Question 1

In the circular flow diagram, firms get their ability to pay for the costs of production from the

Accepted Answer

A)  revenues they receive for their products. 
B)  resources they acquire in the resource markets. 
C)  incomes they earn for their resources. 
D)  goods and services they get in the product markets. 
A)  revenues they receive for their products. 
B)  resources they acquire in the resource markets. 
C)  incomes they earn for their resources. 
D)  goods and services they get in the product markets.

Question 2

According to economist Donald Boudreaux in the "Last Word" section of the chapter, what best explains why the market system is not a random, chaotic mess?

Accepted Answer

A)  There is active cooperation among private property owners and government officials to correct the excesses of a market economy. 
B)  The roundabout methods of production allocate resources from consumers to producers in an orderly fashion. 
C)  Government planning limits the chaos, and the government regulates economic activity to create stability in the market. 
D)  Private property rights encourage mutual accommodation that leads to an arrangement of resources that is productive. 
A)  There is active cooperation among private property owners and government officials to correct the excesses of a market economy. 
B)  The roundabout methods of production allocate resources from consumers to producers in an orderly fashion. 
C)  Government planning limits the chaos, and the government regulates economic activity to create stability in the market. 
D)  Private property rights encourage mutual accommodation that leads to an arrangement of resources that is productive.

Question 3

Selfishness and self-interest are identical concepts in economics.

Accepted Answer

A) True 
 B)False

Question 4

All of the following statements describe a market economy except

Accepted Answer

A)  government prescribes the market prices for goods and services. 
B)  prices provide important signals to buyers and sellers. 
C)  the allocation of resources is determined by their prices. 
D)  the actions of buyers and sellers establish a product's price. 
A)  government prescribes the market prices for goods and services. 
B)  prices provide important signals to buyers and sellers. 
C)  the allocation of resources is determined by their prices. 
D)  the actions of buyers and sellers establish a product's price.

Question 5

In a market system, the distribution of goods and services largely depends on the distribution of income and people's preferences.

Accepted Answer

A) True 
 B)False

Question 6

Most market economies, such as the U.S. and the U.K., allow government policies and actions aimed at promoting economic growth and stability.

Accepted Answer

A) True 
 B)False

Question 7

The French term "laissez-faire" means

Accepted Answer

A)  "there is no free lunch." 
B)  "let it be." 
C)  "circular flow." 
D)  "public ownership." 
A)  "there is no free lunch." 
B)  "let it be." 
C)  "circular flow." 
D)  "public ownership."

Question 8

A fundamental difference between the command system and laissez-faire capitalism is that, in command systems,

Accepted Answer

A)  the division of output is decided by central planning rather than by individuals operating freely through markets. 
B)  all economic decisions are made by the government, whereas there is no government in laissez-faire capitalism. 
C)  scarcity does not exist, whereas it does in laissez-faire capitalism. 
D)  money is not used, whereas it is in laissez-faire capitalism. 
A)  the division of output is decided by central planning rather than by individuals operating freely through markets. 
B)  all economic decisions are made by the government, whereas there is no government in laissez-faire capitalism. 
C)  scarcity does not exist, whereas it does in laissez-faire capitalism. 
D)  money is not used, whereas it is in laissez-faire capitalism.

Question 9

The circular flow model illustrates

Accepted Answer

A)  the importance of having a central plan for the economy. 
B)  how capital and other resources are created. 
C)  how money is created by the banking system. 
D)  the interdependence of businesses and consumers. 
A)  the importance of having a central plan for the economy. 
B)  how capital and other resources are created. 
C)  how money is created by the banking system. 
D)  the interdependence of businesses and consumers.

Question 10

Economic systems differ from one another based on who owns the factors of production and

Accepted Answer

A)  how many resources are available in the economy and where they are located. 
B)  how economic activities are coordinated and directed. 
C)  what kinds of products are produced in the economy and how they are sold. 
D)  how big the population is and the makeup of the population. 
A)  how many resources are available in the economy and where they are located. 
B)  how economic activities are coordinated and directed. 
C)  what kinds of products are produced in the economy and how they are sold. 
D)  how big the population is and the makeup of the population.

Question 11

If a nation restricts trade with other nations, then the most likely effect is

Accepted Answer

A)  lower prices of goods and services in the nation. 
B)  increased specialization of production. 
C)  expanded economic wealth of the nation. 
D)  consumers in the nation are made worse off. 
A)  lower prices of goods and services in the nation. 
B)  increased specialization of production. 
C)  expanded economic wealth of the nation. 
D)  consumers in the nation are made worse off.

