Exam 2: The Market System and the Circular Flow

A) private property
B) freedom of enterprise
C) government ownership of most property resources
D) competition in product and resource markets

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A) profits of firms in the industry are rising.
B) demand for the industry's product is decreasing.
C) the production of output in the industry is rising.
D) profits of firms in other industries are falling.

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A) households are buyers of resources.
B) businesses are sellers of final products.
C) households are sellers of final products.
D) there are real flows of goods, services, and resources, but not money flows.

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A) is easy because there is no risk.
B) is easy because the government controls most activity and can eliminate risk.
C) tends to be done poorly because government officials do not understand risk.
D) tends to be done poorly because decision makers are insulated from the risk of making a poor decision.

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A) sole proprietorship
B) partnership
C) public agency
D) corporation

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A) households earn their money incomes.
B) households acquire economic resources from businesses.
C) businesses acquire their inputs from households.
D) businesses earn their revenues from households.

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A) In a market system, buyers and sellers must be in face-to-face contact with each other.
B) Prices affect the distribution of goods in a market system, but not the allocation of resources.
C) In a market system, prices serve to ration goods and services to consumers.
D) The operation of a market system has little, if any, effect on the distribution of income in the economy.

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A) total revenue to be zero.
B) economic profits to be zero.
C) total opportunity cost to be zero.
D) more resources to flow to that industry.

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A) can earn more profits by increasing product price.
B) should be larger to better satisfy consumers' desire for the product.
C) has excess production capacity.
D) is the size that consumers want it to be.

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A) requires a grouping of private markets linked to one another.
B) is a particular set of institutional arrangements and a coordinating mechanism used to respond to the economizing problem.
C) requires some sort of centralized authority (such as government) to coordinate economic activity.
D) is a plan or scheme that allows a firm to make money at some other firm's expense.

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A) money is not an effective tool for exchange in a market system.
B) there is an active role for government, even in a market system.
C) individuals and firms should strive to be self-sufficient rather than specialize.
D) command systems are superior to market systems in the allocation of resources.

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A) market systems.
B) pure capitalism.
C) laissez-faire capitalism.
D) communism.

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A) market failures imply the need for a national economic plan.
B) big businesses are inherently more efficient than small businesses.
C) the competitiveness of a capitalistic market economy invariably diminishes over time.
D) assuming competition, private and public interests will coincide.

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