Question 1

Which is an example of barter?

Accepted Answer

A)  A person trades a desk for a box of tools 
B)  A person buys clothes at a used clothing store 
C)  A gift of tuition money from parents to their children 
D)  The purchase of stock on the New York Stock Exchange

Question 2

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

Accepted Answer

A)  Away from the expanding industry towards the contracting one 
B)  From one industry due to the changes in resource prices paid by firms 
C)  Towards the industry where the product demand is declining 
D)  Because resource allocation will have to equalize between the two industries

Question 3

One basic problem faced by central planners, but hardly present in a market system, has to do with:

Accepted Answer

A)  Determining the production goals or targets in a factory 
B)  Having limited resources and trying to match them with unlimited wants 
C)  Coordinating production in various industries so that bottlenecks do not develop 
D)  Providing financial resources for increasing the real flows of products in the economy

Question 4

How does human specialization contribute towards increasing an economy's output?

Accepted Answer

A)  It exploits the differences in abilities 
B)  It is a process of creative destruction 
C)  It pushes each worker to master the whole product 
D)  It encourages people to be "jacks-of-all-trades"

Question 5

When somebody buys an insurance policy, that person is seeking to transfer risk away from herself and pass it on to the insurance company.

Accepted Answer

A) True 
 B)False

Question 6

According to the circular flow model of the market system, firms get their ability to pay for their costs of production from the revenues that they receive for their products.

Accepted Answer

A) True 
 B)False

Question 7

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 8

Anything that is generally acceptable in trading for goods and services is a:

Accepted Answer

A)  Medium of exchange 
B)  Capital good 
C)  Store of value 
D)  Token money

Question 9

Which of the following best describes the "invisible hand" concept?

Accepted Answer

A)  Ample regulation of business by the government will maximize the public's best interests 
B)  The market system works best when resources are free to move from one use to another 
C)  The problem of scarcity can best be overcome in a system of mixed capitalism 
D)  Self-interest in a market system will automatically promote the public interest as well

Question 10

In a market system, the income earned by owners of natural resources is called interest income.

Accepted Answer

A) True 
 B)False

Question 11

"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 12

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

Accepted Answer

A)  Wages 
B)  Profits 
C)  Interest 
D)  Revenues

Question 13

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

Question 14

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 above table. Which technique is the most economically efficient way of producing Zenia?

Accepted Answer

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

Question 15

The use of money for exchange and trade:

Accepted Answer

A)  Increases the importance of barter 
B)  Fosters more specialization in production 
C)  Reduces consumer sovereignty 
D)  Raises the need for a coincidence of wants

Question 16

Laissez-faire capitalism is characterized by:

Accepted Answer

A)  Very limited government role in the economy 
B)  Active government intervention in the economy 
C)  Individuals and firms abiding by a government economic plan 
D)  A very fair distribution of income and wealth

Question 17

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

Question 18

The economies of North Korea and Cuba are:

Accepted Answer

A)  Similar in that they are both basically command systems 
B)  Similar in that they are both basically market systems 
C)  Different in that North Korea has a command system while Cuba has a market system 
D)  Different in that Cuba has a command system while North Korea has a market system

Question 19

Insurance companies facilitate the transfer of risk from:

Accepted Answer

A)  Those who have a low-risk tolerance to those with high risk-tolerance 
B)  Those who have a high-risk tolerance to those with low risk-tolerance 
C)  The insurance companies' owners to the insurance-policy holders 
D)  Insurance policyholders to the bankers who lend money to the companies

Question 20

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

Exam 2: The Market System and the Circular Flow

Which is an example of barter?

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

One basic problem faced by central planners, but hardly present in a market system, has to do with:

How does human specialization contribute towards increasing an economy's output?

When somebody buys an insurance policy, that person is seeking to transfer risk away from herself and pass it on to the insurance company.

According to the circular flow model of the market system, firms get their ability to pay for their costs of production from the revenues that they receive for their products.

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

Anything that is generally acceptable in trading for goods and services is a:

Which of the following best describes the "invisible hand" concept?

In a market system, the income earned by owners of natural resources is called interest income.

"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:

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

The use of money for exchange and trade:

Laissez-faire capitalism is characterized by:

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

The economies of North Korea and Cuba are:

Insurance companies facilitate the transfer of risk from:

The "invisible hand" concept refers to the: