Question 1

Households and businesses are

Accepted Answer

A) both buyers in the resource market. 
B) both sellers in the product market. 
C) sellers in the resource and product markets respectively. 
D) sellers in the product and resource markets respectively. 
A) both buyers in the resource market. 
B) both sellers in the product market. 
C) sellers in the resource and product markets respectively. 
D) sellers in the product and resource markets respectively.

Question 2

In a market system, the income earned by owners of natural resources is called interest income.Difficulty: 02 Medium
Learning Objective: 02-05 Describe the mechanics of the circular flow model.Test Bank: II Topic: The Circular Flow Model

Accepted Answer

A) True 
 B)False

Question 3

In a market system, entrepreneurs start businesses in order to earn a high salary.

Accepted Answer

A) True 
 B)False

Question 4

The guiding function of prices tends to keep resources flowing toward their most highly valued uses.

Accepted Answer

A) True 
 B)False

Question 5

The use of money contributes to economic efficiency because

Accepted Answer

A) governmental direction of the production and distribution of output can be avoided by using money. 
B) roundabout production could not occur without the availability of money. 
C) it is necessary for the creation of capital goods. 
D) it promotes specialization by overcoming the problems with barter. 
A) governmental direction of the production and distribution of output can be avoided by using money. 
B) roundabout production could not occur without the availability of money. 
C) it is necessary for the creation of capital goods. 
D) it promotes specialization by overcoming the problems with barter.

Question 6

An important aspect of the market system is that producers and consumers always have to consider the public interest in making production and consumption decisions.

Accepted Answer

A) True 
 B)False

Question 7

Economic efficiency is the primary guide in answering which of the fundamental questions in a market economy?

Accepted Answer

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? 
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?

Question 8

Private property

Accepted Answer

A) discourages cooperation because people don't want to part with what they own. 
B) discourages innovation, as people are often afraid to risk losing their own property. 
C) encourages owners to maintain or improve their property so as to preserve or enhance value. 
D) does everything indicated by the other answers. 
A) discourages cooperation because people don't want to part with what they own. 
B) discourages innovation, as people are often afraid to risk losing their own property. 
C) encourages owners to maintain or improve their property so as to preserve or enhance value. 
D) does everything indicated by the other answers.

Question 9

A production system where various workers concentrate on different specialized tasks to contribute toward a whole product is referred to as

Accepted Answer

A) a coincidence of wants. 
B) roundabout production. 
C) freedom of enterprise 
D) division of labor. 
A) a coincidence of wants. 
B) roundabout production. 
C) freedom of enterprise 
D) division of labor.

Question 10

The market system is an economic system that

Accepted Answer

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. 
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.

Question 11

The choice of the most efficient production technique is not affected by how much buyers want to buy the product.Difficulty: 02 Medium
Learning Objective: 02-03 Explain how the market system answers the five fundamental questions of what to produce, how to produce, who obtains the output, how to adjust to change, and how to promote progress.Test Bank: II Topic: Five Fundamental Questions

Accepted Answer

A) True 
 B)False

Question 12

In a market system, the task of assessing and managing the business risk of a firm is taken on by the firm's

Accepted Answer

A) labor. 
B) capital suppliers. 
C) entrepreneurs. 
D) customers.Difficulty: 02 Medium 
A) labor. 
B) capital suppliers. 
C) entrepreneurs. 
D) customers.Difficulty: 02 Medium

Question 13

Which of the following is assumed to be most limited in scope under a market system?

Accepted Answer

A) entrepreneurship 
B) self-interest 
C) speciali zation 
D) government 
A) entrepreneurship 
B) self-interest 
C) speciali zation 
D) government

Question 14

According to the circular flow model of the market system, when resource-owners' money income is rising, then the costs to business firms that employ their resources must be falling.

Accepted Answer

A) True 
 B)False

Question 15

A market system tends to restrict business risk to owners and investors.This results in which of the following benefits?

