Econ 202 Chapter 2 UL Cary Heath – Flashcards

In a market system scarce goods are allocated through the operation of

In a command economy scarce goods are allocated by

Self-interest helps achieve society's economic goals because

There is a wide variety of desired goods and services in a market system because

What is produced is ultimately determined by

The market system depends on private property ownership and the protection of private property rights to

The use of capital in the production process

"Division of labor" means that workers

When an economy relies on specialization,

Barter requires that you

The use of money

Consider the statement: "We want money only to part with it." When people express a desire to 'have money,' they really want

Consider the following statement: "The market system is a profit-and-loss system." This statement is

Consider the following statement: "Competition is the disciplinarian of the market economy." This statement is

Some large hardware stores such as Home Depot boast of carrying as many as 20,000 different products in each store. This volume of goods is the result of

The emergence of the MP3 (iPod) technology is an example of "creative destruction" because

The phrase "invisible hand" means that

In market economies, firms rarely worry about the availability of inputs to produce their products, whereas in command economies input availability is a constant concern because

in the circular flow model

In the circular flow model there is a flow of

Millions of economic resources tend to get arranged logically and productively rather than haphazardly and unproductively because

Decide whether each of the following descriptions most closely corresponds to being part of a command system, a market system, or a laissez-faire system. a. A woman who wants to start a flower shop finds she cannot do so unless the central government has already decided to allow a flower shop in her area: b. Shops stock and sell the goods customers want but the government levies a sales tax on each transaction to fund elementary schools, public libraries, and welfare programs: c. The only taxes levied by the government are to pay for national defense, law enforcement, and a legal system designed to enforce contracts between private citizens:

Match each term with the correct definition. a. An institution that brings buyers and sellers together: b. The right of private persons and firms to obtain, control, employ, dispose of, and bequeath land, capital, and other property: c. The presence in a market of independent buyers and sellers who compete with one another and who are free to enter and exit the market as they each see fit: d. The freedom of firms to obtain economic resources, decide what products to produce with those resources, and sell those products in markets of their choice: e. What each individual or firm believes is best for itself and seeks to obtain: f. Economic transactions willingly undertaken by both the buyer and the seller because each feels that the transaction will make him or her better off: g. The freedom of resource owners to dispose of their resources as they think best; of workers to enter any line of work for which they are qualified; and of consumers to spend their incomes in whatever way they feel is most appropriate:

True or False: Money must be issued by a government for people to accept it.

Match each of the quotes with the correct term. a. "If you compare a list of today's most powerful and profitable companies with a similar list from 30 years ago, you will see lots of new entries:". b. "Managers in the old Soviet Union often sacrificed product quality and variety because they were being awarded bonuses for quantitative, not qualitative, targets:". c. "Each day, central planners in the old Soviet Union were tasked with setting 27 million prices—correctly:" d. "It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest:"

True or False: Households sell finished products to businesses.

Franklin, John, Henry, and Harry have decided to pool their financial resources and business skills in order to open up and run a coffee shop. They will share any profits or losses that the business generates and will be personally responsible for making good on any debt that their business undertakes. Their business should be classified as a:

Ted and Fred are the owners of a gas station. They invested $150,000 each and pay an employee named Lawrence $35,000 per year. This year revenues are $900,000, while costs are $940,000. Who is legally responsible for bearing the $40,000 loss?

Suppose Natasha currently makes $80,000 per year working as a manager at a cable TV company. She then develops two possible entrepreneurial business opportunities. In one, she will quit her job to start an organic soap company. In the other, she will try to develop an Internet-based competitor to the local cable company. For the soap-making opportunity, she anticipates annual revenue of $465,000 and costs for the necessary land, labor, and capital of $395,000 per year. For the Internet opportunity, she anticipates costs for land, labor, and capital of $3,250,000 per year as compared to revenues of $3,275,000 per year. a. Should she quit her current job to become an entrepreneur? b. If she does quit her current job, which opportunity would she pursue?

With current technology, suppose a firm is producing 800 loaves of banana bread daily. Also assume that the least-cost combination of resources in producing those loaves is 6 units of labor, 5 units of land, 4 units of capital, and 1 unit of entrepreneurial ability, selling at prices of $40, $60, $60, and $20, respectively. Assume the firm can sell these 800 loaves at $1 per unit. a. What is the firm's total revenue? $. b. What is its total cost? $. c. Calculate the amount of economic profit or loss. $. d. Will it continue to produce banana bread? e. If this firm's situation is typical for the other makers of banana bread, will resources flow toward or away from this bakery good?