chapter 2 – Flashcards
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According to the circular flow model of the market system, firms get their ability to pay for their costs of production from the revenues that they receive for their products.
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True
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Enterprise managers and workers in the Soviet Union often resisted innovations in production methods because:
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production targets were often increased when innovation occurred
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The dollar votes of consumers ultimately determine the composition of output and the allocation of resources in a market economy. This statement best describes the concept of:
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consumer sovereignty.
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Which of the following is one of the Five Fundamental Questions?
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What goods and services will be produced?
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Innovation lagged in the centrally planned economies because:
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enterprises resisted innovation in fear that their production targets would be raised.
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The incentive problem under communist central planning refers to the idea that:
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workers, managers, and entrepreneurs could not personally gain by responding to shortages or surpluses or by introducing new and improved products.
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The market system's answer to the fundamental question "How will the system accommodate change?" is essentially:
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"Through the guiding function of prices and the incentive function of profits."
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Which of the following best illustrates the circular flow model in action?
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All of these answers illustrate the workings of the circular flow model.
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In what type of business do the owners bear no personal financial responsibility for the company's debts and obligations?
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Corporations.
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Refer to the diagram. Arrows (1) and (3) are associated with:
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the resource market.
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Economic systems differ according to which two main characteristics?
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Who owns the factors of production and the methods used to coordinate economic activity.
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Copyrights and trademarks are examples of:
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property rights
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Which of the following is a distinguishing feature of laissez-faire capitalism?
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Minimal government intervention.
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The simple circular flow model shows that:
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households are on the selling side of the resource market and on the buying side of the product market.
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(Consider This) In 1975, McDonald's introduced its Egg McMuffin breakfast sandwich, which remains popular and profitable today. This longevity illustrates the idea of:
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consumer sovereignty.
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Households and businesses are:
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sellers in the resource and product markets respectively.
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The competitive market system:
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encourages innovation because successful innovators are rewarded with economic profits
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The market system:
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effectively harnesses the incentives of workers and entrepreneurs.
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If consumer desire for product X increases, all of the following will occur except:
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a decrease in the quantity of resources employed in industry X.
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In terms of the circular flow diagram, households make expenditures in the _____ market and receive income through the _____ market.
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product; resource
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If products were in short or surplus supply in the Soviet Union:
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producers would not react because no price or profit signals occurred.
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The market system's answer to the fundamental question "How will the goods and services be produced?" is essentially:
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"In ways that minimize the cost per unit of output."
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According to the concept of the "invisible hand," if Susie opens and operates a profitable childcare center, then:
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she has served society's interests by providing a desired good or service
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From society's point of view, the economic function of profits and losses is to:
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reallocate resources from less desired to more desired uses.
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If competitive industry Y is incurring substantial losses, output will:
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contract as resources move away from industry Y.
