ECON 1010 Ch. 2
In order to cope with the difficulties in coordinating the production of goods and services, central planners in the former Soviet Union took which of the following actions?
Suppressed product variety
The name of the 1776 book authored by Adam Smith noting that the operation of a market economy creates unity between private and social interests is called ______.
The Wealth of Nations
Which of the following describes a technological advancement?
The ability to produce better products and processes to replace inferior ones The ability of a firm or entrepreneur to gain revenue and economic profit at the expense of rivals by introducing a popular new product New and improved methods that reduce production and/or distribution costs
Product and resource prices in a market system are determined by ______.
the interaction between buyers and sellers
Which of the following are resources which businesses purchase from households?
Capital Land Entrepreneurial ability Labor
True or false: Money complicates exchange or trade.
False
Which of the following is inherent in competition and limits the potential abuse of power?
Diffusion of economic power
______ is the human specialization of some process.
Division of Labor
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
Which of the following best illustrates exchange through barter?
Farmer John trades his corn for some of his neighbor's oranges
A market system allows entrepreneurs and workers to further their own self-interests, subject to the rewards and penalties that the system imposes. Which of the following virtues of the market system does this describe?
Freedom
Which of the following were economic problems faced by the former Soviet Union, Eastern Europe, and China prior to its market reforms?
Incentive problem Coordination problem
Which of the following are made possible because of private property rights in a market system?
Investment Economic growth Innovation Maintenance of property
The market system attracts inputs and focuses owners' attention on risk management by restricting business risk to which two groups?
Investors Owners
Which of the following does competition imply?
It provides the economy with the flexibility needed to remain efficient over time. No insurmountable barriers prevent an industry from expanding or contracting. It enables the economy to adjust to changes in consumer tastes, technology, and resource availability.
Which is considered to be "pure capitalism," in which the role of government is essentially limited to that of protecting private property and establishing a legal environment for enforcing contracts and market activity?
Laissez-faire capitalism
In which of the following do private individuals and firms own most of the property resources such as land and capital?
Market system
An active, but limited, government is characteristic of which type of economic system in modern advanced industrial economies?
Modern market system
Which of the following are true of the partnership form of business organization?
Partners pool financial resources and business skills. Partners share profits and losses.
Which of the following are found in the product market?
Services Goods
Which of the following allow private individuals and businesses to utilize property as they wish? (Check all that apply.)
The right of private property The ability to negotiate legally binding contracts
Which of the following statements describe who will get the goods and services produced in a market economy?
Those who are willing and able to pay for the goods and services Those who have sufficient income and want to spend money on a particular good
Which of the following does competition require?
Two or more buyers and two or more sellers acting independently in a particular market Freedom of sellers and buyers to enter or leave markets
Which of the following is the most efficient method of production?
Using a combination of labor, capital and technology
True or false: The resource market is the place where resources or the services of households are produced.
false
Government has total control over all economic activity in ______, whereas markets and prices direct nearly all economic activity in ______.
a command system; laissez-faire capitalism
The operation of ______ creates a curious unity between private interests and social interests.
a market system
Entrepreneurs trying to maximize profits and minimize losses, property owners trying to get the highest price for the sale or rental of their resources, and workers trying to maximize their satisfaction by finding jobs that offer the best combination of wages, hours, benefits, and working conditions are all examples of ______.
acting in one's self-interest
Modern market economies usually have a(n) ______.
active, but limited, government
In the circular flow model, the market economy creates ______.
continuous flows of goods and services, resources, and money
The command economies of the former Soviet Union and of Eastern Europe failed due to:
coordination problems. incentive problems.
