Question 1

During the Industrial Revolution:

Accepted Answer

A) feudal lords lost their power to artisans. 
B) mercantilists lost their power to capitalists. 
C) artisans lost their power to mercantilists. 
D) capitalists lost their power to mercantilists.

Question 2

For a market to exist:

Accepted Answer

A) private property rights must be allocated and defended by government. 
B) government must guarantee equal treatment for all. 
C) individuals must be concerned with the social good. 
D) everyone must have identical wants and desires.

Question 3

The Soviet socialist economy fell apart primarily because:

Accepted Answer

A) it was based on barter rather than monetary exchange. 
B) individuals are not motivated by self-interest. 
C) workers lacked incentives to work and production was inefficient. 
D) markets failed to develop.

Question 4

How do global economic issues differ from national policy issues? How has the international economic community dealt with this difference?

Accepted Answer

The answer of How do global economic issues differ from...

Question 5

One advantage of a corporation over a sole proprietorship is:

Accepted Answer

A) greater accountability. 
B) avoidance of double taxation. 
C) ease of formation. 
D) greater ability to obtain funds.

Question 6

Mercantilism was a system in which all of the following were true except:

Accepted Answer

A) political rather than social forces controlled the central economic decisions. 
B) economic rather than social forces controlled the central economic decisions. 
C) governments encouraged growth by supporting trading activities. 
D) governments limited growth by protecting monopolies.

Question 7

Waste produced by a power plant that harms local fishing industries is an example of a:

Accepted Answer

A) demerit good. 
B) private good. 
C) limited liability. 
D) negative externality.

Question 8

List the advantages and disadvantages of the three primary forms of business in the United States.

Accepted Answer

The answer of List the advantages and disadvantages of the...

Question 9

Market economies are based on:

Accepted Answer

A) private property and individual good will toward others. 
B) government planning and individual good will toward others. 
C) government planning and individual self-interest. 
D) private property and individual planning.

Question 10

Suppose a single firm gains control of an industry by preventing other firms from entering the industry. As a result, the price charged by the single firm is much higher than the price that would be charged by many different firms producing this product in a competitive market. This situation can best be described as:

Accepted Answer

A) a market failure. 
B) a government failure. 
C) an efficient outcome. 
D) a competitive outcome.

Question 11

Healthy food and charitable giving are examples of:

Accepted Answer

A) merit goods or activities. 
B) demerit goods or activities. 
C) negative externalities. 
D) public goods.

Question 12

Which economic system depends primarily on tradition to answer the "What to produce?" question? Which economic system depends on government planners to make that decision? Which economic system depends on the market to make that decision?

Accepted Answer

The answer of Which economic system depends primarily on tradition...

Question 13

In socialism:

Accepted Answer

A) economic forces do not operate. 
B) individuals are encouraged to act for their own benefit. 
C) government planning, rather than the market, is relied upon to coordinate economic activity. 
D) distribution is determined by the individual's ability.

Question 14

Which of the following statements is correct?

Accepted Answer

A) Neither stocks nor bonds are financial assets. 
B) Stocks are financial assets but bonds are not. 
C) Bonds are financial assets but stocks are not. 
D) Both stocks and bonds are financial assets.

Question 15

Governments can make trading easier and more beneficial by:

Accepted Answer

A) establishing externalities. 
B) limiting private restrictions on trade. 
C) setting quotas. 
D) providing merit goods.

Question 16

The difference between an L3C (low profit limited liability company)and other types of businesses is that:

Accepted Answer

A) L3Cs are chartered by the government and all profits are retained by the government. 
B) L3Cs do not pursue profit, but instead seek social goals. 
C) L3Cs explicitly take on a social mission as well as profit-seeking. 
D) L3Cs cannot accept government funding of any kind.

Question 17

Some nutritionists consider junk food or eating junk food an example of:

Accepted Answer

A) merit goods or activities. 
B) demerit goods or activities. 
C) positive externalities. 
D) public goods.

Question 18

Which of the following would most likely generate a negative externality?

Accepted Answer

A) Education 
B) A lighthouse 
C) Cigarette smoke 
D) Employment

Question 19

With a sole proprietorship:

Accepted Answer

A) all of one's assets are at risk of loss. 
B) shares are valued by the marketplace. 
C) responsibility is shared. 
D) income is taxed twice.

Question 20

Some argue that Sweden's generous welfare benefits, which pay people who lose their jobs as much as 80 percent of previous incomes for three years, has resulted in too-high unemployment. This can be seen as an example of:

Accepted Answer

A) market failure due to unfair conditions produced by the labor market. 
B) government not correcting externalities produced by the market. 
C) government failure in fostering a competitive market environment. 
D) globalization causing hardworking youth to emigrate.

Exam 3: Economic Institutions