Chapter 2 Quiz

"Managers in the old Soviet Union often sacrificed product quality and variety because they were being awarded bonuses for quantitative, not qualitative, targets:"

Incentive problem

There is a wide variety of desired goods and services in a market system because ____ wants are diverse.

Individual

The phrase ____ ____ means that market prices provide information to consumers regarding products they wish to purchase, and to producers regarding products they wish to produce.

Invisible hand

Economic transactions willingly undertaken by both the buyer and the seller because each feels that the transaction will make him or her better off:

Mutually agreeable

When an economy relies on specialization, ____ enables individuals to obtain the goods in which they do not have specialization.

Trade

Consider the following statement: "Competition is the disciplinarian of the market economy." The statement is ____, because when producers face competition they are driven to provide goods and services at the lowest possible cost.

True

An institution that brings buyers and sellers together:

Market

In a market system scarce goods are allocated through the operation of ____ prices that are determined by consumers and producers acting in their own self-interest.

Market

"If you compare a list of today's most powerful and profitable companies with a similar list from 30 years ago, you will see lots of new entries:"

Creative destruction

"Each day, central planners in the old Soviet Union were tasked with setting 27 million prices—correctly:"

Coordination problem

The right of private persons and firms to obtain, control, employ, dispose of, and bequeath land, capital, and other property:

Private property

In the circular flow model there is a flow of ____ goods and services and a flow of ____.

Real Money

In the circular flow model: ____ markets provide for the exchange of labor and ____ markets provide for the exchange of goods and services. ____ sell goods and buy labor; ____ buy goods and sell labor.

Resource Product Businesses Households

What each individual or firm believes is best for itself and seeks to obtain:

Self-interest

____ requires that you find a person who has what you want and a person who needs what you have to offer.

Barter

In market economies, firms rarely worry about the availability of inputs to produce their products, whereas in command economies input availability is a constant concern because in market economies, ____ of inputs know that ____ want to earn profits.

Buyers Sellers

____ ____ ____ means that workers specialize in tasks that take advantage of their individual abilities and skills.

Division of labor

The use of capital in the production process improves ____, ____ output, and provides for growth.

Efficiency Increases

The presence in a market of independent buyers and sellers who compete with one another and who are free to enter and exit the market as they each see fit:

Competition

What is produced is ultimately determined by ____ because if the goods offered are not what ____ want, ____ will not buy them.

Consumers

Some large hardware stores such as Home Depot boast of carrying as many as 20,000 different products in each store. This volume of goods is the result of the choice of ____ regarding what to purchase to satisfy their wants and the choice of ____ regarding what to produce to maximize profits.

Consumers Producers

The market system depends on private property ownership and the protection of private property rights to provide an _____ to maintain property and allow for the orderly transfer of property ownership.

Incentive

"It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest:"

Invisible hand

Decide whether each of the following descriptions most closely corresponds to being part of a command system, a market system, or a laissez-faire system. A woman who wants to start a flower shop finds she cannot do so unless the central government has already decided to allow a flower shop in her area: Shops stock and sell the goods customers want but the government levies a sales tax on each transaction to fund elementary schools, public libraries, and welfare programs: The only taxes levied by the government are to pay for national defense, law enforcement, and a legal system designed to enforce contracts between private citizens:

Command system Market system Laissez-faire system

True or False: Households sell finished products to businesses.

False

True or False: Money must be issued by a government for people to accept it.

False

Self-interest helps achieve society's economic goals because as consumers and producers exercise their ____ to act in their own self-interest markets will produce the desired goods at the ____ possible cost.

Freedom Lowest

The freedom of resource owners to dispose of their resources as they think best; of workers to enter any line of work for which they are qualified; and of consumers to spend their incomes in whatever way they feel is most appropriate:

Freedom of choice

The freedom of firms to obtain economic resources, decide what products to produce with those resources, and sell those products in markets of their choice:

Freedom of enterprise

Consider the statement: "We want money only to part with it." When people express a desire to 'have money,' they really want the ____ and ____ that money can buy.

Goods Services

In a command economy scarce goods are allocated by a ____-appointed planning board based on the board's long-term priorities.

Government

The use of ____ provides a common value that makes buying and selling transactions simpler than would be the case with barter.

Money

Franklin, John, Henry, and Harry have decided to pool their financial resources and business skills in order to open up and run a coffee shop. They will share any profits or losses that the business generates and will be personally responsible for making good on any debt that their business undertakes. Their business should be classified as a:

Partnership

Millions of economic resources tend to get arranged logically and productively rather than haphazardly and unproductively because ____ ____ owners are motivated to protect and maximize the benefits from their property.

Private property

Consider the following statement: "The market system is a profit-and-loss system." The statement is ____, because producer decisions are motivated by the attempt to earn profits.

True

The emergence of the MP3 (iPod) technology is an example of "creative destruction" because it has replaced compact discs as a ____ used for the storage and transfer of music.

Technology

Ted and Fred are the owners of a gas station. They invested $150,000 each and pay an employee named Lawrence $35,000 per year. This year revenues are $900,000, while costs are $940,000. Who is legally responsible for bearing the $40,000 loss?

Ted and Fred