Which type of business structure is considered an independent legal entity?
corporation
The market system thrives on ______.
freedom of enterprise and choice
Division of labor that works on a regional or international basis is known as (one word) specialization
geographic
Division of labor that works on a regional or international basis is known as (one word) specialization.
geographic
The ______ describes a situation faced in command economies in which producers have no reason to adjust production in response to shortages and surpluses in the economy.
incentive problem
Property rights also extend to:
intellectual property
Which of the following are examples of capital goods?
large-scale factories tools machinery
Due to the diffusion of economic power inherent in competition, an employer who pays less than the competitive wage rate will ______.
lose workers to other employers
In a _______ system, people act in their own self-interest.
market
Private individuals and firms, not the government, own most of the property resources such as land and capital in a free BLANK system.
market
Technological improvements or advancements also include new and improved methods that ______ production costs.
reduce
In the circular flow model, households ______ resources and ______ products.
sell; buy
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
Monies that flow out of businesses to pay for resources are costs to businesses, but they represent which of the following types of flows to households?
wages rent profit income interest
Which of the following functions can a corporation do on its own behalf?
Acquire resources Incur debts Own assets Sue others
Which of the following describes how the market system will promote progress?
Competitive markets create incentives for technological advance and capital accumulation, both of which contribute to promoting progress.
Freedom of BLANK ensures that entrepreneurs and private businesses are free to obtain and use economic resources to produce their choice of goods and services.
Enterprise
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: Competition among sellers and government diffuses economic power within the economic units that make up an economy.
False
True or false: Specialization means using available resources to produce a variety of goods and services.
False
Which of the following enables owners to employ or dispose of their property and money as they see fit?
Freedom of choice
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
Which of the following occur in the resource market? (Check all that apply.)
Households sell resources and businesses buy them. Businesses buy resources from households because they are necessary for producing goods and services. Households provide economic resources directly as workers or entrepreneurs.
Which are major decisions that must be addressed by an economic system?
How to promote technological progress Who gets the goods that are produced Which goods are produced
Identify the five fundamental questions that all economies, whether market or command, must address. (Check all that apply.)
How will the goods and services be produced? How will the system accommodate change? Who will get the goods and services? What goods and services will be produced? How will the system promote progress?
Which of the following effects does competition have among buyers and sellers?
It diffuses economic power within businesses and households comprising the economy.
Which statements about the profit system are true?
It is actually a profit and loss system. It encourages entrepreneurs to make prudent decisions.
Which of the following best illustrates a coincidence of wants?
Nebraska has excess wheat to trade and wants oranges. Florida has excess oranges and wants wheat. Therefore, an exchange occurs.
Which of the following is true when there are many buyers and sellers acting independently in a market?
No single buyer or seller can dictate the price of the product or resource because others can undercut that price.
Human specialization or division of labor contributes to a society's output in which of the following ways?
Specialization fosters learning by doing. Specialization makes use of differences in ability. Specialization saves time.
Which of the following best describe the reasons that specialization increases the total output society derives from limited resources?
Specialization fosters learning by doing. Specialization makes use of differences in ability. Specialization saves time.
The two major benefits that arise from the market system's restriction of business risk to owners and investors are
attracting inputs and focusing attention.
Selling human organs or buying illicit drugs are punished through fines and imprisonment. This exemplifies the concept that freedom of enterprise and choice are limited ______.
by laws preventing the production of specific goods and services
Tools, large-scale factories, machinery, transportation, and facilities are all examples of ______.
capital goods
The basis of competition is freedom of ______ exercised in the pursuit of ______.
choice; money
A central planning board sets the division of output between capital and consumer goods in a ______ system.
command
What is the command system also known as?
communism socialism
The market system depends on ______ both among buyers and among sellers.
competition
Which of the following best serves as the regulatory mechanism of the market system?
competition
A producer that charges more than the ______ will relinquish sales to other producers in a market economy.
competitive market price
The three main categories into which businesses fall are:
corporation sole proprietorship partnership
In recent years, new MP3 and digital technologies have replaced compact disks. This is an example of ______.
creative destruction
The creation of new products and production methods that completely destroys the market positions of firms that are wedded to existing products and older ways of doing business is called _____.
creative destruction
Competition among economic units ______.
