Question 1

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) A) and B)
F) All of the above

Question 2

A market system tends to restrict business risk to owners and investors. This results in which of the following benefits?

Accepted Answer

A)   a more stable macroeconomy with fewer recessions
B)   Firms are better able to attract inputs, as these inputs do not have to share the risk.
C)   Government agencies are better prepared to help when businesses fail.
D)   consistently lower prices for consumersE) A) and B)
F) A) and C)

Question 3

The most efficient combination of resources in producing a given output is the combination that

Accepted Answer

A)   comes closest to using the same quantities of land, labor, capital, and entrepreneurial ability.
B)   minimizes the cost per unit of output.
C)   uses the smallest total quantity of all resources.
D)   conserves most on the use of labor.E) All of the above
F) A) and B)

Question 4

Continued losses in an industry will cause some firms to reduce output or eventually leave the industry.

Accepted Answer

A) True 
 B)False

Question 5

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 policyholders.
D)   insurance policyholders to the government.E) None of the above
F) B) and C)

Question 6

Private property

Accepted Answer

A)   discourages cooperation because people don't want to part with what they own.
B)   discourages innovation, as people are often afraid to risk losing their own property.
C)   encourages owners to maintain or improve their property so as to preserve or enhance value.
D)   does everything indicated by the other answers.E) C) and D)
F) All of the above

Question 7

In a market system, if firms in an industry persistently earn total revenues that are less than total costs, then that industry will

Accepted Answer

A)   have some firms go out of business.
B)   attract more resources toward it.
C)   experience entry of new firms.
D)   get government protection from failure.E) B) and C)
F) A) and B)

Question 8

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.E) None of the above
F) All of the above

Question 9

Laissez-faire capitalism limits the government's economic functions to the following, except

Accepted Answer

A)   protecting private property rights.
B)   establishing a legal environment to enforce contracts among individuals.
C)   preventing individuals and firms from coercing others.
D)   setting prices of individual goods and services.E) A) and D)
F) A) and B)

Question 10

Having a high fixed salary is what motivates entrepreneurs to make prudent decisions is dealing with business risk.

Accepted Answer

A) True 
 B)False

Question 11

The use of money contributes to economic efficiency because

Accepted Answer

A)   governmental direction of the production and distribution of output can be avoided by using money.
B)   roundabout production could not occur without the availability of money.
C)   it is necessary for the creation of capital goods.
D)   it promotes specialization by overcoming the problems with barter.E) None of the above
F) B) and D)

Question 12

A market system is characterized by the private ownership of resources and the use of prices to coordinate economic activity.

Accepted Answer

A) True 
 B)False

Question 13

Copyrights and trademarks are examples of

Accepted Answer

A)   capital goods.
B)   human capital.
C)   property rights.
D)   public goods.E) A) and D)
F) All of the above

Question 14

The idea that the desires of resource suppliers and firms to further their own self-interest will automatically further the public interest is known as

Accepted Answer

A)   consumer sovereignty.
B)   the invisible hand.
C)   derived demand.
D)   creative destruction.E) A) and D)
F) A) and C)

Question 15

The two basic markets shown by the simple circular flow model are

Accepted Answer

A)   capital goods and consumer goods.
B)   competitive and regulated.
C)   product and resource.
D)   household and business.E) A) and B)
F) A) and C)

Question 16

Answer the question on the basis of the following information: Suppose 30 units of product A can be produced by employing just labor and capital in the four ways shown below. Assume the prices of labor and capital are $2 and $3, respectively.  If the price of product A is $0.50, the firm will realize

Accepted Answer

A)   an economic profit of $4.
B)   an economic profit of $2.
C)   an economic profit of $6.
D)   a loss of $3.E) All of the above
F) A) and C)

Question 17

The advent of Netflix movie streaming and Redbox kiosks renting DVD and Blu-ray movies have virtually demolished the market for video rentals from brick and mortar stores such as Blockbuster. This is an example of

Accepted Answer

A)   creative destruction.
B)   derived demand.
C)   capital accumulation.
D)   the difference between normal and economic profits.E) None of the above
F) A) and B)

Question 18

If competitive industry Y is incurring substantial losses, output will

Accepted Answer

A)   expand as resources move toward industry Y.
B)   contract as resources move toward industry Y.
C)   contract as resources move away from industry Y.
D)   expand as resources move away from industry Y.E) B) and D)
F) B) and C)

Question 19

The market system is also known as _, while the command system is also known as _.

Accepted Answer

A)   capitalism; socialism
B)   socialism; communism
C)   central planning; laissez faire
D)   a production system; a planning systemE) A) and C)
F) C) and D)

Question 20

In a market economy, the distribution of output will be determined primarily by

Accepted Answer

A)   consumer needs and preferences.
B)   the quantities and prices of the resources that households supply.
C)   government regulations that provide a minimum income for all.
D)   a social consensus as to which distribution of income is most equitable.E) All of the above
F) C) and D)

Exam 2: The Market System and the Circular Flow

A market system tends to restrict business risk to owners and investors. This results in which of the following benefits?

Correct AnswerverifiedShow Answer

In a market economy, the distribution of output will be determined primarily by

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Insurance companies facilitate the transfer of risk from

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If competitive industry Y is incurring substantial losses, output will

Correct AnswerverifiedShow Answer

The idea that the desires of resource suppliers and firms to further their own self-interest will automatically further the public interest is known as

Correct AnswerverifiedShow Answer

In a market system, if firms in an industry persistently earn total revenues that are less than total costs, then that industry will

Correct AnswerverifiedShow Answer

The most efficient combination of resources in producing a given output is the combination that

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The use of money for exchange and trade

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Continued losses in an industry will cause some firms to reduce output or eventually leave the industry.

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Private property

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The two basic markets shown by the simple circular flow model are

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A market system is characterized by the private ownership of resources and the use of prices to coordinate economic activity.

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The market system is also known as _, while the command system is also known as _.

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Laissez-faire capitalism limits the government's economic functions to the following, except

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The use of money contributes to economic efficiency because

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Copyrights and trademarks are examples of

Correct AnswerverifiedShow Answer

The advent of Netflix movie streaming and Redbox kiosks renting DVD and Blu-ray movies have virtually demolished the market for video rentals from brick and mortar stores such as Blockbuster. This is an example of

Correct AnswerverifiedShow Answer

Having a high fixed salary is what motivates entrepreneurs to make prudent decisions is dealing with business risk.

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