econ ch 2 – Flashcard Test Answers
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B. Who make decisions regarding what to produce and how it is produced
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1. Economic systems differ from one another based on who own the factors of production and: A. How much resources are available in the economy and where they are located B. Who make decisions regarding what to produce and how it is produced C. What kinds of products are produced in the economy and how plentiful they are D. How big the population is, and the makeup of the population
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C. Gives private individuals the right to own resources used in production
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2. The market system is an economic system that: A. Produces more consumer goods than capital goods B. Produces more capital goods than consumer goods C. Gives private individuals the right to own resources used in production D. Emphasizes the government's power to control markets and direct economic activity
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A. Capitalism
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3. The market system is also known as: A. Capitalism B. Socialism C. Central planning D. Production system
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D. Setting prices of individual goods and services
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4. Laissez-faire capitalism limits the government's economic functions to the following, except: A. Protecting private property rights B. Establishing a legal environment to enforce contracts among individuals C. Preventing individuals and firms from coercing others D. Setting prices of individual goods and services
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D. Central planning conducted by the government
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5. One major element of the command system is: A. An emphasis on private ownership of resources B. Individual decentralized decision-making C. Reliance on supply-and-demand forces to guide economic activity D. Central planning conducted by the government
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C. Mixed market economy
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6. The government may impose industrial safety regulations and occupational licensing requirements in which of the following economic systems? A. Laissez-faire economy B. Pure capitalism C. Mixed market economy D. Macroeconomic system
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C. The government makes production and allocation decisions
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7. In a command system: A. Self-interest motivates and commands each business firm's decisions and actions B. The head of each family decides what to do with the family's resources C. The government makes production and allocation decisions D. Market traders command what outputs are produced and how they are allocated
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D. Prevention of owners of capital from exposing this resource to risk
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8. Which of the following would not be emphasized in a capitalist economy? A. Private ownership of capital and other resources B. Competition and decentralized decisions C. Reliance on market forces to coordinate economic activity D. Prevention of owners of capital from exposing this resource to risk
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A. Laissez-faire capitalism
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9. The government may not implement policies intended to redistribute income in which of the following economic systems? A. Laissez-faire capitalism B. Command system C. Mixed economy D. Market system
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A. Similar in that they are both basically command systems
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10. The economies of North Korea and Cuba are: A. Similar in that they are both basically command systems B. Similar in that they are both basically market systems C. Different in that North Korea has a command system while Cuba has a market system D. Different in that Cuba has a command system while North Korea has a market system
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A. Very limited government role in the economy
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11. Laissez-faire capitalism is characterized by: A. Very limited government role in the economy B. Active government intervention in the economy C. Individuals and firms abiding by a government economic plan D. A very fair distribution of income and wealth
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B. Firms are free to employ resources, to produce their output, and to sell their products
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12. By freedom of enterprise, we mean that individual: A. Workers are free to look for jobs and work in whichever firm will hire them B. Firms are free to employ resources, to produce their output, and to sell their products C. Producers are free to produce whatever the government decides are needed by the society D. Consumers are free to buy whatever products will satisfy their needs the most
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C. Treated as private property
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13. Capitalism gets its name from the fact that capital resources are mostly: A. Owned by the state or government B. Given the highest priority in the economy's income distribution C. Treated as private property D. In the form of money and financial resources
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D. Freedom of choice and enterprise are essential elements of the market system
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14. Which of the following statements is correct? A. The operation of a market system eventually results in an equal distribution of income B. Producers are "sovereign" in a market economy because they determine what is produced C. The market system is efficient at allocating resources, but not at allocating products D. Freedom of choice and enterprise are essential elements of the market system
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D. Coordinates and creates consistency in the operations of various parts of the economy
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15. In a market system, self-interest is the motivating force that: A. Makes individuals unwilling to deliver anything of value to others B. Makes owners of resources always want to use their resources themselves C. Leads the economy to chaos and confusion, especially the larger economies D. Coordinates and creates consistency in the operations of various parts of the economy
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A. Seek the lowest price for a product
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16. Consumers express self-interest when they: A. Seek the lowest price for a product B. Reduce business losses C. Collect economic profits D. Exclude others in their thinking
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B. Trades that take place in the economy are mutually-agreeable transactions among individuals
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17. Private ownership and property rights in a market system have the following implications, except: 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
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A. There is easy entry into and exit out of industries
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18. Competition is more likely to exist when: A. There is easy entry into and exit out of industries B. A government-issued license is required to set up a firm in an industry C. The government purchases most goods and services D. Economic power is concentrated among a few large firms
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A. The diffusion of economic power limits its potential abuse
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19. Competition in a market system denotes a condition where: A. The diffusion of economic power limits its potential abuse B. Any given product can be purchased at a wide range of prices C. Contractual agreements among individual firms are restricted and avoided D. A few large sellers are constantly jostling for market share
