Question 1

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 2

Which of the following statements about the right to private ownership is false?

Accepted Answer

A)   It enables individuals to obtain, use, and dispose of land and capital resources as they see ﬁt.
B)   It encourages investment and innovation, and thus fosters economic growth.
C)   It extends to intangibles such as pieces of music and computer programs.
D)   It weakens the incentive to maintain the property that one already owns.

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

Central planning often suffers from a coordination problem and an incentive problem.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following best describes the invisible-hand concept?

Accepted Answer

A)   The desires of resource suppliers and producers to further their own self-interest will automatically further the public interest.
B)   The inability to substitute resources creates a conﬂict between private and public interests and calls for government intervention.
C)   The market system is the best system for overcoming the scarce resources-unlimited wants problem.
D)   Central direction by the government will improve resource allocation in a capitalistic economy.

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

The circular ﬂow model illustrates

Accepted Answer

A)   the importance of having a central plan for the economy.
B)   how capital and other resources are created.
C)   how money is created by the banking system.
D)   the interdependence of businesses and consumers.

Question 8

In the circular ﬂow model, households earn their incomes in the

Accepted Answer

A)   resource markets.
B)   product markets.
C)   capitalist markets.
D)   money markets.

Question 9

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

Question 10

The highly inﬂuential book by Adam Smith, who brought up the "invisible hand" notion, is titled

Accepted Answer

A)   Freakonomics.
B)   The Principles of Economics.
C)   The Age of the Economist.
D)   The Wealth of Nations.

Question 11

The problems of central planning become less complex as an economy expands over time.

Accepted Answer

A) True 
 B)False

Question 12

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 13

The advent of Netﬂix movie streaming and Redbox kiosks renting DVD and Blu-ray movies have virtually demolished the market for video rentals from brick and mortar stores such as Blockbuster. This is an
Example of

Accepted Answer

A)   creative destruction.
B)   derived demand.
C)   capital accumulation.
D)   the difference between normal and economic proﬁts.

Question 14

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 15

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 16

The money income of households consists of all the following, except

Accepted Answer

A)   wages.
B)   proﬁts.
C)   interest.
D)   revenues.

Question 17

In the circular ﬂow model of the market system, households' major role is to

Accepted Answer

A)   buy both products and resources.
B)   sell both products and resources.
C)   buy products and sell resources.
D)   sell products and buy resources.

Question 18

The market system is said to be characterized by "consumer sovereignty." This is because

Accepted Answer

A)   a sovereign government determines which consumer goods will be produced.
B)   the prices of consumer goods are regulated by a sovereign government.
C)   ﬁrms must match their production decisions to the consumers' choices.
D)   consumer goods are considered to be more important than capital goods.

Question 19

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 20

In a market system, which of the following will eliminate high-cost producers and allow only the low-cost producers to survive?

Accepted Answer

A)   competition
B)   money
C)   a sovereign government
D)   specialization

Exam 2: The Market System and the Circular Flow

Which of the following statements about the right to private ownership is false?

Correct AnswerverifiedShow Answer

The simple circular ﬂow model shows that

Correct AnswerverifiedShow Answer

The advent of Netﬂix movie streaming and Redbox kiosks renting DVD and Blu-ray movies have virtually demolished the market for video rentals from brick and mortar stores such as Blockbuster. This is an Example of

Correct AnswerverifiedShow Answer

The problems of central planning become less complex as an economy expands over time.

Correct AnswerverifiedShow Answer

The circular ﬂow model illustrates

Correct AnswerverifiedShow Answer

The money income of households consists of all the following, except

Correct AnswerverifiedShow Answer

In the circular ﬂow model of the market system, households' major role is to

Correct AnswerverifiedShow Answer

Which of the following best describes the invisible-hand concept?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In the circular ﬂow model, households earn their incomes in the

Correct AnswerverifiedShow Answer

The market system is said to be characterized by "consumer sovereignty." This is because

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Central planning often suffers from a coordination problem and an incentive problem.

Correct AnswerverifiedShow Answer

The highly inﬂuential book by Adam Smith, who brought up the "invisible hand" notion, is titled

Correct AnswerverifiedShow Answer

In a market system, which of the following will eliminate high-cost producers and allow only the low-cost producers to survive?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified