Question 1

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 2

The term dollar votes means:

Accepted Answer

A)   inflation will occur if consumers don't spend wisely.
B)   voters may be offered dollars to help elect certain political candidates.
C)   government is responsible for determining what will be considered legal tender.
D)   consumers "vote" for certain products to be produced by how they spend their incomes.

Question 3

Competition denotes a condition where:

Accepted Answer

A)   there is only one seller in a market.
B)   a given product can be purchased at a range of prices.
C)   there are many independent buyers and sellers in a market.
D)   a few sellers attempt to garner a larger share of the market by cutting prices.

Question 4

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 5

Consumers express self-interest when they:

Accepted Answer

A)   reduce business losses.
B)   collect economic profits.
C)   seek the lowest price for the product.
D)   search for jobs with the highest wage

Question 6

Which is a major feature of pure capitalism?

Accepted Answer

A)   price floors and price ceilings in markets
B)   reallocation of resources from private to public uses
C)   the right to own private property and control resource use
D)   central planning by government to provide goods and services

Question 7

In a capitalistic economy:

Accepted Answer

A)   consumers can never be sovereign.
B)   markets can never be competitive.
C)   there is a reliance on the market system.
D)   the government owns the means of production.

Question 8

The simple circular flow model shows that:

Accepted Answer

A)   households are on the demand side of both product and factor markets.
B)   businesses are on the supply side of both product and factor markets.
C)   households are on the supply side of the factor market and on the demand side of the product market.
D)   businesses are on the demand side of the product market and on the supply side of the factor market.

Question 9

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 10

By free enterprise,we mean that:

Accepted Answer

A)   products are provided free to those who can't afford to buy them.
B)   individual producers determine how to produce,but government agencies determine what will be produced.
C)   individuals may obtain resources,organize production,and sell the resulting output in any legal way they choose.
D)   individuals are free to produce those products that government agencies determine can be produced profitably.

Question 11

The guiding function of prices indicates that,at equilibrium prices,neither product surpluses nor shortages can occur.

Accepted Answer

A) True 
 B)False

Question 12

A division of labour enhances society's output by permitting people to take advantage of existing differences in their abilities and skills.

Accepted Answer

A) True 
 B)False

Question 13

The competitive market system:

Accepted Answer

A)   encourages innovation because government provides tax breaks and subsidies to those who develop new products or new productive techniques.
B)   discourages innovation because it is difficult to acquire additional capital in the form of new machinery and equipment.
C)   discourages innovation because firms want to get all the profits possible from existing machinery and equipment.
D)   encourages innovation because successful innovators are rewarded with economic profits.

Question 14

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 15

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.

Question 16

Economic efficiency would be primarily discussed in response to which of the fundamental questions about a competitive market economy?

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 17

The idea that the desires of resource suppliers and producers 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)   profit maximization.

Question 18

The market system is characterized by:

Accepted Answer

A)   extensive government constraints on individual behaviour.
B)   private ownership of the means of production.
C)   government control of all production decisions.
D)   government rationing of all goods and services.

Question 19

In a market system,well-defined property rights are important because they:

Accepted Answer

A)   increase unnecessary investment.
B)   limit destructive economic growth.
C)   create economic problems.
D)   encourage economic activity.

Question 20

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.

Exam 2: The Market System and the Circular Flow

Which statement is correct?

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A division of labour enhances society's output by permitting people to take advantage of existing differences in their abilities and skills.

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

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In a capitalistic economy:

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The division of labour enhances productivity and efficiency by:

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In the factor market:

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Competition denotes a condition where:

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Consumers express self-interest when they:

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The competitive market system:

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In a market system,well-defined property rights are important because they:

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

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The guiding function of prices indicates that,at equilibrium prices,neither product surpluses nor shortages can occur.

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Which of the following statements best describes a mixed economy?

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By free enterprise,we mean that:

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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 simple circular flow model shows that:

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The market system is characterized by:

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Economic efficiency would be primarily discussed in response to which of the fundamental questions about a competitive market economy?

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The term dollar votes means:

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Which is a major feature of pure capitalism?

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