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20. Which of the following statements about markets and prices is correct? A. In a market system, buyers and sellers must be in face-to-face contact with each other B. Prices affect the distribution of goods in a market system but not the allocation of resources C. In a market system, prices serve to ration goods and services to consumers D. The operation of a market system has little, if any, effect on the distribution of income in the economy
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C. A central planning agency
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21. In a capitalist system, the decisions and actions of millions of consumers and firms are highly coordinated by: A. The state and government B. Markets and prices C. A central planning agency D. An international organization
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market economy except: A. Government prescribes the market prices for goods and services
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22. All of the following statements describe a market economy except: A. Government prescribes the market prices for goods and services B. Prices provide important signals to buyers and sellers C. The allocation of resources is determined by their prices D. The actions of buyers and sellers establish a product's price
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C. Reliance on the use of capital goods to expand total output
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23. A characteristic of the market system is: A. Extensive use of direct methods of production B. A focus on labor, as opposed to capital resources C. Reliance on the use of capital goods to expand total output D. Avoidance of producing goods that do not satisfy consumer wants directly
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D. Division of labor
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24. A production system where various workers concentrate on different specialized tasks to contribute towards a whole product is referred to as: A. A coincidence of wants B. Roundabout production C. Freedom of enterprise D. Division of labor
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B. At the individual, regional, and even international levels
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25. Specialization is beneficial: A. At the individual firm level, but not at the national and international levels B. At the individual, regional, and even international levels C. Only if there are differences in the abilities of resources D. Only as long as money and capital goods are employed
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A. A person trades a desk for a box of tools
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26. Which is an example of barter? A. A person trades a desk for a box of tools B. A person buys clothes at a used clothing store C. A gift of tuition money from parents to their children D. The purchase of stock on the New York Stock Exchange
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C. A medium of exchange
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27. Which of the following is necessary to make a trade in a barter economy? A. Money B. Unlimited wants C. A medium of exchange D. A coincidence of wants
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B. Often requires the exchange of currencies
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28. International specialization and trade: A. Has to be done on a barter system B. Often requires the exchange of currencies C. Does not illustrate the division of labor D. Requires active government regulation
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D. Government
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29. Which of the following is assumed to be most limited in scope under a market system? A. Entrepreneurship B. Self-interest C. Competition D. Government
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C. How will goods and services be produced?
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30. Which is one of the five fundamental questions that need to be dealt with in any economic system? A. What makes the rate of unemployment low? B. Who will be the richest group in the economy? C. How will goods and services be produced? D. How high should the prices of goods and services be?
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B. Why should the goods and services be produced?
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31. Which of the following is not one of the five fundamental questions that an economy must deal with? A. How will the goods and services be produced? B. Why should the goods and services be produced? C. Who is to receive the goods and services produced in the economy? D. In what ways will progress be promoted?
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A. Which output will be produced?
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32. Consumer sovereignty and "dollar votes" guide the market system in dealing with which fundamental economic question? A. Which output 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?
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B. What is produced is ultimately determined by what consumers buy
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33. The term consumer sovereignty means that: A. Government is responsible for protecting consumers' interests B. What is produced is ultimately determined by what consumers buy C. There are no limits on what consumers may buy in a market system D. Producers have strong control over what consumers buy
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D. Consumers "vote" for certain products to be produced by how they spend their incomes
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34. The term dollar votes in a market system means: A. Inflation will occur if consumers don't spend wisely B. Voters may be offered dollars to help elect certain political candidates C. Government is responsible for determining what will be considered legal tender D. Consumers "vote" for certain products to be produced by how they spend their incomes
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A. Costs
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35. Payments that a firm makes to obtain needed resources comprise its: A. Costs B. Profits C. Capital D. Revenues
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A. Competition
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36. In a market system, which of the following will eliminate high-cost producers, and allow only the low-cost producers to survive? A. Competition B. Money C. A sovereign government D. Specialization
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C. at the lowest cost per unit
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37. The production technique that is most efficient is the one that produces a given amount of output: A. using the least amount of labor resources B. at the highest price per unit C. at the lowest cost per unit D. that yields the highest revenues
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C. Consumer sovereignty and dollar votes
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38. McDonald's introduced the "Big Mac" in 1968 and it turned out to be a hit, but the "Arch Deluxe" introduced in 1996 was not. The success or failure of a product in the market system is determined by: A. Capitalism and entrepreneurship B. Specialization and exchange C. Consumer sovereignty and dollar votes D. Capital goods and roundabout production
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B. How is the output to be produced?
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39. Economic efficiency is the primary guide in answering which of the fundamental questions in a market economy? 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?
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A. The willingness and ability of consumers to pay the prices
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40. In a market system, the distribution of goods and services among consumers is largely determined by: A. The willingness and ability of consumers to pay the prices B. Whoever needs the goods and services the most C. Whoever has the closest connection to firms and the government D. A random factor that is almost impossible to predict
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D. Who will get the output?