diffuses economic power within the businesses and households that make up the economy. implies that producers can enter or leave an industry
The title to an automobile or the deed to a cattle ranch assures a buyer that the seller is the legitimate owner of that property. This is an example of property rights _________.
facilitating exchange
A BLANK is an institution or mechanism that brings buyers and sellers into contact.
market/marketplace
Under the market system, ______ coordinate the decisions made by households and businesses.
markets and prices
Money performs several functions, but first and foremost it is a ______.
medium of exchange
In a market system, ______ create powerful incentives for firms to innovate and entrepreneurs to pioneer new products and processes.
monetary rewards
Economic growth, investment, innovation, exchange, and maintenance of property are all possible because of ______.
private property rights
A firm's owners are called ______ because they are only paid after employees, suppliers, and lenders have been paid.
residual claimants
According to the circular flow model, households buy goods and services that businesses make available in the BLANK market.
resource
The five questions that every society must address reflect the reality of (scarce/infinite) resources in a world of (limited/unlimited) wants.
scarce; unlimited
When every economic unit in a society attempts to achieve its own particular goal, usually requiring delivering something of value to others, it is referred to as ______.
self-interest
A BLANK proprietorship is a business owned and managed by a single person.
sole
A business owned and managed by a single person is called a(n) ______.
sole proprietorship
The goods and services produced by an economic unit through ______ can be exchanged for a full range of desired products produced by other economic units.
specialization
An economic system will promote progress by advancing ______ and accumulating ______.
technology; capital
Which of the following requires a coincidence of wants between a buyer and a seller?
Barter
Which of the following would be an example of the system accommodating change?
Buyers want more juice and less milk. Producers increase spending only on juice.
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
What does the central planning board appointed by a command system government do?
It determines production goals for each enterprise. It makes decisions about the composition and distribution of output. It makes all decisions concerning the use of government-owned systems.
Which of the following describe the role of government in the United States' form of capitalism?
Modifies the distribution of income Provides certain goods and services Provides the rules for economic activity Promotes economic stability and growth
In a market system, specialization requires exchange. Which of the following best describes the use of money in an exchange?
Money facilitates exchange by ending the need for a coincidence of wants required by the barter system.
Geologists working for ExxonMobil have determined that there exists a high probability that your neighborhood is located above a potentially large oil reserve. As a result, ExxonMobil offers to purchase every owners' property at a substantial price to which everyone agrees. Which of the following does this illustrate?
Mutually agreeable economic transactions
The various forms of intellectual property rights include BLANK, BLANK and BLANK.
Patents Copyrights Trademarks
The market system directs resources to the production of goods and services that are the most desired by society. Which market system virtue does this reflect?
efficiency
Three virtues of the market system include ____, _____, and ______.
efficiency, incentives, and freedom
The most important consequence of property rights is that they ______.
encourage cooperation by ensuring that only mutually agreeable economic transactions take place
Encouraging hard work and skill acquisition with rewards of higher incomes and higher standards of living, is part of which virtue of the market system?
incentives
In a market system, firm BLANK are subject to business risk.
owners
What is the type of business structure when two or more individuals agree to own and operate a business together?
partnership
What is the coordinating mechanism in a market system?
prices
BLANK ownership of capital gives capitalism his name.
private
The interaction between buyers and sellers in a market system determines ______.
product and resource prices
Which of the following are components of the circular flow model?
product market businesses households resource market
Entrepreneurs and owners of businesses use part of their ______ in order to accumulate more capital goods.
profits
The "invisible hand" guides firms and resource suppliers to promote ______ even as they seek to further their own interests.
public or social interests
The function of firms in the circular flow model is to ______ resources and ______ products.
purchase; sell
Competition is the ______ mechanism of the market system, whereas the system of prices and markets is the organizing and ______ mechanism.
regulatory; coordinating
(one word) 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.
specialization
Goods and services are produced efficiently when production is organized in combinations and ways ______.
that minimize the cost per unit of output
Advanced technology and capital goods are important because:
the most direct methods of producing a good or service are often the least efficient. the new technology can enhance the productivity of workers
In order to have competition in a market economy, there must be at least _____ or more sellers acting independently in a particular market.
