Question 1

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

Accepted Answer

A)   Bobbie goes to work and builds cars,and 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 2

Two major virtues of the market system are that it:

Accepted Answer

A)   allocates resources efficiently and allows economic freedom.
B)   results in an equitable personal distribution of income and always maintains full employment.
C)   results in price level stability and a fair personal distribution of income.
D)   eliminates discrimination and minimizes environmental pollution.

Question 3

The invisible hand refers to the many indirect controls that the federal government imposes in a market system.

Accepted Answer

A) True 
 B)False

Question 4

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.

Question 5

Risk management in command economies:

Accepted Answer

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.

Question 6

Answer the question using the following data,which show all available techniques for producing 20 units of a particular commodity:  Resource Possible Production Techniques Resource‾LandLaborCapitalEntrepreneurial AbilityPrices‾$4332#1‾2153#2‾4221#3‾2431#4‾4114#5‾4321\begin{array}{c}\quad\quad\quad\quad\quad\quad\quad	ext {Resource}\quad\quad\quad\quad\quad	ext { Possible Production Techniques }\\begin{array}{lll}\\underline{	ext {Resource}}\ 	ext {Land}\ 	ext {Labor}\ 	ext {Capital}\ 	ext {Entrepreneurial Ability}\end{array}\begin{array}{c}\\underline{	ext {Prices}}\\$ 4\3\3\2\end{array}\begin{array}{c}\\quad\quad\quad\quad\quad\quad\quad\quad\quad\underline{\# 1} \ \quad\quad\quad\quad\quad\quad\quad\quad\quad2 \\quad\quad\quad\quad\quad\quad\quad\quad\quad1 \\quad\quad\quad\quad\quad\quad\quad\quad\quad5 \\quad\quad\quad\quad\quad\quad\quad\quad\quad3\end{array}\begin{array}{c}\\underline{\# 2 }\ 4 \2 \2 \1\end{array}\begin{array}{c}\\underline{\#3 }\ 2 \4 \3 \1\end{array}\begin{array}{c}\\underline{\# 4 }\ 4 \1 \1 \4\end{array}\begin{array}{c}\\underline{\# 5 }\ 4 \3 \2 \1\end{array}\end{array}Resource Possible Production Techniques Resource​LandLaborCapitalEntrepreneurial Ability​Prices​$4332​#1​2153​#2​4221​#3​2431​#4​4114​#5​4321​​ 
 Refer to the data.If a new production technique is developed that enables a firm to produce 20 units of output with 3 units of land,3 of labor,1 of capital,and 2 of entrepreneurial ability,this technique would:

Accepted Answer

A)   not be adopted because,although it reduces production costs,it does not increase profit.
B)   be adopted because it would lower production costs and increase economic profit.
C)   not be adopted because it entails higher production costs than other available techniques.
D)   be adopted,even though economic profits would be reduced slightly.

Question 7

Of the following countries,which one best exhibits the characteristics of a market economy?

Accepted Answer

A)   Canada.
B)   Cuba.
C)   North Korea.
D)   Belarus.

Question 8

An increase in consumer desire for strawberries is most likely to:

Accepted Answer

A)   increase the number of strawberry pickers needed by farmers.
B)   reduce the supply of strawberries.
C)   reduce the number of people willing to pick strawberries.
D)   reduce the need for strawberry pickers.

Question 9

The "coincidence of wants" problem associated with barter refers to the fact that:

Accepted Answer

A)   for exchange to occur,each seller must have a product that some buyer wants.
B)   money must be used as a medium of exchange or trade will never occur.
C)   specialization is restricted by the size or scope of a market.
D)   buyers in resource markets and sellers in product markets can never engage in exchange.

Question 10

In a market economy a significant change in consumers' desire for product X will:

Accepted Answer

A)   alter the profits or losses received by suppliers of product X.
B)   cause a reallocation of scarce resources.
C)   cause some industries to expand and others to contract.
D)   do all of these.

Question 11

Specialization in production is economically beneficial primarily because it:

Accepted Answer

A)   allows everyone to have a job that he or she likes.
B)   permits the production of a larger output with fixed amounts of resources.
C)   facilitates trade by bartering.
D)   guarantees full employment.

Question 12

The guiding function of prices tends to keep resources flowing toward their most highly valued uses.

Accepted Answer

A) True 
 B)False

Question 13

If consumer desire for product X increases,all of the following will occur except:

Accepted Answer

A)   an increase in the profits of industry X.
B)   an increase in the quantity of resources employed by industry X.
C)   an increase in the output of industry X.
D)   a decrease in the quantity of resources employed in industry X.