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The distribution of income in a market system is a primary factor that resolves which of the following fundamental economic questions? A. What will be produced? B. How will the output to be produced? C. How will the system accommodate change? D. Who will get the output?
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In a market economy, the incomes of consumers depend primarily upon: 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
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C. Firms to enter that industry thus expanding it
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If economic profits in a particular industry increase, then we would expect: A. Resources to be diverted away from that industry B. Firms in that industry to produce less output C. Firms to enter that industry thus expanding it D. Consumers to buy less from that industry
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B. Demand for the industry's product is decreasing
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In a market system, resources will move away from an industry when: A. Profits of firms in the industry are rising B. Demand for the industry's product is decreasing C. The production of output in the industry is rising D. Profits of firms in other industries are falling
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A. Entrepreneurship
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"Creative destruction" in a market system is brought about by: A. Entrepreneurship B. Striking workers C. Regulation by the government D. Money-based trade
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C. Encourage firms to enter an industry
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An increase in the demand for a product and a reduction in its costs of production would: A. Decrease the profits of producers B. Encourage firms to leave an industry C. Encourage firms to enter an industry D. Cause a shortage of the product
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B. From one industry due to the changes in resource prices paid by firms
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In a market system, as one industry expands while another contracts, resources will flow: A. Away from the expanding industry towards the contracting one B. From one industry due to the changes in resource prices paid by firms C. Towards the industry where the product demand is declining D. Because resource allocation will have to equalize between the two industries
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C. Creative destruction
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The development of the digital video and camera which replaced film cameras is an example of: A. Roundabout production B. Derived demand C. Creative destruction D. Specialization
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D. A firm has to destroy some of the expired products in its inventory
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Which of the following does not illustrate the idea of creative destruction? A. Digital downloads have shrunk the market for CDs and DVDs B. Online retail sales have increased, while brick-&-mortar sales have slowed down C. The opening of a new mall reduces the traffic in another mall D. A firm has to destroy some of the expired products in its inventory
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B. The invisible hand
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The idea that the desires of resource suppliers and firms to further their own self-interest will automatically further the public interest is known as: A. Consumer sovereignty B. The invisible hand C. Derived demand D. Creative destruction
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B. It leads to equality in the distribution of income
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The major virtues of the market system include all of the following, except: A. It promotes an efficient allocation of resources B. It leads to equality in the distribution of income C. It provides incentives for greater production and higher incomes D. It emphasizes the freedom to pursue self-interest
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C. It directs resources towards products that the society wants most
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The market economy is regarded as "efficient" in that: A. It achieves the lowest rate of unemployment B. It leads to the lowest level of poverty in the society C. It directs resources towards products that the society wants most D. It puts the best people in government positions
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C. Coordinating production in various industries so that bottlenecks do not develop
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One basic problem faced by central planners, but hardly present in a market system, has to do with: A. Determining the production goals or targets in a factory B. Having limited resources and trying to match them with unlimited wants C. Coordinating production in various industries so that bottlenecks do not develop D. Providing financial resources for increasing the real flows of products in the economy
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A. The price is relatively unimportant in allocating resources
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A characteristic of centrally planned economies is that: A. The price is relatively unimportant in allocating resources B. Output reflects the pattern of consumer spending C. Entrepreneurship is quite prevalent and highly rewarded D. There are many incentives for innovation and hard work
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A. Individual economic incentive is reduced by the absence of the profit motive
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Which is true of an economy which operates entirely through central planning? A. Individual economic incentive is reduced by the absence of the profit motive B. There is relative ease in matching resource allocation to consumer demand C. Central planners receive market information through the price mechanism D. The system adapts easily to technological change
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C. Buy products and sell resources
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n the circular flow model of the market system, households: A. Buy products and resources B. Sell products and resources C. Buy products and sell resources D. Sell products and buy resources
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D. Sell products and buy resources
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In the circular flow model of the market system, business firms: A. Buy products and resources B. Sell products and resources C. Buy products and sell resources D. Sell products and buy resources
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The simple circular flow model shows that workers and capital-owners offer their services to firms through the: A. Product markets B. Resource markets C. Employment agencies D. Government agencies
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D. Businesses earn their revenues from households
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According to the circular flow model, product markets are where: A. Households earn their money incomes B. Businesses incur their consumption expenditures to households C. Businesses acquire their inputs from households D. Businesses earn their revenues from households
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D. Businesses earn their revenues from households
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In a market system, the task of assessing and managing the business risk of a firm is taken on by the firm's: A. Labor B. Capital suppliers C. Entrepreneurs D. Customers
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A. The profit and loss system
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Which of the following guides sensible decisions regarding the management of business risk in a market system? A. The profit and loss system B. The "invisible hand" C. Taxes and subsidies D. Consumer sovereignty
