Question 1

Which of the following is not one of the five fundamental questions that an economy must deal with?

Accepted Answer

A) How will the goods and services be produced? 
B) Why should the goods and services be produced? 
C) Who is to receive the goods and services produced in the economy? 
D) In what ways will progress be promoted? 
A) How will the goods and services be produced? 
B) Why should the goods and services be produced? 
C) Who is to receive the goods and services produced in the economy? 
D) In what ways will progress be promoted?

Question 2

Profits are the primary "success indicator" for firms in a centrally planned economy.

Accepted Answer

A) True 
 B)False

Question 3

Central planning in the Soviet Union and pre-reform China emphasized expanding the production of consumer goods to raise the domestic standard of living.Topic: Economic Systems

Accepted Answer

A) True 
 B)False

Question 4

Continued losses in an industry will cause some firms to reduce output or eventually leave the industry.

Accepted Answer

A) True 
 B)False

Question 5

In a market economy, a significant change in consumers' desire for product X will

Accepted Answer

A) alter the profits or losses received by suppliers of product X. 
B) cause a reallocation of scarce resources. 
C) cause some industries to expand and others to contract. 
D) do all of the things mentioned in the other answers. 
A) alter the profits or losses received by suppliers of product X. 
B) cause a reallocation of scarce resources. 
C) cause some industries to expand and others to contract. 
D) do all of the things mentioned in the other answers.

Question 6

The market system

Accepted Answer

A) produces considerable inefficiency in the use of scarce resources. 
B) effectively harnesses the incentives of workers and entrepreneurs. 
C) is not consistent with freedom of choice in the long run. 
D) has slowly lost ground to emerging command systems. 
A) produces considerable inefficiency in the use of scarce resources. 
B) effectively harnesses the incentives of workers and entrepreneurs. 
C) is not consistent with freedom of choice in the long run. 
D) has slowly lost ground to emerging command systems.

Question 7

If consumer desire for product X increases, all of the following will occur except

Accepted Answer

A) an increase in the profits of industry X. 
B) an increase in the quantity of resources employed by industry X. 
C) an increase in the output of industry X. 
D) a decrease in the quantity of resources employed in industry X. 
A) an increase in the profits of industry X. 
B) an increase in the quantity of resources employed by industry X. 
C) an increase in the output of industry X. 
D) a decrease in the quantity of resources employed in industry X.

Question 8

A corporation is a type of business firm where the debt of the firm is considered its owners' personal responsibility.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 9

The invisible hand refers to the many indirect controls that the federal government imposes in a market system.

Accepted Answer

A) True 
 B)False

Question 10

Quantitative measures of managerial success, such as production targets or quotas, are highly foolproof and are thus ideal to use in raising economic efficiency.

Accepted Answer

A) True 
 B)False

Question 11

In terms of the circular flow diagram, businesses obtain revenue through the market and make expenditures in the market.

Accepted Answer

A) product; financial 
B) resource; product 
C) product; resource 
D) capital; product 
A) product; financial 
B) resource; product 
C) product; resource 
D) capital; product

Question 12

Government bailouts of failing businesses, like banks during the recent economic crisis, will tend to reduce the motivation among entrepreneurs to make prudent decisions is dealing with business risk.

Accepted Answer

A) True 
 B)False

Question 13

The major virtues of the market system include all of the following, except

Accepted Answer

A) it promotes an efficient allocation of resources. 
B) it leads to equality in the distribution of income. 
C) it provides incentives for greater production and higher incomes. 
D) it emphasizes the freedom to pursue self-interest.Difficulty: 02 Medium 
A) it promotes an efficient allocation of resources. 
B) it leads to equality in the distribution of income. 
C) it provides incentives for greater production and higher incomes. 
D) it emphasizes the freedom to pursue self-interest.Difficulty: 02 Medium

Question 14

Economic efficiency entails producing a certain output with the minimum number of units of inputs.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 15

In a competitive market economy, firms and resource suppliers seeking to further their own self-interest will end up, as though guided by an invisible hand, promoting the public interest.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following is not a reason why specialization and trade are beneficial to society?

