Question 1

Competition is more likely to exist when

Accepted Answer

A)  there is easy entry into and exit out of industries.
B)  a government-issued license is required to set up a firm in an industry.
C)  the government purchases most goods and services.
D)  economic power is concentrated among a few large firms.

Question 2

Businesses seeking higher profits and resource suppliers seeking higher incomes lead to changes in the allocation of resources among different firms and end up with

Accepted Answer

A)  consumers at the losing end.
B)  output that society wants.
C)  unnecessary conflict and turmoil.
D)  a need for government action.

Question 3

The market system's answer to the fundamental question "How will the system promote progress?" is essentially

Accepted Answer

A)  "Through government-funded research programs."
B)  "Through redistribution of income to promote greater equality."
C)  "Through training and retraining programs."
D)  "Through the profit potential that encourages development of new technology."

Question 4

From society's point of view, the economic function of profits and losses is to

Accepted Answer

A)  promote the equal distribution of real assets and wealth.
B)  achieve full employment and price level stability.
C)  contribute to a more equal distribution of income.
D)  reallocate resources from less-desired to more-desired uses.

Question 5

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.

Question 6

Refer to the diagram. Arrows (1) and (2) represent

Accepted Answer

A)  goods and resources, respectively.
B)  money incomes and output, respectively.
C)  output and money incomes, respectively.
D)  resources and goods, respectively.

Question 7

Quantitative measures of managerial success, such as production targets or quotas, are highly foolproof and are thus ideal to use in increasing economic efficiency.

Accepted Answer

A) True 
 B)False

Question 8

If the total costs of producing 1,500 units of output is $12,000 and this output sold to consumers for a total of $15,000, then the firm would earn economic profits of

Accepted Answer

A)  $15,000.
B)  $18,000.
C)  $3,000.
D)  $12,000.
E)  $27,000.

Question 9

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.

Question 10

The economic function of profits and losses is to

Accepted Answer

A)  bring about a more equal distribution of income.
B)  signal that resources should be reallocated.
C)  eliminate small firms and reduce competition.
D)  tell government which industries need to be subsidized.

Question 11

Which of the following is a distinguishing feature of laissez-faire capitalism?

Accepted Answer

A)  public ownership of all capital
B)  central planning
C)  minimal government intervention
D)  a circular flow of goods, resources, and money

Question 12

The term "laissez-faire" suggests that

Accepted Answer

A)  land and other natural resources should be privately owned, but capital should be publicly owned.
B)  land and other natural resources should be publicly owned, but capital should be privately owned.
C)  government should not interfere with the operation of the economy.
D)  government action is absolutely necessary if the economy is to achieve full employment and full production.

Question 13

Which of the following is not a reason why specialization and trade are beneficial to society?

Accepted Answer

A)  The total output of economic goods may be increased even without any increase in resources.
B)  Scarce resources are utilized more efficiently by exploiting differences among them.
C)  Specialization fosters learning by doing, thus lowering the unit-costs of products.
D)  Firms and workers become less dependent on others for producing goods and services.

Question 14

On the basis of the information, it can be said that

Accepted Answer

A)  no coincidence of wants exists between any two states.
B)  a coincidence of wants exists between Michigan and Washington.
C)  a coincidence of wants exists between Texas and Washington.
D)  a coincidence of wants exists between Michigan and Texas.

Question 15

Which of the following best illustrates the circular flow model in action?

Accepted Answer

A)  Bobbie goes to work and builds cars; she uses the income she receives to buy food at the grocery store.
B)  Evan buys a new couch; the owner of the furniture store uses some of the money from the sale to pay her supplier and uses the rest to take her family out to dinner.
C)  Boeing experiences a surge in orders for new airplanes, prompting the company to hire more workers.
D)  All of these answers illustrate the workings of the circular flow model.

Question 16

Low-cost production is not important for Bitcoin miners since Bitcoin is intangible and exists only in cyberspace.

Accepted Answer

A) True 
 B)False

Question 17

In a market economy, the incomes of consumers depend primarily upon

Accepted Answer

A)  government policies in setting wages and interest rates.
B)  the quantity and prices of resources that they possess.
C)  the amount of savings that they have accumulated.
D)  how closely connected they are to government and business leaders.

Question 18

The main characteristics of a modern market system include all of the following except

Accepted Answer

A)  entrepreneurs are free to obtain and use resources to produce goods and services.
B)  consumers are free to buy goods and services that their budgets allow.
C)  economic power is diffused by competition among economic units.
D)  government is restricted to national defense and does not intervene at all in various markets.

Question 19

Private property and freedom of choice in a market system have the following implications, except

Accepted Answer

A)  individuals are free to take on the financial risks involved in a business.
B)  trades that take place in the economy are mutually agreeable transactions among individuals.
C)  economic agents can act in their own self-interest.
D)  large firms are allowed to coerce other firms and individuals.

Question 20

Refer to the diagram. Flow 1 represents

Accepted Answer

A)  wage, rent, interest, and profit income.
B)  land, labor, capital, and entrepreneurial ability.
C)  goods and services.
D)  consumer expenditures.

Exam 2: The Market System and the Circular Flow

Competition is more likely to exist when

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Low-cost production is not important for Bitcoin miners since Bitcoin is intangible and exists only in cyberspace.

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Which of the following is a distinguishing feature of laissez-faire capitalism?

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The market system's answer to the fundamental question "How will the system promote progress?" is essentially

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If the total costs of producing 1,500 units of output is $12,000 and this output sold to consumers for a total of $15,000, then the firm would earn economic profits of

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Which of the following is not a reason why specialization and trade are beneficial to society?

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Businesses seeking higher profits and resource suppliers seeking higher incomes lead to changes in the allocation of resources among different firms and end up with

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Which of the following best illustrates the circular flow model in action?

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

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Refer to the diagram. Arrows (1) and (2) represent

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The economic function of profits and losses is to

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On the basis of the information, it can be said that

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In a market economy, the incomes of consumers depend primarily upon

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Private property and freedom of choice in a market system have the following implications, except

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The simple circular flow model shows that

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The term "laissez-faire" suggests that

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Quantitative measures of managerial success, such as production targets or quotas, are highly foolproof and are thus ideal to use in increasing economic efficiency.

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Refer to the diagram. Flow 1 represents

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From society's point of view, the economic function of profits and losses is to

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The main characteristics of a modern market system include all of the following except

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