Question 1

What is the relationship between businesses and households in the circular ﬂow diagram?

Accepted Answer

Households buy the goods and services th...

Question 2

The use of money for exchange and trade

Accepted Answer

A)   increases the importance of barter.
B)   fosters more specialization in production.
C)   reduces consumer sovereignty.
D)   raises the need for a coincidence of wants.

Question 3

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 4

One basic problem faced by central planners, but hardly present in a market system, has to do with

Accepted Answer

A)   determining the production goals or targets in a factory.
B)   having limited resources and trying to match them with unlimited wants.
C)   coordinating production in various industries so that bottlenecks do not develop.
D)   providing ﬁnancial resources for increasing the real ﬂows of products in the economy.

Question 5

Given the information, and assuming trade occurs between the three states, we can expect

Accepted Answer

A)   that there is no means by which Michigan can obtain lettuce while specializing in the production of autos.
B)   that money will not be needed to accomplish the desired exchanges.
C)   money to ﬂow counter-clockwise from Michigan to Texas to Washington.
D)   money to ﬂow clockwise from Michigan to Washington to Texas.

Question 6

Why might a company use barter rather than money to make a trade?

Accepted Answer

A)   Barter trade is generally more eﬃcient than money-based trade.
B)   Barter can enable two ﬁrms to trade when their cash ﬂows are limited.
C)   Money requires a coincidence of wants; barter is more direct.
D)   Money is eﬃcient only for large transactions, so barter is preferred for smaller transactions.

Question 7

The market system

Accepted Answer

A)   produces considerable ineﬃciency in the use of scarce resources.
B)   effectively harnesses the incentives of workers and entrepreneurs.
C)   is not consistent with freedom of choice in the long run.
D)   has slowly lost ground to emerging command systems.

Question 8

If a competitive industry is neither expanding nor contracting, we would expect

Accepted Answer

A)   total revenue to be zero.
B)   economic proﬁts to be zero.
C)   total opportunity cost to be zero.
D)   more resources to ﬂow to that industry.

Question 9

In a market system, as one industry expands while another contracts, resources will ﬂow

Accepted Answer

A)   away from the expanding industry toward the contracting one.
B)   across industries, driven by the changes in resource prices paid by ﬁrms.
C)   toward the industry where the product demand is declining.
D)   because resource allocation will have to equalize between the two industries.

Question 10

The concept of consumer sovereignty refers to the situation where consumers have the right to vote for
the board of directors of large corporations.

Accepted Answer

A) True 
 B)False

Question 11

In what type of business do the owners bear no personal ﬁnancial responsibility for the company's debts and obligations?

Accepted Answer

A)   partnerships
B)   corporations
C)   sole proprietorships
D)   in all the businesses listed in the other answers

Question 12

How does human specialization contribute toward increasing an economy's output?

Accepted Answer

A)   It exploits the differences in abilities.
B)   It is a process of creative destruction.
C)   It pushes each worker to master the whole product.
D)   It encourages people to be a "jack-of-all-trades."

Question 13

The coordination problem in the centrally planned economies refers to the idea that

Accepted Answer

A)   planners had to direct required inputs to each enterprise.
B)   the price level and the level of employment were inversely related.
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 14

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

Question 15

In a command economy like the old Soviet Union, one is able to improve one's lot and get ahead in society largely through

Accepted Answer

A)   entrepreneurship and risk-taking.
B)   innovation and proﬁts.
C)   participating in the political hierarchy.
D)   getting high prices for one's products and resources.

Question 16

Having a high ﬁxed salary is what motivates entrepreneurs to make prudent decisions in dealing with
business risk.

Accepted Answer

A) True 
 B)False

Question 17

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 18

In a market system, employees and suppliers

Accepted Answer

A)   are usually shielded from risk, but at the cost of not sharing in the proﬁts of the ﬁrm.
B)   are usually shielded from risk and share in the proﬁts of the ﬁrm.
C)   are generally subject to as much risk as ﬁrm owners but get to share in the proﬁts.
D)   bear as much risk as ﬁrm owners but don't get to share in the proﬁts.

Question 19

In a market system, if ﬁrms in an industry persistently earn total revenues that are less than total costs, then that industry will

Accepted Answer

A)   have some ﬁrms go out of business.
B)   attract more resources toward it.
C)   experience entry of new ﬁrms.
D)   get government protection from failure.

Question 20

Capitalism gets its name from the fact that capital resources are mostly

Accepted Answer

A)   owned by the state or government.
B)   given the highest priority in the economy's income distribution.
C)   treated as private property.
D)   in the form of money and ﬁnancial resources.

Exam 2: The Market System and the Circular Flow

An economic system

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Given the information, and assuming trade occurs between the three states, we can expect

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One basic problem faced by central planners, but hardly present in a market system, has to do with

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In what type of business do the owners bear no personal ﬁnancial responsibility for the company's debts and obligations?

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Capitalism gets its name from the fact that capital resources are mostly

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

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The concept of consumer sovereignty refers to the situation where consumers have the right to vote for the board of directors of large corporations.

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Why might a company use barter rather than money to make a trade?

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If a competitive industry is neither expanding nor contracting, we would expect

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The coordination problem in the centrally planned economies refers to the idea that

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The market system

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

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Having a high ﬁxed salary is what motivates entrepreneurs to make prudent decisions in dealing with business risk.

Correct AnswerverifiedShow Answer

In a command economy like the old Soviet Union, one is able to improve one's lot and get ahead in society largely through

Correct AnswerverifiedShow Answer

In a market system, if ﬁrms in an industry persistently earn total revenues that are less than total costs, then that industry will

Correct AnswerverifiedShow Answer

In a market system, as one industry expands while another contracts, resources will ﬂow

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How does human specialization contribute toward increasing an economy's output?

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What is the relationship between businesses and households in the circular ﬂow diagram?

Correct AnswerverifiedHouseholds buy the goods and services th...View AnswerShow Answer

The use of money for exchange and trade

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In a market system, employees and suppliers

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Households buy the goods and services th...
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