Accepted Answer

A) The total output of economic goods may be increased even without any increase in resources. 
B) Scarce resources are utilized more efficiently by exploiting differences among them. 
C) Specialization fosters learning by doing, thus lowering the unit-costs of products. 
D) Firms and workers become less dependent on others for producing goods and services. 
A) The total output of economic goods may be increased even without any increase in resources. 
B) Scarce resources are utilized more efficiently by exploiting differences among them. 
C) Specialization fosters learning by doing, thus lowering the unit-costs of products. 
D) Firms and workers become less dependent on others for producing goods and services.

Question 17

In a market economy, the distribution of output will be determined primarily by

Accepted Answer

A) consumer needs and preferences. 
B) the quantities and prices of the resources that households supply. 
C) government regulations that provide a minimum income for all. 
D) a social consensus as to which distribution of income is most equitable. 
A) consumer needs and preferences. 
B) the quantities and prices of the resources that households supply. 
C) government regulations that provide a minimum income for all. 
D) a social consensus as to which distribution of income is most equitable.

Question 18

If products were in short or surplus supply in the Soviet Union,

Accepted Answer

A) price and profit signals eliminated those shortages and surpluses. 
B) price and profit signals intensified those shortages and surpluses. 
C) producers would not react because no price or profit signals occurred. 
D) the planners would immediately adjust production to achieve equilibrium.Topic: Economic Systems 
A) price and profit signals eliminated those shortages and surpluses. 
B) price and profit signals intensified those shortages and surpluses. 
C) producers would not react because no price or profit signals occurred. 
D) the planners would immediately adjust production to achieve equilibrium.Topic: Economic Systems

Question 19

The economy of the United States in the past can best be described as laissez-faire capitalism.

Accepted Answer

A) True 
 B)False

Question 20

Broadl y defined, competition involves

Accepted Answer

A) private property and freedom of expression. 
B) independently acting buyers and sellers and freedom to enter or leave markets. 
C) increasing opportunity costs and diminishing marginal utility. 
D) capital goods and division of labor. 
A) private property and freedom of expression. 
B) independently acting buyers and sellers and freedom to enter or leave markets. 
C) increasing opportunity costs and diminishing marginal utility. 
D) capital goods and division of labor.

Exam 2: The Market System and the Circular Flow

Which of the following is not one of the five fundamental questions that an economy must deal with?

Profits are the primary "success indicator" for firms in a centrally planned economy.

Central planning in the Soviet Union and pre-reform China emphasized expanding the production of consumer goods to raise the domestic standard of living.Topic: Economic Systems

Continued losses in an industry will cause some firms to reduce output or eventually leave the industry.

In a market economy, a significant change in consumers' desire for product X will

The market system

If consumer desire for product X increases, all of the following will occur except

A corporation is a type of business firm where the debt of the firm is considered its owners' personal responsibility.Difficulty: 02 Medium Learning Objective: 02-05 Describe the mechanics of the circular flow model.Test Bank: II Topic: The Circular Flow Model

The invisible hand refers to the many indirect controls that the federal government imposes in a market system.

Quantitative measures of managerial success, such as production targets or quotas, are highly foolproof and are thus ideal to use in raising economic efficiency.

In terms of the circular flow diagram, businesses obtain revenue through the market and make expenditures in the market.

Government bailouts of failing businesses, like banks during the recent economic crisis, will tend to reduce the motivation among entrepreneurs to make prudent decisions is dealing with business risk.

The major virtues of the market system include all of the following, except

In a competitive market economy, firms and resource suppliers seeking to further their own self-interest will end up, as though guided by an invisible hand, promoting the public interest.

Which of the following is not a reason why specialization and trade are beneficial to society?

In a market economy, the distribution of output will be determined primarily by

If products were in short or surplus supply in the Soviet Union,

The economy of the United States in the past can best be described as laissez-faire capitalism.

Broadl y defined, competition involves

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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