Economics Chapter 2 Practice

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In a(n) __________ (one word or abbreviation) owners bear no personal financial responsibility for the firm’s debts and obligations.
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corporation
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The product market is the place where: a) businesses sell resources and households buy resources b) businesses sell goods and services and households buy goods and services c) businesses sell resources and households buy goods and services d) businesses sell resources and households sell goods and services
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b) businesses sell goods and services and households buy goods and services
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Which of the following describe a command system? (select two) a) Government ownership of most or all resources b) Firms and households acting in their own self-interest c) A government-appointed central planning board d) Firms producing what consumers demand
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a) Government ownership of most or all resources c) A government-appointed central planning board
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Exchange or trade resulting from specialization can and sometimes does occur through __________. (select two) a) barter b) a coincidence of wants c) absolute advantage d) division of labor
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a) barter b) a coincidence of wants
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Which of the following does not occur in the resource market? a) Households own economic resources directly as workers or entrepreneurs. b) Businesses buy resources from households because they are necessary for producing goods and services. c) Households produce goods d) Households sell resources and businesses buy them e) Households own all economic resources indirectly through their ownership of business corporations
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c) Households produce goods
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In a market system, private property refers to the right of private firms and individuals, not the __________, to own most property resources such as land and capital.
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government
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A business owned and managed by a single person is called a: a) sole proprietorship b) s corporation c) monopoly d) corporation
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a) sole proprietorship
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Three virtues of the market system include ______, _______, and ________. a) equal income distribution b) efficiency c) incentives d) freedom e) positive externalities
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b) efficiency c) incentives d) freedom
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A ____________ (one word) is an institution or mechanism that brings buyers and sellers into contact.
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market
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When every economic unit in a society such as individuals, firms or government attempts to achieve their own particular goal usually requiring delivering something of value to others,this is referred to as: a) freedom of choice b) self-interest c) greed d) trade
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b) self-interest
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In descending order of economic freedom, list the four degrees of economic freedom exhibited throughout the world. a) repressed b) mostly unfree c) free d) mostly free
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1. free 2. mostly free 3. mostly unfree 4. repressed
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A ___________(one word) is cited as natural outgrowth of the sole proprietorship.
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partnership
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The creation of new products and production methods that completely destroys the market positions of firms that are wedded to existing products and older ways of doing business is called: a) creative destruction b) technological advance c) capital accumulation d) central planning
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a) creative destruction
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Identify the three virtues of the market system. a) exuberance b) efficiency c) freedom d) incentives e) greed
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b) efficiency c) freedom d) incentives
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Which of the following collectively direct or directs resources to industries that are meeting consumer wants and away from industries that are not meeting consumer wants? (select two) a) Producer sovereignty b) Consumer sovereignty c) Dollar votes
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b) Consumer sovereignty c) Dollar votes
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In the circular flow model, the market economy creates: a) a flow of money among economic units such as households and businesses b) continuous, repetitive flows of goods and services, resources and money. c) a flow of goods and services among households d) and expands the available resources needed for the production of goods and services
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b) continuous, repetitive flows of goods and services, resources and money.
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An economic system intends to address __________ goods and services are to be produced, _____________ they are produced, ____________ gets what is produced, how to accommodate change and how to promote technological progress.
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what, how, who
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A technology or mechanism that brings buyers and sellers together is known as: a) private property b) a market c) competition d) voting polls
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b) a market
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Which of the following are the key components of the market system? a) Capital b) Government c) Prices d) Investment e) Markets
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a) Capital c) Prices e) Markets
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The five questions that every society must address reflect the reality of __________ resources in a world of ____________ wants.
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limited; unlimited
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What type of society needs to develop an economic system? a) A society that does consistently flourish and grow b) A society with unlimited resources c) A society with limited resources d) A society that has determined what goods to produce and how to produce them
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c) A society with limited resources
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Human specialization or division of labor contributes to a society’s output in which of the following ways? (select three) a) Specialization limits imports and fosters greater levels of exports b) Specialization makes use of differences in ability c) Specialization fosters learning by doing d) Specialization saves time
