D) (4).

Question 47

Circular flow model.


-The flow of expenditures on goods and services is shown by line:

A) (1).
B) (2).
C) (3).
D) (4).

Question 48

Circular flow model.


-The flow of wages, rent, interest, and profit is shown by line:

A) (1).
B) (2).
C) (3).
D) (4).

Question 49

Circular flow model.


-The flow of food, bicycles, and other products to their final users is shown by line:

A) (1).
B) (2).
C) (3).
D) (4).

Question 50

Circular flow model.


-Product, or output, markets are shown by:

A) box A.
B) box B.
C) box C.
D) line (2).

Question 51

Circular flow model.


-Resource, or input, markets are shown by:

A) box A.
B) box B.
C) box C.
D) box A and box C.

Question 52

Circular flow model.


-Lines (1) and (3) show, respectively, the flows of:

A) factors of production, and goods and services.
B) goods and services, and factors of production.
C) expenditures on goods and services, and factors of production.
D) expenditures on goods and services, and goods and services.

Question 53

Circular flow model.


-Lines (2) and (3) show, respectively, the flows of:

A) goods and services, and factors of production.
B) goods and services, and expenditures on goods and services.
C) factors of production, and expenditures on factors of production.
D) expenditures on factors of production, and expenditures on goods and services.

Question 54

Circular flow model.


-Lines (2) and (3):

A) both show real flows.
B) both show money flows.
C) show a real flow, and a money flow, respectively.
D) show a money flow, and a real flow, respectively.

Question 55

Circular flow model.


-Lines (1) and (2):

A) both show a real flow.
B) both show a money flow.
C) show a real flow, and a money flow, respectively.
D) show a money flow, and a real flow, respectively.

Question 56

Circular flow model.


-In a pure market economy, the government would be represented by:

A) box A.
B) box C.
C) boxes A and C.
D) none of the above.

Question 57

Circular flow model.


-If line (3) represents the flow of income, then output markets are shown by:

A) box A.
B) box B.
C) box C.
D) box D.

Question 58

Circular flow model.


-If line (1) represents the flow of goods and services, then:

A) line (2) is a money flow.
B) box B represents businesses.
C) box C represents input markets.
D) all of the above.

Question 59

Circular flow model.


-If line (4) represents the flow of resources, then households are represented by:

A) box A.
B) box B.
C) box C.
D) box D.

Question 60

Circular flow model.


-If line 3 represents the flow of income to resource owners, then line 1 represents the flow of:

A) resources in input markets.
B) goods and services in output markets.
C) payments by households for goods and services.
D) none of the above.

Question 61

Circular flow model.


-If line 2 represents the flow of payments to businesses for goods and services, then line 4 represents the flow of:

A) resources in input markets.
B) goods and services in output markets.
C) payments to resource owners by businesses.
D) none of the above.

Question 62

Which of the following statements about a pure market economy is FALSE?

A) All goods and services must meet government standards.
B) Goods and services are produced using the least-cost method of production.
C) Goods and services are produced by businesses in the most efficient manner.
D) The goods and services that are produced are those which businesses can sell at a profit.

Question 63

In a pure market economy, individual buyers can force large sellers to change their products:

A) only by having the government require that the products be changed.
B) because in this type of economy one person is as powerful as one business.
C) only by forming groups and deciding by vote not to buy the sellers' products.
D) through the combined effect of each person's decision about how to spend his or her money.

Question 64

Application 2.1, "Saying No!"gives several cases where consumers:

A) got the government to force sellers to change their products.
B) decided against sellers' products with their spending patterns.
C) were unable to purchase goods and services because they were already sold out.
D) left markets in protest of high prices, but later returned because they could not get along without the products.

Question 65

The least-cost method of production is the method that:

A) is most efficient.
B) uses the smallest total number of resources.
C) uses the cheapest factors of production, regardless of their productivity.
D) minimizes the cost on a company's most important resource rather than the costs on its less important resources.

Question 66

A good is produced efficiently when it is produced:

A) at the lowest possible cost.
B) at the lowest possible quality.
C) with the smallest number of resources.
D) with equal amounts of the four factors of production.

Question 67

When deciding on a method of production, a firm in a pure market economy selects the method that:

A) minimizes cost.
B) is most efficient.
C) maximizes profit.
D) all of the above.

Question 68

By producing its product using the least-cost method, a seller is:

A) using the smallest number of resources.
B) necessarily producing the poorest quality product.
C) producing in the way that allows for the greatest profit.
D) all of the above.

Question 69

In a pure market economy, who receives goods and services is determined by the:

A) sellers who have produced those goods and services.
B) availability of government income support payments.
C) value judgments of those administering each particular market.
D) ability to pay for those goods and services from income earned in resource markets.

Question 70

In a market system, income received by people determines:

A) to whom goods and services that are produced will go.
B) how goods and services will be produced.
C) what quantities of goods and services will be produced.
D) the prices of goods and services.

Question 71

In an economy based on individual decision making, goods and services are produced:

A) using the least-cost method of production.
B) by individuals rather than by business firms.
C) in response to the wishes of any single buyer in the market.
D) all of the above.

Question 72

Which of the following statements about an economy based totally on individual decision making is true?

A) No economy like this exists in the real world.
B) Goods and services go to those who need them most.
C) An economy like this depends on government regulation to ensure that buyers and sellers can communicate their intentions.
D) All of the above.

Question 73

The strength of a market system is:

A) it encourages businesses to produce in an efficient manner.
B) it encourages people to acquire skills that are valued by employers.
C) information passes directly between buyers and sellers, facilitating rapid adaptation of economic processes to changing conditions.
D) all of the above.

Question 74

In a market system:

A) profit and income incentives cause resources to be used inefficiently.
B) prices reflect the values of buyers and sellers rather than government planners.
C) production and distribution decisions reflect the value judgments of sellers but not buyers.
D) all of the above.

Question 75

Market economies tend to produce goods and services efficiently because:

A) profit incentives are a driving force behind business production decisions.
B) information required for production decisions passes directly between buyers and sellers via prices.
C) both of the above.
D) none of the above.

Question 76

A drawback of the market system in dealing with the basic economic questions is:

A) it depersonalizes economic decision-making.
B) it produces high incomes for people with highly valued skills, and owners of highly valued resources.
C) it does not protect people with inadequate knowledge about products.
D) power is always concentrated on the side of businesses and consumers have no influence on business decisions.

Question 77

A weakness of a market system is:

A) it generates products that consumers do not want.
B) it generates low quality products when there are competing producers.
C) it does not encourage people to develop skills that allow them to be successful.
D) the incentive to produce at minimum cost could lead to environmental damage.

Question 78

When a market system causes a problem or cannot achieve a goal set by society there is:

A) mercantilism.
B) market failure.
C) market socialism.
D) no alternative but to go to a purely planned economy.

Question 79

Cost-minimizing efforts by businesses that lead to pollution or inferior products are examples of:

A) project risk.
B) market failure.
C) command breakdown.
D) all of the above.

Question 80

Market failure occurs when:

A) the price system fails to equalize income differentials between individuals.
B) public policy produces a problem for society or fails to achieve society's goals.
C) the price system produces a problem for society or fails to achieve society's goals.
D) government intervention in a market distorts price signals and produces inefficiency.