Question 1

The dollar votes of consumers ultimately determine the composition of output and the allocation of resources in a market economy. This statement best describes the concept of

Accepted Answer

A)  derived demand. 
B)  consumer sovereignty. 
C)  the invisible hand. 
D)  market failure.

Question 2

A characteristic of the market system is

Accepted Answer

A)  extensive use of direct or manual methods of production. 
B)  a focus on labor, as opposed to capital resources. 
C)  reliance on the use of capital goods in indirect modes of production. 
D)  avoidance of producing goods that do not satisfy consumer wants directly.

Question 3

Money functions as a medium of exchange by eliminating the need for a coincidence of wants.

Accepted Answer

A) True 
 B)False

Question 4

The major "success indicator" for business managers in command economies like the Soviet Union and China in the past was

Accepted Answer

A)  the quantity or volume of production. 
B)  product quality and variety. 
C)  the amount of profits a producer makes. 
D)  morale of workers in a firm.

Question 5

(Last Word) According to economist Donald Boudreaux,

Accepted Answer

A)  private property eliminates the possibility that resource arrangements will be random. 
B)  the market system threatens to do irreparable harm to the world's ecosystem. 
C)  arranging resources under the market system is much like shuffling a deck of cards. 
D)  the market system works wondrously for advanced industrial nations but not for developing nations.

Question 6

The production technique that is most efficient is the one that produces a given amount of output

Accepted Answer

A)  using the least amount of labor resources. 
B)  at the highest price per unit. 
C)  at the lowest cost per unit. 
D)  that yields the highest revenues.

Question 7

The invisible hand refers to the many indirect controls that the federal government imposes in a market system.

Accepted Answer

A) True 
 B)False

Question 8

Being a "jack-of-all-trades" implies reducing the reliance on the division of labor.

Accepted Answer

A) True 
 B)False

Question 9

The market system's answer to the fundamental question "How will the goods and services be produced?" is essentially

Accepted Answer

A)  "With as much machinery as possible." 
B)  "Using the latest technology." 
C)  "By exploiting labor." 
D)  "In ways that minimize the cost per unit of output."

Question 10

Consumer sovereignty means that legislation now protects the rights of consumers to dispose of their incomes as they see fit.

Accepted Answer

A) True 
 B)False

Question 11

"Consumer sovereignty" means that

Accepted Answer

A)  buyers can dictate the prices at which goods and services will be offered. 
B)  advertising is ineffective because consumers already know what they want. 
C)  buyers control the quality of goods and services through regulatory agencies. 
D)  buyers determine what will be produced based on their "dollar votes" for the goods and services offered by sellers.

Question 12

In a command economy like the old Soviet Union, one is able to improve one's lot and get ahead in society largely through

Accepted Answer

A)  entrepreneurship and risk-taking. 
B)  innovation and profits. 
C)  participating in the political hierarchy. 
D)  getting high prices for one's products and resources.

Question 13

(Consider This) In 1975, McDonald's introduced its Egg McMuffin breakfast sandwich, which remains popular and profitable today. This longevity illustrates the idea of

Accepted Answer

A)  opportunity cost. 
B)  upsloping supply. 
C)  consumer sovereignty. 
D)  specialization.

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.

Question 15

If products were in short or surplus supply in the Soviet Union,

Accepted Answer

A)  price and profit signals eliminated those shortages and surpluses. 
B)  price and profit signals intensified those shortages and surpluses. 
C)  producers would not react because no price or profit signals occurred. 
D)  the planners would immediately adjust production to achieve equilibrium.

Question 16

The term consumer sovereignty means that

Accepted Answer

A)  government is responsible for protecting consumers' interests. 
B)  what is produced is ultimately determined by what consumers buy. 
C)  there are no limits on what consumers may buy in a market system. 
D)  producers have strong control over what consumers buy.

Question 17

"For whom is a given mix of goods and services to be produced? How, in other words, are the society's outputs to be distributed among its members?" In a market economy, this question is resolved primarily in the

Accepted Answer

A)  public sector through the mechanism of central planning. 
B)  business sector through the mechanism of advertising. 
C)  private sector through the earning and spending of income. 
D)  money market through borrowing and saving by households and businesses.

Question 18

The money income of households consists of all the following, except

Accepted Answer

A)  wages. 
B)  profits. 
C)  interest. 
D)  revenues.

Question 19

An increase in the demand for a product and a reduction in its costs of production would

Accepted Answer

A)  decrease the profits of producers. 
B)  encourage firms to leave an industry. 
C)  encourage firms to enter an industry. 
D)  cause a shortage of the product.

Question 20

The market system is said to be characterized by "consumer sovereignty." This is because

Accepted Answer

A)  a sovereign government determines which consumer goods will be produced. 
B)  the prices of consumer goods are regulated by a sovereign government. 
C)  firms must match their production decisions to the consumers' choices. 
D)  consumer goods are considered to be more important than capital goods.

Exam 2: The Market System and the Circular Flow

The dollar votes of consumers ultimately determine the composition of output and the allocation of resources in a market economy. This statement best describes the concept of

A characteristic of the market system is

Money functions as a medium of exchange by eliminating the need for a coincidence of wants.

The major "success indicator" for business managers in command economies like the Soviet Union and China in the past was

(Last Word) According to economist Donald Boudreaux,

The production technique that is most efficient is the one that produces a given amount of output

The invisible hand refers to the many indirect controls that the federal government imposes in a market system.

Being a "jack-of-all-trades" implies reducing the reliance on the division of labor.

The market system's answer to the fundamental question "How will the goods and services be produced?" is essentially

Consumer sovereignty means that legislation now protects the rights of consumers to dispose of their incomes as they see fit.

"Consumer sovereignty" means that

In a command economy like the old Soviet Union, one is able to improve one's lot and get ahead in society largely through

(Consider This) In 1975, McDonald's introduced its Egg McMuffin breakfast sandwich, which remains popular and profitable today. This longevity illustrates the idea of

Specialization is beneficial

If products were in short or surplus supply in the Soviet Union,

The term consumer sovereignty means that

"For whom is a given mix of goods and services to be produced? How, in other words, are the society's outputs to be distributed among its members?" In a market economy, this question is resolved primarily in the

The money income of households consists of all the following, except

An increase in the demand for a product and a reduction in its costs of production would

The market system is said to be characterized by "consumer sovereignty." This is because