Chapter 2 Connect ECON 202
In the circular flow model, the market economy creates ______________.
Continuous flows of goods and services, resources, and money
In recent years, new MP3 and digital technologies have replaced compact disks. This is an example of _____________.
Creative destruction
In the circular flow model __________.
Households spend their income in the product market
Specialization
Is the use of resources by an individual, firm, region, or nation to produce one or a few goods or services rather than the entire range of goods and services
In a market system, people act in their own self-interest.
Market
Money performs several functions, but first and foremost it is a ____________.
Medium of exchange
Which of the following describe the concept of laissez-faire?
- A market system in which only mutually beneficial economic transactions are completed. - A market system in which the role of government is limited to protecting private property
Which of the following are components of the circular flow model?
- Businesses - Households - Product market - Resource market
Which of the following best describe how goods and services should be produced?
- By locating production facilities optimally to hold down production and transportation expenses - By utilizing the right mix of labor and capital
Which of the following collectively direct resources to industries that are meeting consumer wants and away from industries that are not meeting consumer wants?
- Dollar votes - Consumer sovereignty
Three virtues of the market system include __________, ___________, and __________.
- Freedom - Incentives - Efficiency
Which of the following are found in the product market?
- Goods - Services
Which of the following occur in the resource market?
- Households provide economic resources directly as workers or entrepreneurs - Businesses buy resources from households because they are necessary for producing goods and services - Households sell resources and businesses buy them
The command economies of the former Soviet Union and of Eastern Europe failed due to:
- Incentive problems - Coordination problems
If increasing numbers of consumers decide to purchase organically farmed fruit rather than conventionally farmed fruit, how is the market likely to respond?
- Organic fruit profits will rise - Conventional fruit profits will fall
Advanced technology and capital goods are important because:
- The new technology can enhance the productivity of workers - The most direct methods of producing a good or service are often the least efficient
The basis of competition is freedom of ___________ exercised in the pursuit of ____________.
Choice; money
The market system depends on ____________ both among buyers and among sellers.
Competition
Two or more buyers and two or more sellers acting independently in a particular product market with the freedom to enter and leave the market best describes ____________.
Competition
Which of the following is characterized by the private ownership of resources and the use of markets to coordinate and direct economic activity?
A market system
Modern market economies usually have a(n) ____________.
Active, but limited, government
Which of the following is the reason why every society needs to develop an economic system?
Every society faces the economizing problem
True or False: The resource market is the place where resources or the services of households are produced.
False
In the circular flow model, households sell resources to, and buy products from __________.
Firms
Which of the following ensures that entrepreneurs and private businesses are free to obtain and use economic resources to produce their choice of goods and services?
Freedom of enterprise
Who owns most property resources in a command system?
Government
What is the coordinating mechanism in a market system?
Prices
____________ ownership of capital gives capitalism its name.
Private
The "invisible hand" guides firms and resource suppliers to promote _______ even as they seek to further their own interests.
Public or social interests
The five questions that every society must address reflect the reality of ____________ resources in a world of ___________ wants.
Scarce; unlimited
A business owned and managed by a single person is called a(n) ____________.
Sole proprietorship
In a market economy, goods and services are distributed _____________.
To consumers on the basis of their ability and willingness to pay the existing market price
True or False: In a market system, consumers exercise consumer sovereignty, which is crucial in determining the types and quantities of goods purchased.
True
Which of the following is the most efficient method of production?
Using a combination of labor, capital, and technology