Question 1

Economic profits in an industry suggest the industry

Accepted Answer

A) can earn more profits by increasing product price. 
B) should be larger to better satisfy consumers' desire for the product. 
C) has excess production capacity. 
D) is the size that consumers want it to be. 
A) can earn more profits by increasing product price. 
B) should be larger to better satisfy consumers' desire for the product. 
C) has excess production capacity. 
D) is the size that consumers want it to be.

Question 2

According to the circular flow model, product markets are where

Accepted Answer

A) households earn their money incomes. 
B) households acquire economic resources from businesses. 
C) businesses acquire their inputs from households. 
D) businesses earn their revenues from households. 
A) households earn their money incomes. 
B) households acquire economic resources from businesses. 
C) businesses acquire their inputs from households. 
D) businesses earn their revenues from households.

Question 3

The invisible hand concept suggests that

Accepted Answer

A) market failures imply the need for a national economic plan. 
B) big businesses are inherently more efficient than small businesses. 
C) the competitiveness of a capitalistic market economy invariably diminishes over time. 
D) assuming competition, private and public interests will coincide. 
A) market failures imply the need for a national economic plan. 
B) big businesses are inherently more efficient than small businesses. 
C) the competitiveness of a capitalistic market economy invariably diminishes over time. 
D) assuming competition, private and public interests will coincide.

Question 4

An economic system

Accepted Answer

A) requires a grouping of private markets linked to one another. 
B) is a particular set of institutional arrangements and a coordinating mechanism used to respond to the economizing problem. 
C) requires some sort of centralized authority (such as government) to coordinate economic activity. 
D) is a plan or scheme that allows a firm to make money at some other firm's expense. 
A) requires a grouping of private markets linked to one another. 
B) is a particular set of institutional arrangements and a coordinating mechanism used to respond to the economizing problem. 
C) requires some sort of centralized authority (such as government) to coordinate economic activity. 
D) is a plan or scheme that allows a firm to make money at some other firm's expense.

Question 5

Which of the following statements about markets and prices is correct?

Accepted Answer

A) In a market system, buyers and sellers must be in face-to-face contact with each other. 
B) Prices affect the distribution of goods in a market system, but not the allocation of resources. 
C) In a market system, prices serve to ration goods and services to consumers. 
D) The operation of a market system has little, if any, effect on the distribution of income in the economy. 
A) In a market system, buyers and sellers must be in face-to-face contact with each other. 
B) Prices affect the distribution of goods in a market system, but not the allocation of resources. 
C) In a market system, prices serve to ration goods and services to consumers. 
D) The operation of a market system has little, if any, effect on the distribution of income in the economy.

Question 6

Specialization may expand total output even though the individuals involved may have identical abilities.

Accepted Answer

A) True 
 B)False

Question 7

The presence of market failures implies that

Accepted Answer

A) money is not an effective tool for exchange in a market system. 
B) there is an active role for government, even in a market system. 
C) individuals and firms should strive to be self-sufficient rather than specialize. 
D) command systems are superior to market systems in the allocation of resources. 
A) money is not an effective tool for exchange in a market system. 
B) there is an active role for government, even in a market system. 
C) individuals and firms should strive to be self-sufficient rather than specialize. 
D) command systems are superior to market systems in the allocation of resources.

Question 8

Command systems are also known as

Accepted Answer

A) market systems. 
B) pure capitalism. 
C) laissez-faire capitalism. 
D) communism. 
A) market systems. 
B) pure capitalism. 
C) laissez-faire capitalism. 
D) communism.

Question 9

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.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 10

The two basic markets shown by the simple circular flow model are

Accepted Answer

A) capital goods and consumer goods. 
B) competitive and regulated. 
C) product and resource. 
D) household and business. 
A) capital goods and consumer goods. 
B) competitive and regulated. 
C) product and resource. 
D) household and business.

Question 11

Which of the following is not a major category of business structure?

Accepted Answer

A) sole proprietorship 
B) partnership 
C) public agency 
D) corporation 
A) sole proprietorship 
B) partnership 
C) public agency 
D) corporation

Question 12

Money functions as a medium of exchange by eliminating the need for a coincidence of wants.

Accepted Answer

A) True 
 B)False

Question 13

If a competitive industry is neither expanding nor contracting, we would expect

Accepted Answer

A) total revenue to be zero. 
B) economic profits to be zero. 
C) total opportunity cost to be zero. 
D) more resources to flow to that industry. 
A) total revenue to be zero. 
B) economic profits to be zero. 
C) total opportunity cost to be zero. 
D) more resources to flow to that industry.

Question 14

Risk management in command economies

Accepted Answer

A) is easy because there is no risk. 
B) is easy because the government controls most activity and can eliminate risk. 
C) tends to be done poorly because government officials do not understand risk. 
D) tends to be done poorly because decision makers are insulated from the risk of making a poor decision. 
A) is easy because there is no risk. 
B) is easy because the government controls most activity and can eliminate risk. 
C) tends to be done poorly because government officials do not understand risk. 
D) tends to be done poorly because decision makers are insulated from the risk of making a poor decision.

Question 15

Selfishness and self-interest are identical concepts in economics.Difficulty: 01 Easy
Learning Objective: 02-02 List the main characteristics of the market system.Test Bank: II
Topic: Characteristics of the Market System

Accepted Answer

A) True 
 B)False

Question 16

In the circular flow model, households act as buyers in the resource markets.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following is not a typical characteristic of a market system?

Accepted Answer

A) private property 
B) freedom of enterprise 
C) government ownership of most property resources 
D) competition in product and resource markets 
A) private property 
B) freedom of enterprise 
C) government ownership of most property resources 
D) competition in product and resource markets

Question 18

In a market system, resources will move away from an industry when

Accepted Answer

A) profits of firms in the industry are rising. 
B) demand for the industry's product is decreasing. 
C) the production of output in the industry is rising. 
D) profits of firms in other industries are falling. 
A) profits of firms in the industry are rising. 
B) demand for the industry's product is decreasing. 
C) the production of output in the industry is rising. 
D) profits of firms in other industries are falling.

Question 19

In the simple circular flow model,

Accepted Answer

A) households are buyers of resources. 
B) businesses are sellers of final products. 
C) households are sellers of final products. 
D) there are real flows of goods, services, and resources, but not money flows. 
A) households are buyers of resources. 
B) businesses are sellers of final products. 
C) households are sellers of final products. 
D) there are real flows of goods, services, and resources, but not money flows.

Question 20

In a market system, a consumer's ability to pay-but not necessarily his willingness to pay-is largely based on his income.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

Exam 2: The Market System and the Circular Flow

Economic profits in an industry suggest the industry

According to the circular flow model, product markets are where

The invisible hand concept suggests that

An economic system

Which of the following statements about markets and prices is correct?

Specialization may expand total output even though the individuals involved may have identical abilities.

The presence of market failures implies that

Command systems are also known as

The two basic markets shown by the simple circular flow model are

Which of the following is not a major category of business structure?

Money functions as a medium of exchange by eliminating the need for a coincidence of wants.

If a competitive industry is neither expanding nor contracting, we would expect

Risk management in command economies

Selfishness and self-interest are identical concepts in economics.Difficulty: 01 Easy Learning Objective: 02-02 List the main characteristics of the market system.Test Bank: II Topic: Characteristics of the Market System

In the circular flow model, households act as buyers in the resource markets.

Which of the following is not a typical characteristic of a market system?

In a market system, resources will move away from an industry when

In the simple circular flow model,

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

Filters