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b) Specialization makes use of differences in ability c) Specialization fosters learning by doing d) Specialization saves time
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Which of the following are economic problems which were faced by the former Soviet Union, Eastern Europe, and China (prior to its market reforms)? (Select two) a) Dysfunctional capital markets b) Incentive problem c) Diminishing returns problem d) Coordination problem
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b) Incentive problem d) Coordination problem
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An active, but limited government is an example of which market system in advanced industrial economies? a) Command system b) Free market system c) Centrally planned system
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b) Free market system
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The goods and services produced by an economic unit through ___________ can be exchanged for a full range of desired products by other economic units. a) Capital intensiveness b) Specialization c) Competition d) Labor Intensiveness
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b) Specialization
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Pure capitalism is also known as _______ capitalism. a) Market b) Free c) Laissez-faire d) Mixed market
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c) Laissez-faire
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Which of the following best illustrates exchange through barter? a) The purchase of 100 acres of farmland for $2 million dollars b) Farmer John trades his corn for some of his neighbor’s oranges c) The daily exchange of stocks and bonds on the New York Stock Exchange
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b) Farmer John trades his corn for some of his neighbor’s oranges
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Freedom of ____________ ensures that entrepreneurs and private businesses are free to obtain and use economic resources to produce their choice of goods and services.
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enterprise
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Private individuals and firms, not the government, own most of the property resources such as land and capital in a free ___________ system.
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market
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In the market system, consumers exercise ___________. That is, consumers are in command and spend their income on the goods and services they are most willing and able to buy. a) opportunity cost b) consumer sovereignty c) marginal analysis d) demand
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b) consumer sovereignty
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The least-cost production technique depends on: a) the level of taxation b) the prices of consumer goods c) the available technology d) the cost of the needed resources
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c) the available technology d) the cost of the needed resources
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_________ is the human specialization of some process. a) Absolute advantage b) Comparative advantage c) Human capital d) Capital efficiency e) Division of labor
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e) Division of labor
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Money performs several functions, but first and foremost it is a: a) resource b) medium of exchange c) bartered good d) coincidence of wants e) necessary evil f) market
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b) medium of exchange
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The “invisible hand” refers to firms and resource suppliers, in seeking to further their own interests, promote: a) the interests of households only b) the public or social interest c) the interests of the government d) the private interest of all parties involved
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b) the public or social interest
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The Wealth of Nations was written by: a) John Keynes b) Carl Menger c) Adam Smith d) Ben Bernake e) David Ricardo
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c) Adam Smith
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Under the market system, ________ and ________ coordinate and direct economic activity. a) government;consumers b) government;the private sector c) markets; government d) markets; prices
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d) markets; prices
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In recent years, new MP3 and digital technologies have started to replace compact disks. This is an example of: a) Technological destruction b) Capital accumulation c) Creative destruction d) Central planning
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c) Creative destruction
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_________ is a particular set of institutional arrangements and a coordinating mechanism that responds to the economizing problem. a) An economic system b) A political system c) A judicial system d) A democratic system
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a) An economic system
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Private ________ rights, coupled with freedom to negotiate binding legal _________ enables individuals and businesses to obtain, use, and dispose of property resources as they see fit.
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property, documents
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Freedom of __________ enables owners to employ or dispose of their property and money as they see fit.
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choice
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Which of the following does competition require? a) Freedom of sellers and buyers to enter or leave markets b) Mutually exclusive economic transactions c) Two or more buyers and two or more sellers acting independently in a particular market d) Two or more buyers and two or more sellers acting dependently in a particular market
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a) Freedom of sellers and buyers to enter or leave markets c) Two or more buyers and two or more sellers acting independently in a particular market
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The goods and services produced by an economic unit through ________ can be exchanged for a full range of desired products produced by other economic units. a) Capital intensiveness b) Labor intensiveness c) Specialization d) Competition
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c) Specialization
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Over the years, many people have benefited from the technological innovations and advancements such as the personal computer and medical discoveries. This illustrates which of the following concepts? a) Invisible hand b) Inefficiency c) Incentives d) Greed
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a) Invisible hand