Question 12

In a market system, as one industry expands while another contracts, resources will flow

Accepted Answer

A)  away from the expanding industry toward the contracting one. 
B)  across industries, driven by the changes in resource prices paid by firms. 
C)  toward the industry where the product demand is declining. 
D)  because resource allocation will have to equalize between the two industries. 
A)  away from the expanding industry toward the contracting one. 
B)  across industries, driven by the changes in resource prices paid by firms. 
C)  toward the industry where the product demand is declining. 
D)  because resource allocation will have to equalize between the two industries.

Question 13

Which of the following does not illustrate the idea of creative destruction?

Accepted Answer

A)  Digital downloads have shrunk the market for CDs and DVDs. 
B)  Online retail sales have increased, while brick-and-mortar sales have slowed down. 
C)  The opening of a new mall reduces the traffic in another mall. 
D)  A firm has to destroy some of the expired products in its inventory. 
A)  Digital downloads have shrunk the market for CDs and DVDs. 
B)  Online retail sales have increased, while brick-and-mortar sales have slowed down. 
C)  The opening of a new mall reduces the traffic in another mall. 
D)  A firm has to destroy some of the expired products in its inventory.

Question 14

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 15

Capitalism gets its name from the fact that capital resources are mostly

Accepted Answer

A)  owned by the state or government. 
B)  given the highest priority in the economy's income distribution. 
C)  treated as private property. 
D)  in the form of money and financial resources. 
A)  owned by the state or government. 
B)  given the highest priority in the economy's income distribution. 
C)  treated as private property. 
D)  in the form of money and financial resources.

Question 16

In a capitalist system, the decisions and actions of millions of consumers and firms are highly coordinated by

Accepted Answer

A)  the state and government. 
B)  markets and prices. 
C)  a central planning agency. 
D)  an international organization. 
A)  the state and government. 
B)  markets and prices. 
C)  a central planning agency. 
D)  an international organization.

Question 17

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 18

Suppose that an individual sees a tremendous opportunity to produce and sell a new product but dismisses the idea because there is no way to exploit this opportunity for personal gain. This situation best identifies the

Accepted Answer

A)  coordination problem under communist central planning. 
B)  self-sufficiency dilemma under communism. 
C)  asymmetric information problem under communism. 
D)  incentive problem under communist central planning. 
A)  coordination problem under communist central planning. 
B)  self-sufficiency dilemma under communism. 
C)  asymmetric information problem under communism. 
D)  incentive problem under communist central planning.

Question 19

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 20

Enterprise managers and workers in the Soviet Union often resisted innovations in production methods because
A) production targets were often increased when innovation occurred.
B) there was a chronic shortage of computers.
C) workers could not be reallocated geographically.
D) innovations ordinarily increased dependence on world markets.

Accepted Answer

The answer of Enterprise managers and workers in the Soviet...

Exam 2: The Market System and the Circular Flow

In the circular flow diagram, firms get their ability to pay for the costs of production from the

According to economist Donald Boudreaux in the "Last Word" section of the chapter, what best explains why the market system is not a random, chaotic mess?

Selfishness and self-interest are identical concepts in economics.

All of the following statements describe a market economy except

In a market system, the distribution of goods and services largely depends on the distribution of income and people's preferences.

Most market economies, such as the U.S. and the U.K., allow government policies and actions aimed at promoting economic growth and stability.

The French term "laissez-faire" means

A fundamental difference between the command system and laissez-faire capitalism is that, in command systems,

The circular flow model illustrates

Economic systems differ from one another based on who owns the factors of production and

If a nation restricts trade with other nations, then the most likely effect is

In a market system, as one industry expands while another contracts, resources will flow

Which of the following does not illustrate the idea of creative destruction?

Economic profits in an industry suggest the industry

Capitalism gets its name from the fact that capital resources are mostly

In a capitalist system, the decisions and actions of millions of consumers and firms are highly coordinated by

Command systems are also known as

Suppose that an individual sees a tremendous opportunity to produce and sell a new product but dismisses the idea because there is no way to exploit this opportunity for personal gain. This situation best identifies the

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

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

International Trade

The Balance of Payments, Exchange Rates, and Trade Deficits

The Economics of Developing Countries

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