Question 1

"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 2

McDonald's introduced the Big Mac in 1968, and it turned out to be a hit. However, the Arch Deluxe, introduced in 1996, was not. The success or failure of a product in the market system is determined by

Accepted Answer

A)   capitalism and entrepreneurship.
B)   specialization and exchange.
C)   consumer sovereignty and dollar votes.
D)   capital goods and roundabout production.

Question 3

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 4

Consumers express self-interest when they

Accepted Answer

A)   seek the lowest price for a product.
B)   reduce business losses.
C)   collect economic profits.
D)   exclude others in their thinking.

Question 5

The government may not implement policies intended to redistribute income in which of the following economic systems?

Accepted Answer

A)   laissez-faire capitalism
B)   command system
C)   mixed economy
D)   market system

Question 6

The market system communicates changes in market conditions and elicits appropriate responses from businesses and resource suppliers through changes in prices. This is known as the

Accepted Answer

A)   guiding function of prices.
B)   monetary function of prices.
C)   circular flow of income.
D)   market determination of prices.

Question 7

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 8

In terms of the circular flow diagram, households make expenditures in the market and receive income through the market.

Accepted Answer

A)   product; financial
B)   resource; product
C)   product; resource
D)   capital; product

Question 9

Suppose a firm can produce 70 units of a product, Zenia, by combining labor, land, capital, and entrepreneurial ability, as in the four alternative techniques shown in the table below. Assume further that the firm can hire labor at $3 per unit, land at $3 per unit, capital at $6 per unit, and entrepreneurship at $9 per unit.  Refer to the provided table, and suppose that the firm uses production technique D If each of the 70 units of Zenia that are produced sells for $1 apiece, then how much will be the total profits of the firm from 70 units of Zenia?

Accepted Answer

A)   $70
B)   $57
C)   $13
D)   $83

Question 10

In analyzing a market system, economists often assume that firms will choose the production techniques that will give them the maximum revenues.

Accepted Answer

A) True 
 B)False

Question 11

Specialization in production is important primarily because it

Accepted Answer

A)   results in greater total output.
B)   allows society to avoid the coincidence-of-wants problem.
C)   allows society to trade by barter.
D)   allows society to have fewer capital goods.

Question 12

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 13

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

Accepted Answer

A) True 
 B)False

Question 14

The Heritage Foundation in 2015 ranked which of the following economies to have the highest economic freedom?

Accepted Answer

A)   the United States
B)   Germany
C)   Japan
D)   Hong Kong

Question 15

The presence of market failures implies that

Accepted Answer

A)   money is not an effective tool for exchange in a market system.
B)   there is an active role for government, even in a market system.
C)   individuals and firms should strive to be self-sufficient rather than specialize.
D)   command systems are superior to market systems in the allocation of resources.

Question 16

If the total costs of producing 1,500 units of output is $15,000 and this output sold to consumers for a total of $16,500, then the firm would earn profits of

Accepted Answer

A)   $31,500.
B)   $16,500.
C)   $1,500.
D)   $15,000.

Question 17

Economic systems differ according to which two main characteristics?

Accepted Answer

A)   who owns the factors of production and the methods used to coordinate economic activity
B)   the technology used in production and the quantity and quality of natural resources
C)   how goods are produced and who gets them
D)   the political system in place and the degree of scarcity facing the economy

Question 18

Which of the following characteristics is least unique to a market system?

Accepted Answer

A)   private ownership of property resources
B)   competition among buyers and sellers pursuing monetary returns
C)   the widespread use of money
D)   freedom of enterprise and choice

Question 19

Private property and freedom of choice in a market system have the following implications, except

Accepted Answer

A)   individuals are free to take on the financial risks involved in a business.
B)   trades that take place in the economy are mutually agreeable transactions among individuals.
C)   economic agents are allowed to act in their own self-interest.
D)   large firms are allowed to coerce other firms and individuals.

Question 20

In the circular flow model, households act as buyers in the resource markets.

Accepted Answer

A) True 
 B)False

Exam 2: The Market System and the Circular Flow

In the circular flow model, households act as buyers in the resource markets.

Correct Answer
verified

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

Correct Answer
verified

McDonald's introduced the Big Mac in 1968, and it turned out to be a hit. However, the Arch Deluxe, introduced in 1996, was not. The success or failure of a product in the market system is determined by

Correct Answer
verified

Correct Answer
verified

The market system communicates changes in market conditions and elicits appropriate responses from businesses and resource suppliers through changes in prices. This is known as the

Correct Answer
verified

The Heritage Foundation in 2015 ranked which of the following economies to have the highest economic freedom?

Correct Answer
verified

Economic systems differ according to which two main characteristics?

Correct Answer
verified

Which of the following characteristics is least unique to a market system?

Correct Answer
verified

Consumers express self-interest when they

Correct Answer
verified

If the total costs of producing 1,500 units of output is $15,000 and this output sold to consumers for a total of $16,500, then the firm would earn profits of

Correct Answer
verified

The presence of market failures implies that

Correct Answer
verified

Private property and freedom of choice in a market system have the following implications, except

Correct Answer
verified

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

Correct Answer
verified

In terms of the circular flow diagram, households make expenditures in the market and receive income through the market.

Correct Answer
verified

In analyzing a market system, economists often assume that firms will choose the production techniques that will give them the maximum revenues.

Correct Answer
verified

The government may not implement policies intended to redistribute income in which of the following economic systems?

Correct Answer
verified

Specialization in production is important primarily because it

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

"Consumer sovereignty" refers to the

Correct Answer
verified

Exam 2: The Market System and the Circular Flow

In the circular flow model, households act as buyers in the resource markets.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

McDonald's introduced the Big Mac in 1968, and it turned out to be a hit. However, the Arch Deluxe, introduced in 1996, was not. The success or failure of a product in the market system is determined by

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The market system communicates changes in market conditions and elicits appropriate responses from businesses and resource suppliers through changes in prices. This is known as the

Correct AnswerverifiedShow Answer

The Heritage Foundation in 2015 ranked which of the following economies to have the highest economic freedom?

Correct AnswerverifiedShow Answer

Economic systems differ according to which two main characteristics?

Correct AnswerverifiedShow Answer

Which of the following characteristics is least unique to a market system?

Correct AnswerverifiedShow Answer

Consumers express self-interest when they

Correct AnswerverifiedShow Answer

If the total costs of producing 1,500 units of output is $15,000 and this output sold to consumers for a total of $16,500, then the firm would earn profits of

Correct AnswerverifiedShow Answer

The presence of market failures implies that

Correct AnswerverifiedShow Answer

Private property and freedom of choice in a market system have the following implications, except

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In terms of the circular flow diagram, households make expenditures in the market and receive income through the market.

Correct AnswerverifiedShow Answer

In analyzing a market system, economists often assume that firms will choose the production techniques that will give them the maximum revenues.

Correct AnswerverifiedShow Answer

The government may not implement policies intended to redistribute income in which of the following economic systems?

Correct AnswerverifiedShow Answer

Specialization in production is important primarily because it

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

"Consumer sovereignty" refers to the

Correct AnswerverifiedShow Answer

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