Question 1

Which is one of the five fundamental questions that need to be dealt with in any economic system?

Accepted Answer

A)   What makes the rate of unemployment low?
B)   Who will be the richest group in the economy?
C)   How will goods and services be produced?
D)   How high should the prices of goods and services be?E) B) and C)
F) A) and B)

Question 2

Refer to the above figure. If box A represents households, D the resource market, and C businesses, then flow (8)  would represent ___ while flow (7)  would represent ___.

Accepted Answer

A)   Goods and services; consumption expenditures
B)   Consumption expenditures; goods and services
C)   Resources; money income
D)   Money income; resourcesE) C) and D)
F) All of the above

Question 3

The concept of consumer sovereignty refers to the situation where consumers have the right to vote for the board of directors of large corporations.

Accepted Answer

A) True 
 B)False

Question 4

According to the circular flow model of the market system, when resource-owners' money income is rising, then the costs to business firms must be falling.

Accepted Answer

A) True 
 B)False

Question 5

Even with the use of money, exchange and trade cannot occur if there is no coincidence of wants.

Accepted Answer

A) True 
 B)False

Question 6

Competition in a market system denotes a condition where:

Accepted Answer

A)   The diffusion of economic power limits its potential abuse
B)   Any given product can be purchased at a wide range of prices
C)   Contractual agreements among individual firms are restricted and avoided
D)   A few large sellers are constantly jostling for market shareE) A) and B)
F) B) and C)

Question 7

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 buyE) B) and D)
F) All of the above

Question 8

The circular flow model illustrates:

Accepted Answer

A)   The importance of having a central plan for the economy
B)   How natural and other resources are created
C)   How money is created by the banking system
D)   The interdependence of businesses and consumersE) B) and C)
F) None of the above

Question 9

The highly influential book by Adam Smith, who brought up the "invisible hand" notion, is titled:

Accepted Answer

A)   The Worldly Philosophers
B)   The Affluent Society
C)   The Age of the Economist
D)   The Wealth of NationsE) B) and C)
F) All of the above

Question 10

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 of output
B)   Product quality
C)   The amount of profits
D)   Worker moraleE) None of the above
F) B) and D)

Question 11

The Heritage Foundation in 2012 ranked which of the following economies to have among the highest economic freedom?

Accepted Answer

A)   The United States
B)   Germany
C)   Argentina
D)   Hong KongE) A) and D)
F) B) and D)

Question 12

Which of the following guides sensible decisions regarding the management of business risk in a market system?

Accepted Answer

A)   The profit and loss system
B)   The "invisible hand"
C)   Taxes and subsidies
D)   Consumer sovereigntyE) A) and B)
F) None of the above

Question 13

Payments that a firm makes to obtain needed resources comprise its:

Accepted Answer

A)   Costs
B)   Profits
C)   Capital
D)   RevenuesE) All of the above
F) None of the above

Question 14

The choice of the most efficient production technique is not affected by how much buyers want to buy the product.

Accepted Answer

A) True 
 B)False

Question 15

The problems of central planning become less complex as an economy grows in size over time.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following would not be emphasized in a capitalist economy?

Accepted Answer

A)   Private ownership of capital and other resources
B)   Competition and decentralized decisions
C)   Reliance on market forces to coordinate economic activity
D)   Prevention of owners of capital from exposing this resource to riskE) B) and C)
F) A) and D)

Question 17

In the circular flow model, households act as buyers in the resource markets.

Accepted Answer

A) True 
 B)False

Question 18

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 resourcesE) A) and B)
F) A) and C)

Question 19

In analyzing a market system, economists often assume that firms will choose the production techniques that will give them the maximum revenues.

Accepted Answer

A) True 
 B)False

Question 20

A required element for specialization to lead to an increase in the satisfaction of society's wants is:

Accepted Answer

A)   A capitalist economy
B)   Exchange and trade
C)   The use of money
D)   A central planE) A) and B)
F) A) and C)

Exam 2: The Market System and the Circular Flow

Which of the following would not be emphasized in a capitalist economy?

Correct AnswerverifiedShow Answer

In the circular flow model, households act as buyers in the resource markets.

Correct AnswerverifiedShow Answer

The Heritage Foundation in 2012 ranked which of the following economies to have among the highest economic freedom?

Correct AnswerverifiedShow Answer

The choice of the most efficient production technique is not affected by how much buyers want to buy the product.

Correct AnswerverifiedShow Answer

Refer to the above figure. If box A represents households, D the resource market, and C businesses, then flow (8) would represent ___ while flow (7) would represent ___.

Correct AnswerverifiedShow Answer

The problems of central planning become less complex as an economy grows in size over time.

Correct AnswerverifiedShow Answer

Which is one of the five fundamental questions that need to be dealt with in any economic system?

Correct AnswerverifiedShow Answer

The circular flow model illustrates:

Correct AnswerverifiedShow Answer

A required element for specialization to lead to an increase in the satisfaction of society's wants is:

Correct AnswerverifiedShow Answer

According to the circular flow model of the market system, when resource-owners' money income is rising, then the costs to business firms must be falling.

Correct AnswerverifiedShow Answer

Competition in a market system denotes a condition where:

Correct AnswerverifiedShow Answer

The term consumer sovereignty means that:

Correct AnswerverifiedShow Answer

The concept of consumer sovereignty refers to the situation where consumers have the right to vote for the board of directors of large corporations.

Correct AnswerverifiedShow Answer

Payments that a firm makes to obtain needed resources comprise its:

Correct AnswerverifiedShow Answer

Which of the following guides sensible decisions regarding the management of business risk in a market system?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Even with the use of money, exchange and trade cannot occur if there is no coincidence of wants.

Correct AnswerverifiedShow Answer

The highly influential book by Adam Smith, who brought up the "invisible hand" notion, is titled:

Correct AnswerverifiedShow Answer

In analyzing a market system, economists often assume that firms will choose the production techniques that will give them the maximum revenues.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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Refer to the above figure. If box A represents households, D the resource market, and C businesses, then flow (8) would represent _ while flow (7) would represent _.

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