Question 1

In a market system, entrepreneurs start businesses in order to earn a high salary.

Accepted Answer

A) True 
 B)False

Question 2

The distribution of income in a market system is a primary factor that resolves which of the following fundamental economic questions?

Accepted Answer

A)  What will be produced? 
B)  How will the output be produced? 
C)  How will the system accommodate change? 
D)  Who will get the output? 
A)  What will be produced? 
B)  How will the output be produced? 
C)  How will the system accommodate change? 
D)  Who will get the output?

Question 3

Even with the use of money, exchange and trade cannot occur if there is no coincidence of wants.

Accepted Answer

A) True 
 B)False

Question 4

The following table illustrates alternative production techniques for producing 18 widgets that can be sold for $1 each for a total revenue of $18.  If the price of labor increases from $2 to $3, then the results of using Technique C will change from an economic

Accepted Answer

A)  loss of $2 to a loss of $1. 
B)  profit of $2 to a profit of $1. 
C)  profit of $1 to a profit of $2. 
D)  loss of $1 to a loss of $2. 
A)  loss of $2 to a loss of $1. 
B)  profit of $2 to a profit of $1. 
C)  profit of $1 to a profit of $2. 
D)  loss of $1 to a loss of $2.

Question 5

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 6

Broadly 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.

Question 7

The choice of the most efficient production technique is not affected by how much buyers want to buy the product.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following is assumed to be most limited in scope under a market system?

Accepted Answer

A)  entrepreneurship 
B)  self-interest 
C)  specialization 
D)  government 
A)  entrepreneurship 
B)  self-interest 
C)  specialization 
D)  government

Question 9

The "invisible hand" concept refers to the

Accepted Answer

A)  guiding function of prices in a market system. 
B)  implicit influence that the government has on the actions of firms. 
C)  regulatory structure that markets must operate in. 
D)  underlying money flows that promote the trading of goods and services. 
A)  guiding function of prices in a market system. 
B)  implicit influence that the government has on the actions of firms. 
C)  regulatory structure that markets must operate in. 
D)  underlying money flows that promote the trading of goods and services.

Question 10

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 11

Suppose a firm can produce 70 units of a product, Zenia, by combining labor, land, capital, and entrepreneurial ability, as in the four alternative techniques shown in the table below. Assume further that the firm can hire labor at $3 per unit, land at $3 per unit, capital at $6 per unit, and entrepreneurship at $9 per unit.   Refer to the provided table. If the price of labor declines from $3 to $2 per unit, then what is the least costly way of producing Zenias?

Accepted Answer

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

Question 12

Payments that a firm makes to obtain needed resources comprise its

Accepted Answer

A)  costs. 
B)  profits. 
C)  capital. 
D)  revenues. 
A)  costs. 
B)  profits. 
C)  capital. 
D)  revenues.

Question 13

One major element of the command system is

Accepted Answer

A)  an emphasis on private ownership of resources. 
B)  individual decentralized decision making. 
C)  reliance on supply-and-demand forces to guide economic activity. 
D)  central planning conducted by the government. 
A)  an emphasis on private ownership of resources. 
B)  individual decentralized decision making. 
C)  reliance on supply-and-demand forces to guide economic activity. 
D)  central planning conducted by the government.

Question 14

The problems of central planning become less complex as an economy grows in size over time.

Accepted Answer

A) True 
 B)False

Question 15

The market system is an economic system that

Accepted Answer

A)  produces more consumer goods than capital goods. 
B)  produces more capital goods than consumer goods. 
C)  gives private individuals the right to own resources used in production. 
D)  emphasizes the government's power to control markets and direct economic activity. 
A)  produces more consumer goods than capital goods. 
B)  produces more capital goods than consumer goods. 
C)  gives private individuals the right to own resources used in production. 
D)  emphasizes the government's power to control markets and direct economic activity.

Question 16

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 17

In the circular flow model of the market system, households' major role is to

Accepted Answer

A)  buy both products and resources. 
B)  sell both products and resources. 
C)  buy products and sell resources. 
D)  sell products and buy resources. 
A)  buy both products and resources. 
B)  sell both products and resources. 
C)  buy products and sell resources. 
D)  sell products and buy resources.

Question 18

In the circular flow model, households earn their incomes in the

Accepted Answer

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

Question 19

Which of the following is the main problem with the barter system of exchange?

Accepted Answer

A)  It encourages self-interest. 
B)  It fosters the division of labor. 
C)  It requires a coincidence of wants. 
D)  It undermines the right to bequeath. 
A)  It encourages self-interest. 
B)  It fosters the division of labor. 
C)  It requires a coincidence of wants. 
D)  It undermines the right to bequeath.

Question 20

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.

Exam 2: The Market System and the Circular Flow

In a market system, entrepreneurs start businesses in order to earn a high salary.

The distribution of income in a market system is a primary factor that resolves which of the following fundamental economic questions?

Even with the use of money, exchange and trade cannot occur if there is no coincidence of wants.

The following table illustrates alternative production techniques for producing 18 widgets that can be sold for $1 each for a total revenue of $18. If the price of labor increases from $2 to $3, then the results of using Technique C will change from an economic

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

Broadly defined, competition involves

The choice of the most efficient production technique is not affected by how much buyers want to buy the product.

Which of the following is assumed to be most limited in scope under a market system?

The "invisible hand" concept refers to the

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.

Payments that a firm makes to obtain needed resources comprise its

One major element of the command system is

The problems of central planning become less complex as an economy grows in size over time.

The market system is an economic system that

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

In the circular flow model of the market system, households' major role is to

In the circular flow model, households earn their incomes in the

Which of the following is the main problem with the barter system of exchange?

In a command 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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