Question 1

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

Accepted Answer

A)   It encourages more people to become entrepreneurs.
B)   Firms have to pay more to attract inputs,as these inputs have to share the risk.
C)   Firms focus attention on prudent risk management,as it is profitable to manage risk.
D)   Income becomes more equally distributed.E) C) and D)
F) B) and C)

Question 2

The wants of consumers are expressed in the product market with "dollar votes."

Accepted Answer

A) True 
 B)False

Question 3

The division of labor means that:

Accepted Answer

A)   labor markets are geographically segmented.
B)   unskilled workers outnumber skilled workers.
C)   workers specialize in various production tasks.
D)   each worker performs a large number of tasks.E) B) and C)
F) None of the above

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

Suppose that an individual sees a tremendous opportunity to produce and sell a new product but dismisses the idea because there is no way to exploit this opportunity for personal gain.This situation best identifies the:

Accepted Answer

A)   coordination problem under communist central planning.
B)   self-sufficiency dilemma under communism.
C)   asymmetric information problem under communism.
D)   incentive problem under communist central planning.E) A) and D)
F) None of the above

Question 6

The French term "laissez-faire" means:

Accepted Answer

A)   "there is no free lunch."
B)   "let it be."
C)   "circular flow."
D)   "public ownership."E) B) and C)
F) A) and D)

Question 7

The competitive market system:

Accepted Answer

A)   encourages innovation because government provides tax breaks and subsidies to those who develop new products or new productive techniques.
B)   discourages innovation because it is difficult to acquire additional capital in the form of new machinery and equipment.
C)   discourages innovation because firms want to get all the profits possible from existing machinery and equipment.
D)   encourages innovation because successful innovators are rewarded with economic profits.E) B) and C)
F) C) and D)

Question 8

The market system's answer to the fundamental question "Who will get the goods and services?" is essentially:

Accepted Answer

A)   "Those willing and able to pay for them."
B)   "Those who physically produced them."
C)   "Those who most need them."
D)   "Those who get utility from them."E) None of the above
F) All of the above

Question 9

The advent of DVDs has virtually demolished the market for videocassettes.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) A) and B)
F) B) and C)

Question 10

Which of the following characteristics is least unique to a market system?

Accepted Answer

A)   Private ownership of property resources.
B)   Competition among buyers and sellers pursuing monetary returns.
C)   The widespread use of money.
D)   Freedom of enterprise and choice.E) A) and B)
F) A) and C)

Question 11

Barter:

Accepted Answer

A)   is the major means of exchange in centrally planned economies.
B)   accounts for over 30 percent of the dollar volume of all exchange in the U.S.economy.
C)   entails the exchange of goods for goods.
D)   is used to circumvent the problem of a lack of coincidence of wants among potential buyers and sellers.E) A) and B)
F) B) and D)

Question 12

Enterprise managers and workers in the Soviet Union often resisted innovations in production methods because:

Accepted Answer

A)   production targets were often increased when innovation occurred.
B)   there was a chronic shortage of computers.
C)   workers could not be reallocated geographically.
D)   innovations ordinarily increased dependence on world markets.E) A) and C)
F) B) and D)

Question 13

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)   minimize the cost per unit of output.
C)   uses the smallest total quantity of all resources.
D)   conserves most on the use of labor.E) A) and D)
F) B) and D)

Question 14

The simple circular flow model shows that:

Accepted Answer

A)   households are on the buying side of both product and resource markets.
B)   businesses are on the selling side of both product and resource markets.
C)   households are on the selling side of the resource market and on the buying side of the product market.
D)   businesses are on the buying side of the product market and on the selling side of the resource market.E) None of the above
F) A) and B)

Question 15

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) None of the above
F) C) and D)

Question 16

"Under central planning,some group has to decide how to get the necessary inputs produced in the right amounts and delivered to the right places at the right time.This is a nearly impossible task without markets and profits." This quotation best identifies the:

Accepted Answer

A)   incentive problem under central planning.
B)   coordination problem under central planning.
C)   self-sufficiency dilemma under communism.
D)   resource overcommitment problem under communism.E) B) and C)
F) C) and D)

Question 17

In the resource market:

Accepted Answer

A)   businesses borrow financial capital from households.
B)   businesses sell services to households.
C)   households sell resources to businesses.
D)   firms sell raw materials to households.E) A) and D)
F) B) and C)

Question 18

Specialization in production is important primarily because it:

Accepted Answer

A)   results in greater total output.
B)   allows society to avoid the coincidence-of-wants problem.
C)   allows society to trade by barter.
D)   allows society to have fewer capital goods.E) None of the above
F) All of the above

Question 19

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) A) and B)

Question 20

Property rights are important because they:

Accepted Answer

A)   ensure an equal distribution of income.
B)   encourage cooperation by improving the chances of mutually agreeable transactions.
C)   guarantee that any exchange will make all parties better off than prior to the exchange.
D)   allow the government to control how resources are allocated.E) A) and B)
F) All of the above

Exam 2: The Market System and the Circular Flow

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

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The simple circular flow model shows that:

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The market system's answer to the fundamental question "Who will get the goods and services?" is essentially:

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Suppose that an individual sees a tremendous opportunity to produce and sell a new product but dismisses the idea because there is no way to exploit this opportunity for personal gain.This situation best identifies the:

Correct AnswerverifiedShow Answer

The competitive market system:

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The French term "laissez-faire" means:

Correct AnswerverifiedShow Answer

Enterprise managers and workers in the Soviet Union often resisted innovations in production methods because:

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The wants of consumers are expressed in the product market with "dollar votes."

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If competitive industry Y is incurring substantial losses,output will:

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Barter:

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Which of the following characteristics is least unique to a market system?

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The division of labor means that:

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

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"Under central planning,some group has to decide how to get the necessary inputs produced in the right amounts and delivered to the right places at the right time.This is a nearly impossible task without markets and profits." This quotation best identifies the:

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In the resource market:

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The advent of DVDs has virtually demolished the market for videocassettes.This is an example of:

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Property rights are important because they:

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Specialization in production is important primarily because it:

Correct AnswerverifiedShow Answer

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