Question 1

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 2

The fundamental economic question regarding the distribution of output in the economy is equivalent to
the question of who will produce the output.

Accepted Answer

A) True 
 B)False

Question 3

According to the concept of the "invisible hand," if Susie opens and operates a proﬁtable childcare center, then

Accepted Answer

A)  government should regulate the business to ensure quality. 
B)  the proﬁt Susie earns indicates that she is overcharging for her services. 
C)  she has served society's interests by providing a desired good or service. 
D)  this demonstrates that consumer sovereignty is not present in this market. 
A)  government should regulate the business to ensure quality. 
B)  the proﬁt Susie earns indicates that she is overcharging for her services. 
C)  she has served society's interests by providing a desired good or service. 
D)  this demonstrates that consumer sovereignty is not present in this market.

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

The main characteristics of a modern market system include all of the following except

Accepted Answer

A)  entrepreneurs are free to obtain and use resources to produce goods and services. 
B)  consumers are free to buy goods and services that their budgets allow. 
C)  economic power is diffused by competition among economic units. 
D)  government is restricted to national defense and does not intervene at all in various markets. 
A)  entrepreneurs are free to obtain and use resources to produce goods and services. 
B)  consumers are free to buy goods and services that their budgets allow. 
C)  economic power is diffused by competition among economic units. 
D)  government is restricted to national defense and does not intervene at all in various markets.

Question 7

In a command economy, the head of each household makes the fundamental economic choices such as
what to produce and how to produce output.

Accepted Answer

A) True 
 B)False

Question 8

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.

Accepted Answer

A) True 
 B)False

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

Refer to the provided ﬁgure. If box A represents households, B the product market, and C businesses, then ﬂow (2) and ﬂow (4) would represent

Accepted Answer

A)  the ﬂow of labor and other resources. 
B)  the ﬂow of goods and services. 
C)  business spending revenues. 
D)  money incomes and consumer spending. 
A)  the ﬂow of labor and other resources. 
B)  the ﬂow of goods and services. 
C)  business spending revenues. 
D)  money incomes and consumer spending.

Question 11

Which of the following would not be emphasized in a capitalist economy?

Accepted Answer

A)  private ownership of capital and other resources 
B)  competition and decentralized decisions regarding production and consumption 
C)  reliance on market forces to coordinate economic activity 
D)  prevention of ﬁrms from exposing themselves to ﬁnancial risk 
A)  private ownership of capital and other resources 
B)  competition and decentralized decisions regarding production and consumption 
C)  reliance on market forces to coordinate economic activity 
D)  prevention of ﬁrms from exposing themselves to ﬁnancial risk

Question 12

The market economy is regarded as "eﬃcient" in that

Accepted Answer

A)  it achieves the lowest rate of unemployment. 
B)  it leads to the lowest level of poverty in the society. 
C)  it directs resources toward products that the society wants most. 
D)  it puts the best people in government positions. 
A)  it achieves the lowest rate of unemployment. 
B)  it leads to the lowest level of poverty in the society. 
C)  it directs resources toward products that the society wants most. 
D)  it puts the best people in government positions.

Question 13

The following table illustrates alternative production techniques for producing 18 widgets that can be sold for $1 each, for a total revenue of $18.
  Based on the data given in the table, the most economically eﬃcient production technique is

Accepted Answer

A)  A. 
B)  B. 
C)  C. 
D)  D. 
A)  A. 
B)  B. 
C)  C. 
D)  D.

Question 14

Specialization is beneﬁcial

Accepted Answer

A)  at the individual ﬁrm level, but not at the national and international levels. 
B)  at the individual, regional, and even international levels. 
C)  only if there are differences in the abilities of resources. 
D)  only as long as money and capital goods are employed. 
A)  at the individual ﬁrm level, but not at the national and international levels. 
B)  at the individual, regional, and even international levels. 
C)  only if there are differences in the abilities of resources. 
D)  only as long as money and capital goods are employed.

Question 15

Refer to the diagram. Flow 1 represents

Accepted Answer

A)  wage, rent, interest, and proﬁt income. 
B)  land, labor, capital, and entrepreneurial ability. 
C)  goods and services. 
D)  consumer expenditures. 
A)  wage, rent, interest, and proﬁt income. 
B)  land, labor, capital, and entrepreneurial ability. 
C)  goods and services. 
D)  consumer expenditures.

Question 16

Which of the following is a distinguishing feature of laissez-faire capitalism?

Accepted Answer

A)  public ownership of all capital 
B)  central planning 
C)  minimal government intervention 
D)  a circular ﬂow of goods, resources, and money 
A)  public ownership of all capital 
B)  central planning 
C)  minimal government intervention 
D)  a circular ﬂow of goods, resources, and money

Question 17

In a market system, more resources will move toward an industry and expand its production if the industry has

Accepted Answer

A)  positive revenues. 
B)  positive costs. 
C)  TC  TR. 
A)  positive revenues. 
B)  positive costs. 
C)  TC  TR.

Question 18

With specialization in a market economy, individual

Accepted Answer

A)  ﬁrms produce a wide range of products. 
B)  producers consume little or none of the products they produce. 
C)  producers consume most of the output that they produce. 
D)  consumers have to produce most of what they consume. 
A)  ﬁrms produce a wide range of products. 
B)  producers consume little or none of the products they produce. 
C)  producers consume most of the output that they produce. 
D)  consumers have to produce most of what they consume.

Question 19

In a command system,

Accepted Answer

A)  self-interest motivates and commands each business ﬁrm's decisions and actions. 
B)  the head of each family decides and commands what to do with the family's resources. 
C)  a government-appointed planning board makes production and allocation decisions. 
D)  market traders command what outputs are produced and how they are allocated. 
A)  self-interest motivates and commands each business ﬁrm's decisions and actions. 
B)  the head of each family decides and commands what to do with the family's resources. 
C)  a government-appointed planning board makes production and allocation decisions. 
D)  market traders command what outputs are produced and how they are allocated.

Question 20

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

Exam 2: The Market System and the Circular Flow

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

The fundamental economic question regarding the distribution of output in the economy is equivalent to the question of who will produce the output.

According to the concept of the "invisible hand," if Susie opens and operates a proﬁtable childcare center, then

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

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

The main characteristics of a modern market system include all of the following except

In a command economy, the head of each household makes the fundamental economic choices such as what to produce and how to produce output.

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.

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

Refer to the provided ﬁgure. If box A represents households, B the product market, and C businesses, then ﬂow (2) and ﬂow (4) would represent

Which of the following would not be emphasized in a capitalist economy?

The market economy is regarded as "eﬃcient" in that

The following table illustrates alternative production techniques for producing 18 widgets that can be sold for $1 each, for a total revenue of $18. Based on the data given in the table, the most economically eﬃcient production technique is

Specialization is beneﬁcial

Refer to the diagram. Flow 1 represents

Which of the following is a distinguishing feature of laissez-faire capitalism?

In a market system, more resources will move toward an industry and expand its production if the industry has

With specialization in a market economy, individual

In a command system,

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

Demand, Supply, and Market Equilibrium

Market Failures Caused by Externalities Asymmetric Information

Public Goods, Public Choice, and Government Failure

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