Chapter 1 practice quiz

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One major element of the command system is:
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Central planning conducted by the government
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Insurance companies facilitate the transfer of risk from:
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Those who have a low-risk tolerance to those with high risk-tolerance
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Economic systems differ from one another based on who own the factors of production and:
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Who make decisions regarding what to produce and how it is produced
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In a market system, a firm’s employees are typically shielded from business risk by:
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Wage contracts
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If two variables are completely unrelated to each other, then graphing these two variables will yield a line that is:
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Either vertical or horizontal
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Which question is an example of a microeconomic question?
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Will the merger of two airlines likely lead to higher cost of air travel in the economy?
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If economic resources are perfectly interchangeable between the two products shown on a production possibilities graph:
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The production possibilities curve would be a straight line
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Which is an example of barter?
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A person trades a desk for a box of tools
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Laissez-faire capitalism is characterized by:
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Very limited government role in the economy
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The term consumer sovereignty means that:
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What is produced is ultimately determined by what consumers buy
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From an economic perspective, when a student decides to go to the movies instead of studying for a test, it indicates that in the student’s thinking the marginal:
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Cost of going to the movies is less than the marginal benefit of going to the movies
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What is the best economic explanation for why a person would drop out of college to take a job or start a business?
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the expected future benefits from starting a business now are greater than the costs
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One basic problem faced by central planners, but hardly present in a market system, has to do with:
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Coordinating production in various industries so that bottlenecks do not develop
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Capitalism gets its name from the fact that capital resources are mostly:
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Treated as private property
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Which of the following is not a reason why specialization and trade are beneficial to society?
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Firms and workers become less dependent on others for producing goods and services
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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:
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The invisible hand
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Laissez-faire capitalism limits the government’s economic functions to the following, except:
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Setting prices of individual goods and services
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If economic profits in a particular industry increase, then we would expect:
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Firms to enter that industry thus expanding it
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The market economy is regarded as “efficient” in that:
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It directs resources towards products that the society wants most
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Assume that a consumer purchases only two products and there is a decrease in the consumer’s income. The prices of the two products stay constant. The decrease in income will result in a:
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Shift of the budget line inward to the left
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Suppose that a consumer purchases just two goods, X and Y. The slope of the budget line would indicate the:
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Opportunity cost of good X in terms of good Y given up for each unit of Y
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Which of the following statements about the right to private ownership is false?
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It weakens the incentive to maintain the property that one already owns
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Consumers express self-interest when they:
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Seek the lowest price for a product
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The government may impose industrial safety regulations and occupational licensing requirements in which of the following economic systems?
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Mixed market economy
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Which situation would most likely cause a nation’s production possibilities curve to shift inward?
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The destruction caused by bombing and warfare in a losing military conflict
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Which of the following best describes the “invisible hand” concept?
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Self-interest in a market system will automatically promote the public interest as well
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Anything that is generally acceptable in trading for goods and services is a:
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Medium of exchange
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The Heritage Foundation in 2012 ranked which of the following economies to have among the highest economic freedom?
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Hong Kong
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In a market system, as one industry expands while another contracts, resources will flow:
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From one industry due to the changes in resource prices paid by firms

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