Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

Laissez-faire capitalism limits the government's economic functions to the following, except

Accepted Answer

A)   protecting private property rights.
B)   establishing a legal environment to enforce contracts among individuals.
C)   preventing individuals and ﬁrms from coercing others.
D)   setting prices of individual goods and services.

Question 3

Which of the following is a distinguishing feature of a command system?

Accepted Answer

A)   private ownership of all capital
B)   central planning
C)   heavy reliance on markets
D)   widespread dispersion of economic power

Question 4

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 5

"Consumer sovereignty" refers to the

Accepted Answer

A)   fact that resource prices are higher than product prices in capitalistic economies.
B)   idea that the pursuit of self-interest is in the public interest.
C)   idea that the decisions of producers must ultimately conform to consumer demands.
D)   fact that a federal agency exists to protect consumers from harmful and defective products.

Question 6

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 7

If competitive industry Y is incurring substantial losses, output will

Accepted Answer

A)   expand as resources move toward industry Y.
B)   contract as resources move toward industry Y.
C)   contract as resources move away from industry Y.
D)   expand as resources move away from industry Y.

Question 8

Economic proﬁts and losses

Accepted Answer

A)   are both considered by economists to be a part of production costs.
B)   are essential to the reallocation of resources from less desired to more desired goods.
C)   have no inﬂuence on the composition of domestic output.
D)   equalize the distribution of income in the long run.

Question 9

Which of the following would be primarily determined in the resource markets?

Accepted Answer

A)   the airfares charged by airlines for family vacations
B)   the wage rates for computer programmers and engineers
C)   the number of home-Internet connections installed
D)   the amount of money in circulation issued by the government

Question 10

The following table illustrates alternative production techniques for producing 18 widgets that can be sold for $1 each for a total revenue of $18.
 If the price of labor increases from $2 to $3, then the results of using Technique C will change from an
Economic

Accepted Answer

A)   loss of $2 to a loss of $1.
B)   proﬁt of $2 to a proﬁt of $1.
C)   proﬁt of $1 to a proﬁt of $2.
D)   loss of $1 to a loss of $2.

Question 11

In the circular ﬂow diagram, ﬁrms get their ability to pay for the costs of production from the

Accepted Answer

A)   revenues they receive for their products.
B)   resources they acquire in the resource markets.
C)   incomes they earn for their resources.
D)   goods and services they get in the product markets.

Question 12

A required element for specialization to lead to an increase in the satisfaction of society's wants is

Accepted Answer

A)   a capitalist economy.
B)   exchange and trade.
C)   the use of money.
D)   a central plan.

Question 13

The idea that the desires of resource suppliers and ﬁrms to further their own self-interest will automatically further the public interest is known as

Accepted Answer

A)   consumer sovereignty.
B)   the invisible hand.
C)   derived demand.
D)   creative destruction.

Question 14

If economic proﬁts in a particular industry increase, then we would expect

Accepted Answer

A)   resources to be diverted away from that industry.
B)   ﬁrms in that industry to produce less output.
C)   ﬁrms to enter that industry, thus expanding it.
D)   consumers to buy less from that industry.

Question 15

Laissez-faire capitalism is characterized by

Accepted Answer

A)   a very limited government role in the economy.
B)   active government intervention in the economy.
C)   individuals and ﬁrms abiding by a government economic plan.
D)   the economic system of the United States today.

Question 16

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 17

Suppose that an individual sees a tremendous opportunity to produce and sell a new product but dismisses the idea because there is no way to exploit this opportunity for personal gain. This situation
Best identiﬁes the

Accepted Answer

A)   coordination problem under communist central planning.
B)   self-suﬃciency dilemma under communism.
C)   asymmetric information problem under communism.
D)   incentive problem under communist central planning.

Question 18

Refer to the provided 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 19

International specialization and trade

Accepted Answer

A)   must be done on a barter system.
B)   often requires the exchange of currencies.
C)   does not illustrate the division of labor.
D)   requires active government regulation.

Question 20

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.

Exam 2: The Market System and the Circular Flow

Laissez-faire capitalism limits the government's economic functions to the following, except

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The idea that the desires of resource suppliers and ﬁrms to further their own self-interest will automatically further the public interest is known as

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If competitive industry Y is incurring substantial losses, output will

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In the circular ﬂow diagram, ﬁrms get their ability to pay for the costs of production from the

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International specialization and trade

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Two major virtues of the market system are that it

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Laissez-faire capitalism is characterized by

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

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Suppose that an individual sees a tremendous opportunity to produce and sell a new product but dismisses the idea because there is no way to exploit this opportunity for personal gain. This situation Best identiﬁes the

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Which of the following is a distinguishing feature of a command system?

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Refer to the provided 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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A required element for specialization to lead to an increase in the satisfaction of society's wants is

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"Consumer sovereignty" refers to the

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If economic proﬁts in a particular industry increase, then we would expect

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The following table illustrates alternative production techniques for producing 18 widgets that can be sold for $1 each for a total revenue of $18. If the price of labor increases from $2 to $3, then the results of using Technique C will change from an Economic

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One major element of the command system is

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

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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 as entrepreneurs.

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Which of the following would be primarily determined in the resource markets?

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Economic proﬁts and losses

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