Question 1

What are the Five Fundamental Questions that every economy must answer?

Accepted Answer

There are five fundamental questions tha...

Question 2

Economic systems differ from one another based on who owns the factors of production and

Accepted Answer

A)  how many resources are available in the economy and where they are located.
B)  how economic activities are coordinated and directed.
C)  what kinds of products are produced in the economy and how they are sold.
D)  how big the population is and the makeup of the population.E) A) and B)
F) A) and D)

Question 3

Consumers express self-interest when they

Accepted Answer

A)  seek the lowest price for a product.
B)  reduce business losses.
C)  collect economic profits.
D)  exclude others in their thinking.E) B) and D)
F) B) and C)

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

Why is the right of private property an essential characteristic of a market system?

Accepted Answer

This right of private property, along wi...

Question 6

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 7

In a market system, the "What will be produced?" question is ultimately decided by

Accepted Answer

A)  profitability of products.
B)  costs of production.
C)  workers in the firms.
D)  industry analysts.E) B) and C)
F) A) and D)

Question 8

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 powerE) A) and D)
F) B) and C)

Question 9

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; productE) A) and B)
F) A) and C)

Question 10

By freedom of enterprise, we mean that individual

Accepted Answer

A)  workers are free to look for jobs and work in whichever firm will hire them.
B)  firms are free to employ resources, to produce output, and to sell products.
C)  producers are free to produce whatever the government decides is needed by the society.
D)  consumers are free to buy whatever products will satisfy their needs the most.E) A) and B)
F) A) and C)

Question 11

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.E) C) and D)
F) A) and C)

Question 12

Competition means that

Accepted Answer

A)  sellers can manipulate market price by causing product scarcities.
B)  there are independently acting buyers and sellers in each market.
C)  a product can be purchased at a number of different prices.
D)  there is more than one seller in a market.E) B) and D)
F) B) and C)

Question 13

Which of the following is not one of the five fundamental questions that an economy must deal with?

Accepted Answer

A)  How will the goods and services be produced?
B)  Why should the goods and services be produced?
C)  Who is to receive the goods and services produced in the economy?
D)  In what ways will progress be promoted?E) A) and B)
F) A) and C)

Question 14

Payments that a firm makes to obtain needed resources comprise its

Accepted Answer

A)  costs.
B)  profits.
C)  capital.
D)  revenues.E) All of the above
F) B) and C)

Question 15

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)  resource.E) C) and D)
F) B) and D)

Question 16

The incentive problem under communist central planning refers to the idea that

Accepted Answer

A)  planners had to direct required inputs to each enterprise.
B)  workers, managers, and entrepreneurs could not personally gain by responding to shortages or surpluses or by introducing new and improved products.
C)  the immediate effect of more investment was less consumption.
D)  exports had to be equal to imports for a central plan to work.E) All of the above
F) B) and D)

Question 17

Property rights give the government the right to own, use, and dispose of resources in an economy.

Accepted Answer

A) True 
 B)False

Question 18

In a market system, a firm's employees are typically shielded from business risk by

Accepted Answer

A)  profit-sharing agreements.
B)  wage contracts.
C)  the Social Security program.
D)  paid vacation leaves.E) B) and D)
F) C) and D)

Question 19

Which of the following is a fundamental characteristic of the market system?

Accepted Answer

A)  property rights
B)  central planning by government
C)  unselfish behavior
D)  government-set wages and pricesE) B) and C)
F) A) and D)

Question 20

Adam Smith in his 1776 book the Wealth of Nations describes the concept of "an invisible hand." Explain what he means by an "invisible hand."

Accepted Answer

Firms and resource suppliers, seeking to...

Exam 2: The Market System and the Circular Flow

Adam Smith in his 1776 book the Wealth of Nations describes the concept of "an invisible hand." Explain what he means by an "invisible hand."

Correct AnswerverifiedFirms and resource suppliers, seeking to...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

What are the Five Fundamental Questions that every economy must answer?

Correct AnswerverifiedThere are five fundamental questions tha...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following is not one of the five fundamental questions that an economy must deal with?

Correct AnswerverifiedShow Answer

In a market system, the "What will be produced?" question is ultimately decided by

Correct AnswerverifiedShow Answer

Economic systems differ from one another based on who owns the factors of production and

Correct AnswerverifiedShow Answer

Consumers express self-interest when they

Correct AnswerverifiedShow Answer

By freedom of enterprise, we mean that individual

Correct AnswerverifiedShow Answer

Competition means that

Correct AnswerverifiedShow Answer

Why is the right of private property an essential characteristic of a market system?

Correct AnswerverifiedThis right of private property, along wi...View AnswerShow Answer

Which of the following is a fundamental characteristic of the market system?

Correct AnswerverifiedShow Answer

Property rights give the government the right to own, use, and dispose of resources in an economy.

Correct AnswerverifiedShow Answer

In a market system, a firm's employees are typically shielded from business risk by

Correct AnswerverifiedShow Answer

Payments that a firm makes to obtain needed resources comprise its

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The economies of North Korea and Cuba are

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The incentive problem under communist central planning refers to the idea that

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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Firms and resource suppliers, seeking to...
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There are five fundamental questions tha...
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In terms of the circular flow diagram, businesses obtain revenue through the _ market and make expenditures in the _ market.

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This right of private property, along wi...
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