Question 1

Risk is a problem faced

Accepted Answer

A)  only in market systems. 
B)  only in command systems. 
C)  in both market systems and command systems. 
D)  in neither market systems nor command systems, only in laissez-faire capitalism. 
A)  only in market systems. 
B)  only in command systems. 
C)  in both market systems and command systems. 
D)  in neither market systems nor command systems, only in laissez-faire capitalism.

Question 2

In a market system, self-interest is the motivating force that

Accepted Answer

A)  makes individuals unwilling to deliver anything of value to others. 
B)  makes owners of resources always want to use their resources themselves. 
C)  leads the economy to chaos and confusion, especially the larger economies. 
D)  coordinates and creates consistency in the operations of various parts of the economy. 
A)  makes individuals unwilling to deliver anything of value to others. 
B)  makes owners of resources always want to use their resources themselves. 
C)  leads the economy to chaos and confusion, especially the larger economies. 
D)  coordinates and creates consistency in the operations of various parts of the economy.

Question 3

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 4

The simple circular flow model shows that workers and capital owners offer their services to firms through the

Accepted Answer

A)  product markets. 
B)  resource markets. 
C)  money markets. 
D)  financial markets. 
A)  product markets. 
B)  resource markets. 
C)  money markets. 
D)  financial markets.

Question 5

"Under central planning, some group has to decide how to get the necessary inputs produced in the right amounts and delivered to the right places at the right time. This is a nearly impossible task without markets and profits." This quotation best identifies the

Accepted Answer

A)  incentive problem under central planning. 
B)  coordination problem under central planning. 
C)  self-sufficiency dilemma under communism. 
D)  resource overcommitment problem under communism. 
A)  incentive problem under central planning. 
B)  coordination problem under central planning. 
C)  self-sufficiency dilemma under communism. 
D)  resource overcommitment problem under communism.

Question 6

The term "laissez-faire" suggests that

Accepted Answer

A)  land and other natural resources should be privately owned, but capital should be publicly owned. 
B)  land and other natural resources should be publicly owned, but capital should be privately owned. 
C)  government should not interfere with the operation of the economy. 
D)  government action is absolutely necessary if the economy is to achieve full employment and full production. 
A)  land and other natural resources should be privately owned, but capital should be publicly owned. 
B)  land and other natural resources should be publicly owned, but capital should be privately owned. 
C)  government should not interfere with the operation of the economy. 
D)  government action is absolutely necessary if the economy is to achieve full employment and full production.

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

(Consider This) Martha's Milkshake Company buys earthquake insurance from the Stable Ground Insurance Company. Based on this purchase, economists would conclude that

Accepted Answer

A)  Martha's believes a damaging earthquake is imminent. 
B)  Stable Ground believes no damaging earthquakes will occur. 
C)  Martha's has a lower tolerance for earthquake risk than Stable Ground. 
D)  Martha's has a greater tolerance for earthquake risk than Stable Ground. 
A)  Martha's believes a damaging earthquake is imminent. 
B)  Stable Ground believes no damaging earthquakes will occur. 
C)  Martha's has a lower tolerance for earthquake risk than Stable Ground. 
D)  Martha's has a greater tolerance for earthquake risk than Stable Ground.

Question 9

An economic system in which money is not used as a medium of exchange is a

Accepted Answer

A)  planned economy. 
B)  market economy. 
C)  mixed economy. 
D)  barter economy. 
A)  planned economy. 
B)  market economy. 
C)  mixed economy. 
D)  barter economy.

Question 10

One of the most important economic resources is money.

Accepted Answer

A) True 
 B)False

Question 11

Of the following countries, which one best exhibits the characteristics of a market economy?

Accepted Answer

A)  Canada 
B)  Cuba 
C)  North Korea 
D)  Belarus 
A)  Canada 
B)  Cuba 
C)  North Korea 
D)  Belarus

Question 12

Even if prices are fixed and competition is restricted by the government, the invisible hand will still work in the economy and lead to economic efficiency.

Accepted Answer

A) True 
 B)False

Question 13

A characteristic of centrally planned economies is that

Accepted Answer

A)  the price is relatively unimportant in allocating resources. 
B)  profits are the main measure of success of a firm. 
C)  entrepreneurship is quite prevalent and highly rewarded. 
D)  there are many incentives for innovation and hard work. 
A)  the price is relatively unimportant in allocating resources. 
B)  profits are the main measure of success of a firm. 
C)  entrepreneurship is quite prevalent and highly rewarded. 
D)  there are many incentives for innovation and hard work.

Question 14

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 15

(Consider This) North Korea's command economy

Accepted Answer

A)  is one of the few remaining command economies. 
B)  has grown much faster than South Korea's economy since the two countries were divided after World War II. 
C)  produces a per capita GDP of nearly $25,000. 
D)  has undergone significant market reforms and is now one of the fastest-growing economies. 
A)  is one of the few remaining command economies. 
B)  has grown much faster than South Korea's economy since the two countries were divided after World War II. 
C)  produces a per capita GDP of nearly $25,000. 
D)  has undergone significant market reforms and is now one of the fastest-growing economies.

Question 16

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 17

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 18

The invisible hand refers to the

Accepted Answer

A)  fact that the U.S. tax system redistributes income from rich to poor. 
B)  notion that, under competition, decisions motivated by self-interest promote the social interest. 
C)  tendency of monopolistic sellers to raise prices above competitive levels. 
D)  fact that government controls the functioning of the market system. 
A)  fact that the U.S. tax system redistributes income from rich to poor. 
B)  notion that, under competition, decisions motivated by self-interest promote the social interest. 
C)  tendency of monopolistic sellers to raise prices above competitive levels. 
D)  fact that government controls the functioning of the market system.

Question 19

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 20

Which of the following guides sensible decisions regarding the management of business risk in a market system?

Accepted Answer

A)  the profit and loss system 
B)  the "invisible hand" 
C)  taxes and subsidies 
D)  consumer sovereignty 
A)  the profit and loss system 
B)  the "invisible hand" 
C)  taxes and subsidies 
D)  consumer sovereignty

Exam 2: The Market System and the Circular Flow

Risk is a problem faced

In a market system, self-interest is the motivating force that

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

The simple circular flow model shows that workers and capital owners offer their services to firms through the

"Under central planning, some group has to decide how to get the necessary inputs produced in the right amounts and delivered to the right places at the right time. This is a nearly impossible task without markets and profits." This quotation best identifies the

The term "laissez-faire" suggests that

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

(Consider This) Martha's Milkshake Company buys earthquake insurance from the Stable Ground Insurance Company. Based on this purchase, economists would conclude that

An economic system in which money is not used as a medium of exchange is a

One of the most important economic resources is money.

Of the following countries, which one best exhibits the characteristics of a market economy?

Even if prices are fixed and competition is restricted by the government, the invisible hand will still work in the economy and lead to economic efficiency.

A characteristic of centrally planned economies is that

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

(Consider This) North Korea's command economy

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

According to the circular flow model, product markets are where

The invisible hand refers to the

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

Which of the following guides sensible decisions regarding the management of business risk in a market system?

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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