Accepted Answer

A) a more stable macroeconomy with fewer recessions 
B) Firms are better able to attract inputs, as these inputs do not have to share the risk. 
C) Government agencies are better prepared to help when businesses fail. 
D) consistently lower prices for consumers 
A) a more stable macroeconomy with fewer recessions 
B) Firms are better able to attract inputs, as these inputs do not have to share the risk. 
C) Government agencies are better prepared to help when businesses fail. 
D) consistently lower prices for consumers

Question 16

Economic profits and losses

Accepted Answer

A) are both considered by economists to be a part of production costs. 
B) are essential to the reallocation of resources from less desired to more desired goods. 
C) have no influence on the composition of domestic output. 
D) equalize the distribution of income in the long run. 
A) are both considered by economists to be a part of production costs. 
B) are essential to the reallocation of resources from less desired to more desired goods. 
C) have no influence on the composition of domestic output. 
D) equalize the distribution of income in the long run.

Question 17

The problems of central planning become less complex as an economy grows in size over time.

Accepted Answer

A) True 
 B)False

Question 18

Central planning often suffers from a coordination problem and an incentive problem.Topic: Economic Systems

Accepted Answer

A) True 
 B)False

Question 19

Which of the following is a distinguishing feature of a command system?

Accepted Answer

A) private ownership of all capital 
B) central planning 
C) heavy reliance on markets 
D) widespread dispersion of economic power 
A) private ownership of all capital 
B) central planning 
C) heavy reliance on markets 
D) widespread dispersion of economic power

Question 20

If competitive industry Y is incurring substantial losses, output will

Accepted Answer

A) expand as resources move toward industry Y. 
B) contract as resources move toward industry Y. 
C) contract as resources move away from industry Y. 
D) expand as resources move away from industry Y. 
A) expand as resources move toward industry Y. 
B) contract as resources move toward industry Y. 
C) contract as resources move away from industry Y. 
D) expand as resources move away from industry Y.

Exam 2: The Market System and the Circular Flow

Households and businesses are

In a market system, the income earned by owners of natural resources is called interest income.Difficulty: 02 Medium Learning Objective: 02-05 Describe the mechanics of the circular flow model.Test Bank: II Topic: The Circular Flow Model

In a market system, entrepreneurs start businesses in order to earn a high salary.

The guiding function of prices tends to keep resources flowing toward their most highly valued uses.

The use of money contributes to economic efficiency because

An important aspect of the market system is that producers and consumers always have to consider the public interest in making production and consumption decisions.

Economic efficiency is the primary guide in answering which of the fundamental questions in a market economy?

Private property

A production system where various workers concentrate on different specialized tasks to contribute toward a whole product is referred to as

The market system is an economic system that

In a market system, the task of assessing and managing the business risk of a firm is taken on by the firm's

Which of the following is assumed to be most limited in scope under a market system?

According to the circular flow model of the market system, when resource-owners' money income is rising, then the costs to business firms that employ their resources must be falling.

A market system tends to restrict business risk to owners and investors.This results in which of the following benefits?

Economic profits and losses

The problems of central planning become less complex as an economy grows in size over time.

Central planning often suffers from a coordination problem and an incentive problem.Topic: Economic Systems

Which of the following is a distinguishing feature of a command system?

If competitive industry Y is incurring substantial losses, output will

Limits, Alternatives, and Choices

Demand, Supply, and Market Equilibrium

Market Failures: Public Goods and Externalities

Governments Role and Government Failure

Elasticity

Utility Maximization

Behavioral Economics

Businesses and the Costs of Production

Pure Competition in the Short Run

Pure Competition in the Long Run

Pure Monopoly

Monopolistic Competition

Oligopoly and Strategic Behavior

Technology, Rd, and Efficiency

The Demand for Resources

Wage Determination

Rent, Interest, and Profit

Natural Resource and Energy Economics

Public Finance: Expenditures and Taxes

Antitrust Policy and Regulation

Agriculture: Economics and Policy

Income Inequality, Poverty, and Discrimination

Health Care

Immigration

An Introduction to Macroeconomics

Measuring Domestic Output and National Income

Economic Growth

Business Cycles, Unemployment, and Inflation

Basic Macroeconomic Relationships

The Aggregate Expenditures Model

Aggregate Demand and Aggregate Supply

Fiscal Policy, Deficits, and Debt

Money, Banking, and Financial Institutions

Money Creation

Interest Rates and Monetary Policy

Financial Economics

Extending the Analysis of Aggregate Supply

Current Issues in Macro Theory and Policy

International Trade

The Balance of Payments, Exchange Rates, and Trade Deficits

The Economics of Developing Countries

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