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Which of the following enables individuals and businesses to obtain, use and dispose of property resources as they see fit? (select two) a) Freedom to negotiate binding legal contracts b) Public domain c) Financial means d) Private property rights e) Private property limits
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a) Freedom to negotiate binding legal contracts d) Private property rights
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Households obtain income in the _________ market in order to buy the goods and services that businesses produce in the _________ market.
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resource, product
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In the circular flow model: a) households spend income in the product market b) households produce goods c) firms sell resources to households d) households receive income through the product market
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a) households spend income in the product market
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Which of the following provide the opportunity and motivation for technological advance? a) self-interest b) personal reward c) competition d) corporate taxes e) freedom of choice
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a) self-interest b) personal reward c) competition e) freedom of choice
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Which of the following best describes the concept of laissez-faire capitalism? (Select two) a) The role of government is limited to ensuring the appropriate operation of the market system. b) Capitalism in which the role of government is unlimited. c) Capitalism in which the role of government is to correct market failures d) The role of government is limited to protecting private property
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a) The role of government is limited to ensuring the appropriate operation of the market system. d) The role of government is limited to protecting private property
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Private property rights, coupled with the freedom to negotiate binding legal ____________ enables individuals and businesses to obtain, use, and dispose of property resources as they see fit.
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documents
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According to the circular flow model, households buy the goods and services that businesses make available in the ___________ market.
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product
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Intellectual property is an extension of property rights through: a) patents b) injunctions c) trademarks d) copyrights e) exchanges
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a) patents c) trademarks d) copyrights
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In a market economy, goods and services are distributed: a) to consumers on the basis of their ability and willingness to pay their existing market price b) according to the needs of society as determined by government, firms, and households c) equally among all consumers d) according to the needs of society as determined by the government
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a) to consumers on the basis of their ability and willingness to pay their existing market price
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Which of the following describes the virtues of incentives? a) Assumption of risk by entrepreneurs to innovate and improve the general standard of living b) Assumption of risk by entrepreneurs leading to substantial losses c) hard work, skill acquisition, and innovation d) greater work skills and effort mean greater production and higher income leading to higher standards of living
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a) Assumption of risk by entrepreneurs to innovate and improve the general standard of living c) hard work, skill acquisition, and innovation d) greater work skills and effort mean greater production and higher income leading to higher standards of living
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Competition among ____________ and _____________ diffuses economic power within the economic units that make up the economy.
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sellers; buyers
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Under the market system, ____________ and ____________ coordinate and direct economic activity. a) government; the private sector b) government; consumers c) markets; government d) markets; prices
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d) markets; prices
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Monies that flow out of businesses to pay for resources are costs to businesses, but they represent which of the following types of flows to the households? a) goods and services b) profit income c) interest d) rent e) wages
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b) profit income c) interest d) rent e) wages
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Choose those characteristics that best describe a command system. a) A central planning board makes all economic decisions concerning resources b) Firms produce according to the demands of consumers c) Government owns resources d) The division of output between capital and consumer goods is decided by market forces
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a) A central planning board makes all economic decisions concerning resources c) Government owns resources
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In which country is laissez-faire capitalism most likely to be practiced? a) Cuba b) United States c) North Korea d) Libya
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b) United States
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The way to get ahead in a command economy, such as in the economies of the former Soviet Union, Eastern Europe, and China prior to market reforms, was through: a) profit, enterprise, and innovation b) innovation, entrepreneurship, and incentive c) participation in the political hierarchy of the Communist party d) incentive and coordination
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c) participation in the political hierarchy of the Communist party
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Which of the following summarize the product market? a) Good and services produced are bought and sold. b) The government determines whether a good or service should continue to be produced based on revenues received from sales. c) Businesses determine whether a good or service should continue to be produced based on revenues received from sales. d) Households use income received from the sale of resources to buy goods and services. e) Consumer spending on goods and services yields sales revenues from businesses.
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a) Good and services produced are bought and sold. c) Businesses determine whether a good or service should continue to be produced based on revenues received from sales. d) Households use income received from the sale of resources to buy goods and services. e) Consumer spending on goods and services yields sales revenues from businesses.
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A central planning board sets the division of output between capital and consumer goods in a ___________ system. a) capitalist b) market c) mixed market d) command