2
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
Which of the following describe the concept of laissez-faire?
A market system in which the role of government is limited to protecting private property A market system in which only mutually beneficial economic transactions are completed
Which of the following is true of a market system?
A market system is a combination of centralized government initiatives and decentralized actions taken by firms.
Which of the following exemplify self-interest?
A worker interviews for and is offered several positions and chooses the one that pays the most. A business owner focuses on using environmentally friendly processes while maximizing profits. The owner of an apartment building rents the apartments for the highest rent possible.
How does the market system develop methods for analyzing and managing risk?
By presenting businesses with the economic consequences of their decisions
How does the profit system guide entrepreneurs?
By punishing them with losses when they choose poorly By rewarding them with profits when they choose wisely
If increasing numbers of consumers decide to purchase organically farmed fruit rather than conventionally farmed fruit, how is the market likely to respond?
Conventional fruit profits will fall. Organic fruit profits will rise.
Which statement about freedom of enterprise and freedom of choice is true?
Freedom of enterprise and freedom of choice have legal limitations.
Who owns most property resources in a command system?
Government
Which characteristics define a command system?
Government ownership of most or all resources A government-appointed central planning board
BLANK property rights help to facilitate exchange in a free market system.
Private
In which of the following markets do households buy the goods and services that businesses make available?
Product market
Freedom of entry and exit of producers enables an economy to adjust to changes in which of the following areas?
Resource availability Consumer tastes Technology
______ increases the total output society derives from ______ resources.
Specialization; scarce
Which of the following describes how a market system decides what will be produced?
The goods and services produced at a continuing profit will be produced, and those produced at a continuing loss will not.
Which of the following roles does the government play in the type of capitalism practiced in the United States?
The government promotes economic stability and growth. The government provides certain goods and services that otherwise would be under-produced or not produced at all. The government modifies the distribution of income. The government provides the rules for economic activity.
Which of the following describe the market system's virtue of incentives?
The market system leaves participants free to further their own self-interest, and any rewards or penalties are imposed by the market system itself. The market system encourages skill acquisition and hard work, leading to increased production and incomes and higher standards of living. The market system promotes the efficient use of resources by encouraging the development and adoption of new production techniques.
Which of the following best describe the virtue of efficiency?
The market system promotes the efficient use of resources by guiding them into the production of the goods and services most wanted by society. The market encourages the development and adoption of new and more efficient production techniques.
A market system decides what to produce based on which of the following?
The movement of resources toward an industry that exhibits continued profits from producing a good or service Continued economic profit from producing a good or service
True or false: A central feature of the (pure) market system is the ability to reap monetary rewards from the innovation and creation of new products and processes.
True
True or false: By specializing, economies in one region can produce more than their actual consumption capacity and therefore can trade their surpluses with other economies in other regions.
True
True or false: Freedom of choice allows workers to enter any line of work for which they are qualified. It also ensures that consumers are free to buy the goods and services that best satisfy their wants.
True
True or false: In a market system, consumers exercise consumer sovereignty, which is crucial in determining the types and quantities of goods purchased.
True
Technological advancements, such as the personal computer and medical discoveries, are primarily driven by the profit motive. However, such advancements eventually promote the public or social interest as though they are guided by _____.
an invisible hand
For a market system to maximize its potential, it must develop methods for ______.
assessing and managing risk
The product market is the place where _______.
businesses sell goods and services and households buy goods and services
Capital accumulation refers to the accumulation of ______.
capital goods that are used to produce consumer goods capital goods that yield even greater profit income in the future capital goods that are required to advance technology
In a command system, who is responsible for determining production goals for each enterprise?
central planning board
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