Question 1

What, according to economist Donald Boudreaux in the "Last Word" section of the chapter, best explains why the market system is not a random, chaotic mess?

Accepted Answer

A)   There is active cooperation among private property owners and government officials to correct the excesses of a market economy
B)   The roundabout methods of production allocate resources from consumers to producers in an orderly fashion
C)   Government planning limits the chaos, and the government regulates economic activity to create stability in the market
D)   Private property rights encourage mutual accommodation that leads to an arrangement of resources that is productive

Question 2

In a market system, self-interest is the motivating force that:

Accepted Answer

A)   Makes individuals unwilling to deliver anything of value to others
B)   Makes owners of resources always want to use their resources themselves
C)   Leads the economy to chaos and confusion, especially the larger economies
D)   Coordinates and creates consistency in the operations of various parts of the economy

Question 3

Economic efficiency is the primary guide in answering which of the fundamental questions in a market economy?

Accepted Answer

A)   What will be produced?
B)   How is the output to be produced?
C)   How can the system accommodate change?
D)   Who is to receive the output?

Question 4

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 5

The following table illustrates alternative production techniques for producing 18 widgets that can be sold for $1 each for a total revenue of $18.  Refer to the above table. Using the technique cited in the previous question will result in an:

Accepted Answer

A)   Economic loss of $2
B)   Economic profit of $1
C)   Economic profit of $2
D)   Economic profit of $3

Question 6

The government may impose industrial safety regulations and occupational licensing requirements in which of the following economic systems?

Accepted Answer

A)   Laissez-faire economy
B)   Pure capitalism
C)   Mixed market economy
D)   Macroeconomic system

Question 7

In a command system:

Accepted Answer

A)   Self-interest motivates and commands each business firm's decisions and actions
B)   The head of each family decides what to do with the family's resources
C)   The government makes production and allocation decisions
D)   Market traders command what outputs are produced and how they are allocated

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

Economic efficiency entails producing a certain output with the minimum number of units of inputs.

Accepted Answer

A) True 
 B)False

Question 10

Property rights give to some people the right to coerce others into giving up their property.

Accepted Answer

A) True 
 B)False

Question 11

By freedom of enterprise, we mean that individual:

Accepted Answer

A)   Workers are free to look for jobs and work in whichever firm will hire them
B)   Firms are free to employ resources, to produce their output, and to sell their products
C)   Producers are free to produce whatever the government decides are needed by the society
D)   Consumers are free to buy whatever products will satisfy their needs the most

Question 12

Most market economies, such as the U.S. and the U.K., allow government policies and actions aimed at promoting economic growth and stability.

Accepted Answer

A) True 
 B)False

Question 13

Refer to the above figure. If box A represents households, B the product market, and C businesses, and if flow (3)  represents revenues, then flow (1)  would represent:

Accepted Answer

A)   Costs
B)   Money income
C)   Consumption expenditures
D)   Resources

Question 14

Profits are the primary "success indicator" for firms in a centrally planned economy.

Accepted Answer

A) True 
 B)False

Question 15

Capital accumulation in a market system results from:

Accepted Answer

A)   Increased purchases of consumers or households
B)   The "invisible hand" that guides the market
C)   Dollar votes by entrepreneurs and business owners
D)   Consumer sovereignty that prevails in the market

Question 16

College graduates who dislike business risk will mostly seek to be hired by firms as labor, rather than starting their own firms.

Accepted Answer

A) True 
 B)False

Question 17

One major element of the command system is:

Accepted Answer

A)   An emphasis on private ownership of resources
B)   Individual decentralized decision-making
C)   Reliance on supply-and-demand forces to guide economic activity
D)   Central planning conducted by the government

Question 18

The simple circular flow model shows that workers and capital-owners offer their services to firms through the:

Accepted Answer

A)   Product markets
B)   Resource markets
C)   Employment agencies
D)   Government agencies

Question 19

In a market system, a firm's employees are typically shielded from business risk by:

Accepted Answer

A)   Profit-sharing agreements
B)   Wage contracts
C)   The Social Security program
D)   Paid vacation leaves

Question 20

A corporation is a type of business firm where the debt of the firm is considered its owners' personal responsibility.

Accepted Answer

A) True 
 B)False

Exam 2: The Market System and the Circular Flow

In a command system:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The simple circular flow model shows that workers and capital-owners offer their services to firms through the:

Correct AnswerverifiedShow Answer

A corporation is a type of business firm where the debt of the firm is considered its owners' personal responsibility.

Correct AnswerverifiedShow Answer

Profits are the primary "success indicator" for firms in a centrally planned economy.

Correct AnswerverifiedShow Answer

In a market system, a firm's employees are typically shielded from business risk by:

Correct AnswerverifiedShow Answer

Refer to the above figure. If box A represents households, B the product market, and C businesses, and if flow (3) represents revenues, then flow (1) would represent:

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One major element of the command system is:

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College graduates who dislike business risk will mostly seek to be hired by firms as labor, rather than starting their own firms.

Correct AnswerverifiedShow Answer

By freedom of enterprise, we mean that individual:

Correct AnswerverifiedShow Answer

In a market system, self-interest is the motivating force that:

Correct AnswerverifiedShow Answer

The government may impose industrial safety regulations and occupational licensing requirements in which of the following economic systems?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Economic efficiency is the primary guide in answering which of the fundamental questions in a market economy?

Correct AnswerverifiedShow Answer

Economic efficiency entails producing a certain output with the minimum number of units of inputs.

Correct AnswerverifiedShow Answer

Most market economies, such as the U.S. and the U.K., allow government policies and actions aimed at promoting economic growth and stability.

Correct AnswerverifiedShow Answer

Property rights give to some people the right to coerce others into giving up their property.

Correct AnswerverifiedShow Answer

What, according to economist Donald Boudreaux in the "Last Word" section of the chapter, best explains why the market system is not a random, chaotic mess?

Correct AnswerverifiedShow Answer

Capital accumulation in a market system results from:

Correct AnswerverifiedShow Answer

The following table illustrates alternative production techniques for producing 18 widgets that can be sold for $1 each for a total revenue of $18. Refer to the above table. Using the technique cited in the previous question will result in an:

Correct AnswerverifiedShow Answer

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