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d) command
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Which of the following best describe the reasons that specialization increases the total output society derives from the limited resources? a) Specialization obstructs exchange. b) Specialization saves time. c) Specialization makes use of differences in ability. d) Specialization fosters learning by doing.
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b) Specialization saves time. c) Specialization makes use of differences in ability. d) Specialization fosters learning by doing.
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Competition among economic units: (select two) a) implies that producers can enter or leave an industry b) is not congruent with the concept of self-interest c) diffuses economic power within the businesses and households that make up the economy d) should not occur within a market system
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a) implies that producers can enter or leave an industry c) diffuses economic power within the businesses and households that make up the economy
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Specialization is about an individual or firm using available resources to: a) produce a wide variety of goods and services b) only a single unit of a good or service c) producing only services d) produce one or only a few goods and services
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d) produce one or only a few goods and services
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Under which of the following does specialization work? (select four) a) Firm level b) Active, but limited government c) Individual level d) Internationally e) Regionally
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a) Firm level c) Individual level d) Internationally e) Regionally
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Property rights also extend to: a) Private property b) Public property c) Intellectual property d) Majority property
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c) Intellectual property
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Freedom of ___________ enables owners to employ or dispose of their property and money as they see fit.
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Choice
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In order to have competition in a market economy, there must be at least ___________ or sellers acting independently in a particular market. a) 3 b) 4 c) 1 d) 2 e) 5
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d) 2
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A market system decides on what to produce based on: a) Total revenue exceeding total costs in the production of a good or service b) Available financial resources at a particular time c) The prices of the needed resources in relationship to production costs d) The movement of resources toward an industry that exhibits continued profits from producing a good or service e) continued economic profit from producing a good or service
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a) Total revenue exceeding total costs in the production of a good or service d) The movement of resources toward an industry that exhibits continued profits from producing a good or service e) continued economic profit from producing a good or service
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Both land and labor would be bought and sold in the _________ market. a) resource b) financial c) capital d) product
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a) resource
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Which of the following best describe the virtue of efficiency? (Select two) a) The market encourages the development and adoption of new and more efficient production techniques. b) The market system promotes the efficient uses of resources by guiding them into the production of goods and services most wanted by society. c) The market system allocates resources equally in order to produce goods and services.
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a) The market encourages the development and adoption of new and more efficient production techniques. b) The market system promotes the efficient uses of resources by guiding them into the production of goods and services most wanted by society.
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Which of the following describe the virtue of freedom? a) Entrepreneurs and workers are free to further their own self-interest, subject to the rewards and penalties imposed by the market system itself. b) The market system permits-indeed, it thrives on- freedom of enterprise and choice. c) The command system coordinates economic activity to encourage growth and innovation. d) The market system coordinates economic activity to encourage growth and innovation.
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a) Entrepreneurs and workers are free to further their own self-interest, subject to the rewards and penalties imposed by the market system itself. b) The market system permits-indeed, it thrives on- freedom of enterprise and choice. d) The market system coordinates economic activity to encourage growth and innovation.
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Which of the following best describe who will get the goods and services produced in a market economy? a) Those who are willing to wait for goods and services b) Those who have sufficient income and want to spend money on a particular good c) Those whose incomes come from supplying sufficient property, human and other resources d) Those who are willing and able to pay
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b) Those who have sufficient income and want to spend money on a particular good c) Those whose incomes come from supplying sufficient property, human and other resources d) Those who are willing and able to pay
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___________, as well as technology increases the total output society derives from _________ resources. a) specialization; natural b) specialization; scarce c) capital; unlimited d) trade; natural
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b) specialization; scarce
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Freedom of enterprise ensures that ________ and ___________ are free to obtain and use economic resources to produce their choice of goods and services and to sell them in their chosen markets. a) policymakers; businesses b) entrepreneurs; consumers c) entrepreneurs; businesses d) consumers; producers
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c) entrepreneurs; businesses
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In the circular flow model, businesses will buy resources from and sell products to ___________ (select two) a) households b) other businesses c) government d) foreign countries
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a) households b) other businesses
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The title to an automobile or the deed to a cattle ranch assures a buyer that the seller is the legitimate owner of that property. This is an example of property rights __________. a) encouraging investment b) encouraging the maintenance of property c) encouraging innovation d) facilitating exchange e) facilitating economic growth
answer

