Question 1

The basic reason for the production of capital goods is to:

Accepted Answer

A)   promote the concentration of economic power in the business sector.
B)   facilitate exchange where a coincidence of wants does not exist.
C)   better synchronize the operation of resource and product markets.
D)   enhance future productive efficiency.

Question 2

If competitive industry Y is incurring substantial losses, we can expect that output will:

Accepted Answer

A)   expand, product price will rise, and losses will tend to disappear.
B)   contract, product price will fall, and losses will increase.
C)   contract, product price will rise, and losses will tend to disappear.
D)   expand, product price will fall, and losses will tend to disappear.

Question 3

The "invisible hand" concept suggests that:

Accepted Answer

A)   changes in product demands are only randomly reflected in changes in the demands for resources.
B)   profit maximization is inconsistent with an efficient allocation of resources.
C)   government action is necessary to correct for market failures.
D)   when firms maximize their profits, society's domestic output will also be maximized.

Question 4

-Refer to the circular flow model of the economy. In the diagram flow (3)  represents:

Accepted Answer

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

Question 5

Consider a barter situation where you have pens and you want pencils. To achieve your objective there must be a(n) :

Accepted Answer

A)   use of capital goods.
B)   entry and exit from the market.
C)   large number of sellers.
D)   coincidence of wants.

Question 6

The development of the Internet and e-mail to replace regular mail services in many cases would be an example of:

Accepted Answer

A)   roundabout production.
B)   derived demand.
C)   creative destruction.
D)   specialization.

Question 7

Households and businesses are both suppliers in the product market.

Accepted Answer

A) True 
 B)False

Question 8

-Refer to the circular flow model of the economy. In the diagram flow (2)  represents:

Accepted Answer

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

Question 9

The issues of distribution of goods and services and incomes in a competitive market system are the primary topic of which fundamental question?

Accepted Answer

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

Question 10

The coordination problem in command economies became more difficult as:

Accepted Answer

A)   the number of industries expanded.
B)   less quantitative targets were assigned to each industry.
C)   planning techniques improved.
D)   production cost decreased.

Question 11

The Canadian economy most closely approximates:

Accepted Answer

A)   mixed capitalism
B)   a command economy
C)   market socialism
D)   authoritarian capitalism

Question 12

Which fundamental question about a competitive market system primarily focuses on technological progress and capital accumulation?

Accepted Answer

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

Question 13

The "invisible hand" refers to the:

Accepted Answer

A)   fact that our tax system redistributes income from rich to poor.
B)   notion that, under competition, decisions motivated by self-interest promote the social interest.
C)   tendency of monopolistic sellers to raise prices above competitive levels.
D)   fact that government controls the functioning of the market system.

Question 14

The term "mixed economy" refers to an economy:

Accepted Answer

A)   comprised of both product and resource markets.
B)   which engages in both domestic and international trade.
C)   comprised of both extensive private markets and government involvement in the economy.
D)   which functions primarily on the basis of custom and tradition.

Question 15

The most efficient combination of resources in producing any output is that combination which:

Accepted Answer

A)   comes closest to using the same quantities of land, labour, capital, and entrepreneurial ability.
B)   can be obtained for the smallest money outlay.
C)   uses the smallest total quantity of all resources.
D)   conserves most on the use of labour.

Question 16

In the factor market:

Accepted Answer

A)   businesses borrow money capital from households.
B)   businesses sell services to households.
C)   households sell resources to businesses.
D)   firms sell raw materials to households.

Question 17

Which condition will encourage competition?

Accepted Answer

A)   government licensing requirements in order to enter an industry
B)   a small number of buyers and sellers in a market
C)   the freedom of sellers and buyers to enter or exit an industry
D)   the government serving as the only supplier of goods to consumers

Question 18

Which statement is correct?

Accepted Answer

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.

Question 19

The division of labour enhances productivity and efficiency by:

Accepted Answer

A)   allowing workers to take advantage of existing differences in their abilities and skills.
B)   avoiding the time loss involved in shifting from one production task to another.
C)   allowing workers to develop skills by working on one, or a limited number, of tasks.
D)   all of the above means.

Question 20

Which of the following statements best describes a mixed economy?

Accepted Answer

A)   In a mixed economy, society determines production and the allocation of goods and services only through the market system.
B)   In a mixed economy, government policies determine the production and the allocation of goods and services, but each individual is free to pursue his or her own self-interest.
C)   In a mixed economy, the government and private sectors interact in determining production and allocation of goods and services.
D)   In a mixed economy, the role of individual self-interest is relatively unimportant because government makes most of the economic decisions.

Exam 2: The Market System and the Circular Flow

The issues of distribution of goods and services and incomes in a competitive market system are the primary topic of which fundamental question?

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The "invisible hand" refers to the:

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-Refer to the circular flow model of the economy. In the diagram flow (3) represents:

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The "invisible hand" concept suggests that:

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The development of the Internet and e-mail to replace regular mail services in many cases would be an example of:

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If competitive industry Y is incurring substantial losses, we can expect that output will:

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In the factor market:

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The basic reason for the production of capital goods is to:

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Which condition will encourage competition?

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The Canadian economy most closely approximates:

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The division of labour enhances productivity and efficiency by:

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-Refer to the circular flow model of the economy. In the diagram flow (2) represents:

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Which statement is correct?

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The most efficient combination of resources in producing any output is that combination which:

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Which fundamental question about a competitive market system primarily focuses on technological progress and capital accumulation?

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The term "mixed economy" refers to an economy:

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Which of the following statements best describes a mixed economy?

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Households and businesses are both suppliers in the product market.

Correct AnswerverifiedShow Answer

Consider a barter situation where you have pens and you want pencils. To achieve your objective there must be a(n) :

Correct AnswerverifiedShow Answer

The coordination problem in command economies became more difficult as:

Correct AnswerverifiedShow Answer

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