Question 14

The invisible hand concept suggests that:

Accepted Answer

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.

Question 15

Innovation lagged in the centrally planned economies because:

Accepted Answer

A)   there was too much domestic business competition.
B)   there was too much competition from foreign firms.
C)   enterprises resisted innovation in fear that their production targets would be raised.
D)   exports had to equal imports for the plan to work.

Question 16

Command systems are also known as:

Accepted Answer

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

Question 17

An economic system:

Accepted Answer

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.

Question 18

The dollar votes of consumers ultimately determine the composition of output and the allocation of resources in a market economy.This statement best describes the concept of:

Accepted Answer

A)   derived demand.
B)   consumer sovereignty.
C)   the invisible hand.
D)   market failure.

Question 19

Which of the following is not a typical characteristic of a market system?

Accepted Answer

A)   Private property.
B)   Freedom of enterprise.
C)   Government ownership of most property resources.
D)   Competition in product and resource markets.

Question 20

(Consider This) In 1975,McDonald's introduced its Egg McMuffin breakfast sandwich,which remains popular and profitable today.This longevity illustrates the idea of:

Accepted Answer

A)   opportunity cost.
B)   upsloping supply.
C)   consumer sovereignty.
D)   specialization.

Exam 2: The Market System and the Circular Flow

The invisible hand refers to the many indirect controls that the federal government imposes in a market system.

Correct Answer
verified

Risk management in command economies:

Correct Answer
verified

If consumer desire for product X increases,all of the following will occur except:

Correct Answer
verified

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

Correct Answer
verified

In a market economy a significant change in consumers' desire for product X will:

Correct Answer
verified

Command systems are also known as:

Correct Answer
verified

An economic system:

Correct Answer
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Two major virtues of the market system are that it:

Correct Answer
verified

Which of the following is not a typical characteristic of a market system?

Correct Answer
verified

Of the following countries,which one best exhibits the characteristics of a market economy?

Correct Answer
verified

(Consider This) In 1975,McDonald's introduced its Egg McMuffin breakfast sandwich,which remains popular and profitable today.This longevity illustrates the idea of:

Correct Answer
verified

An increase in consumer desire for strawberries is most likely to:

Correct Answer
verified

Specialization in production is economically beneficial primarily because it:

Correct Answer
verified

The guiding function of prices tends to keep resources flowing toward their most highly valued uses.

Correct Answer
verified

The invisible hand concept suggests that:

Correct Answer
verified

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

Correct Answer
verified

Innovation lagged in the centrally planned economies because:

Correct Answer
verified

The "coincidence of wants" problem associated with barter refers to the fact that:

Correct Answer
verified

The dollar votes of consumers ultimately determine the composition of output and the allocation of resources in a market economy.This statement best describes the concept of:

Correct Answer
verified

Exam 2: The Market System and the Circular Flow

The invisible hand refers to the many indirect controls that the federal government imposes in a market system.

Correct AnswerverifiedShow Answer

Risk management in command economies:

Correct AnswerverifiedShow Answer

If consumer desire for product X increases,all of the following will occur except:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In a market economy a significant change in consumers' desire for product X will:

Correct AnswerverifiedShow Answer

Command systems are also known as:

Correct AnswerverifiedShow Answer

An economic system:

Correct AnswerverifiedShow Answer

Two major virtues of the market system are that it:

Correct AnswerverifiedShow Answer

Which of the following is not a typical characteristic of a market system?

Correct AnswerverifiedShow Answer

Of the following countries,which one best exhibits the characteristics of a market economy?

Correct AnswerverifiedShow Answer

(Consider This) In 1975,McDonald's introduced its Egg McMuffin breakfast sandwich,which remains popular and profitable today.This longevity illustrates the idea of:

Correct AnswerverifiedShow Answer

An increase in consumer desire for strawberries is most likely to:

Correct AnswerverifiedShow Answer

Specialization in production is economically beneficial primarily because it:

Correct AnswerverifiedShow Answer

The guiding function of prices tends to keep resources flowing toward their most highly valued uses.

Correct AnswerverifiedShow Answer

The invisible hand concept suggests that:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Innovation lagged in the centrally planned economies because:

Correct AnswerverifiedShow Answer

The "coincidence of wants" problem associated with barter refers to the fact that:

Correct AnswerverifiedShow Answer

The dollar votes of consumers ultimately determine the composition of output and the allocation of resources in a market economy.This statement best describes the concept of:

Correct AnswerverifiedShow Answer

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