d) facilitating exchange
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Advanced technology and capital goods are important because a) the most productive methods are often the most efficient. b) the most direct methods of producing a good or service are often the least efficient. c) the most productive methods are often the least efficient. d) the most direct methods of producing a good or service are often the most efficient.
answer

a) the most productive methods are often the most efficient. b) the most direct methods of producing a good or service are often the least efficient.
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The command economies of the former Soviet Union and of Eastern Europe failed due to: a) the invisible hand. b) coordination problems. c) incentive problems. d) the market economic system.
answer

b) coordination problems. c) incentive problems.
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Freedom of entry and exit of producers enables the economy to adjust to changes in which of the following areas? a) Consumer tastes b) Resource availability c) Technology d) Wage levels
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a) Consumer tastes b) Resource availability c) Technology
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In the type of capitalism practiced in the United States and most other countries, the government plays __________ roles. a) a substantial b) a minimal c) a divisive d) no
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a) a substantial
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The fuction of businesses in the circular flow model is ________ resources and ________ products. a) combine; buy b) finance; sell c) sell; purchase d) purchase; sell
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d) purchase; sell
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Entrepreneurs will realize ___________ if they make wise choices and ___________ if they choose poorly.
answer

profit; losses
question

In a market system, specialization requires exchange. Which of the following best describes the use of money in exchange? a) Barter facilitates exchange by preventing a coincidence of wants usually resulting from the money. b) Money facilitates exchange by preventing a coincidence of wants usually resulting from barter. c) Money facilitates exchange by ending the need for a coincidence of wants usually resulting barter. d) Barter facilitates exchange by preventing a non-coincidence of wants usually resulting from money.
answer

c) Money facilitates exchange by ending the need for a coincidence of wants usually resulting barter.
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Efficiency, incentives, and freedom are the three virtues of a free __________ system.
answer

market
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Innovation, exchange, investment, property maintenance and economic growth are all encouraged by: a) property rights b) mutually exclusive economic transactions c) public spending d) public domain
answer

a) property rights
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Which of the following best describe how goods and services will be produced? (select two) a) Through the maximization-cost production method b) By utilizing the right mix of labor and capital c) By utilizing a level of labor equal to the level of capital available to a firm d) By locating production facilities optimally to hold down production and transportation expenses
answer

b) By utilizing the right mix of labor and capital d) By locating production facilities optimally to hold down production and transportation expenses
question

The price of a new 32 inch HDTV would be determined in the: a) capital market b) resource market c) product market
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c) product market
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The definition of business success in the command economies of the former Soviet Union, eastern Europe, and China prior to market reforms was based on: a) profit b) enterprise c) entrepreneurship d) political savvy
answer

d) political savvy
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Under a market system, only a firm’s __________ are subject to business risk.
answer

owners
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Capital accumulation refers to the accumulation of: (select three) a) physical capital goods that are used to build consumer goods. b) physical capital goods that yield even greater profit income in the future. c) money from wages, income, rents, stocks, bonds, and other financial instruments. d) physical capital goods that are required to advance technology
answer

a) physical capital goods that are used to build consumer goods. b) physical capital goods that yield even greater profit income in the future. d) physical capital goods that are required to advance technology
question

In order to cope with the difficulties in coordinating the production of goods and services, central planners in the former Soviet Union took which of the following actions? a) Removed bonus pay from workers. b) Offered bonus pay to workers. c) Enhanced product variety. d) Suppressed product variety.
answer

d) Suppressed product variety.

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