ECON 202 Ch.2

Specialization in production is important primarily because it: 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.

A. results in greater total output.

In what type of business do the owners bear no personal financial responsibility for the company's debts and obligations? A. Partnerships. B. Corporations. C. Sole proprietorships. D. In all of the businesses listed in the other answers.

B. Corporations.

The dollar votes of consumers ultimately determine the composition of output and the allocation of resources in a market economy. This statement best describes the concept of: A. derived demand. B. consumer sovereignty. C. the invisible hand. D. market failure.

B. consumer sovereignty.

The economic function of profits and losses is to: A. bring about a more equal distribution of income. B. signal that resources should be reallocated. C. eliminate small firms and reduce competition. D. tell government which industries need to be subsidized.

B. signal that resources should be reallocated.

Specialization-the division of labor-enhances productivity and efficiency by: 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 means identified in the other answers.

D. all of the means identified in the other answers.

In a market economy a significant change in consumers' desire for product X will: A. alter the profits or losses received by suppliers of product X. B. cause a reallocation of scarce resources. C. cause some industries to expand and others to contract. D. do all of these.

D. do all of these.

An increase in consumer desire for strawberries is most likely to: A. increase the number of strawberry pickers needed by farmers. B. reduce the supply of strawberries. C. reduce the number of people willing to pick strawberries. D. reduce the need for strawberry pickers.

A. increase the number of strawberry pickers needed by farmers.

If a competitive industry is neither expanding nor contracting, we would expect: A. total revenue to be zero. B. economic profits to be zero. C. total opportunity cost to be zero. D. more resources to flow to that industry.

B. economic profits to be zero.

Private property: A. discourages cooperation because people don't want to part with what they own. B. discourages innovation, as people are often afraid to risk losing their own property. C. encourages owners to maintain or improve their property, so as to preserve or enhance value. D. does everything indicated by the other answers.

C. encourages owners to maintain or improve their property, so as to preserve or enhance value.

The market system's answer to the fundamental question "How will the system accommodate change?" is essentially: A. "Through government leadership and direction." B. "Through the guiding function of prices and the incentive function of profits." C. "Through training and retraining programs." D. "Through trial and error."

B. "Through the guiding function of prices and the incentive function of profits."

Economic profits and losses: A. are both considered by economists to be a part of production costs. B. are essential to the reallocation of resources from less desired to more desired goods. C. have no influence on the composition of domestic output. D. equalize the distribution of income in the long run.

B. are essential to the reallocation of resources from less desired to more desired goods.

In the simple circular flow model: A. households are buyers of resources. B. businesses are sellers of final products. C. households are sellers of final products. D. there are real flows of goods, services, and resources, but not money flows.

B. businesses are sellers of final products.

The most efficient combination of resources in producing a given output is the combination that: A. comes closest to using the same quantities of land, labor, capital, and entrepreneurial ability. B. can be obtained for the smallest money outlay. C. uses the smallest total quantity of all resources. D. conserves most on the use of labor.

B. can be obtained for the smallest money outlay.

Property rights are important because they: A. ensure an equal distribution of income. B. encourage cooperation by improving the chances of mutually agreeable transactions. C. guarantee that any exchange will make all parties better off than prior to the exchange. D. allow the government to control how resources are allocated.

B. encourage cooperation by improving the chances of mutually agreeable transactions.

Broadly defined, competition involves: A. private property and freedom of expression. B. independently acting buyers and sellers and freedom to enter or leave markets. C. increasing opportunity costs and diminishing marginal utility. D. capital goods and division of labor.

B. independently acting buyers and sellers and freedom to enter or leave markets.

Specialization in production is economically beneficial primarily because it: A. allows everyone to have a job which they like. B. permits the production of a larger output with fixed amounts of resources. C. facilitates trade by bartering. D. guarantees full employment.

B. permits the production of a larger output with fixed amounts of resources.

Economic profits in an industry suggest the industry: A. can earn more profits by increasing product price. B. should be larger to better satisfy consumers' desire for the product. C. has excess production capacity. D. is the size that consumers want it to be.

B. should be larger to better satisfy consumers' desire for the product.

In a market economy the distribution of output will be determined primarily by: A. consumer needs and preferences. B. the quantities and prices of the resources that households supply. C. government regulations that provide a minimum income for all. D. a social consensus as to which distribution of income is most equitable.

B. the quantities and prices of the resources that households supply.

Competition means that: A. sellers can manipulate market price by causing product scarcities. B. there are independently-acting buyers and sellers in each market. C. a product can be purchased at a number of different prices. D. there is more than one seller in a market.

B. there are independently-acting buyers and sellers in each market.

The presence of market failures implies that: 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.

B. there is an active role for government, even in a market system.

In a competitive market economy firms select the least-cost production technique because: A. such choices will result in full employment of available resources. B. to do so will maximize the firms' profits. C. this will prevent new firms from entering the industry. D. "dollar voting" by consumers mandates such a choice.

B. to do so will maximize the firms' profits.

The simple circular flow model shows that: A. households are on the buying side of both product and resource markets. B. businesses are on the selling side of both product and resource markets. C. households are on the selling side of the resource market and on the buying side of the product market. D. businesses are on the buying side of the product market and on the selling side of the resource market.

C. households are on the selling side of the resource market and on the buying side of the product market.

In the resource market: A. businesses borrow financial capital from households. B. businesses sell services to households. C. households sell resources to businesses. D. firms sell raw materials to households.

C. households sell resources to businesses.

"Consumer sovereignty" refers to the: 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.

C. idea that the decisions of producers must ultimately conform to consumer demands.

The two basic markets shown by the simple circular flow model are: A. capital goods and consumer goods. B. free and controlled. C. product and resource. D. household and business.

C. product and resource.

In terms of the circular flow diagram, businesses obtain revenue through the _____ market and make expenditures in the _____ market. A. product; financial B. resource; product C. product; resource D. capital; product

C. product; resource

In terms of the circular flow diagram, households make expenditures in the _____ market and receive income through the _____ market. A. product; financial B. resource; product C. product; resource D. capital; product

C. product; resource

Copyrights and trademarks are examples of: A. capital goods. B. human capital. C. property rights. D. public goods.

C. property rights.

Households and businesses are: A. both buyers in the resource market. B. both sellers in the product market. C. sellers in the resource and product markets respectively. D. sellers in the product and resource markets respectively.

C. sellers in the resource and product markets respectively.

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

C. the widespread use of money

The division of labor means that: A. labor markets are geographically segmented. B. unskilled workers outnumber skilled workers. C. workers specialize in various production tasks. D. each worker performs a large number of tasks.

C. workers specialize in various production tasks.

The market system's answer to the fundamental question "How will the system promote progress?" is essentially: A. "Through government funded research programs." B. "Through redistribution of income to promote greater equality." C. "Through training and retraining programs." D. "Through the profit potential that encourages development of new technology."

D. "Through the profit potential that encourages development of new technology."

Which of the following best illustrates the circular flow model in action? A. Bobbie goes to work and builds cars, and uses the income she receives to buy food at the grocery store. B. Evan buys a new couch; the owner of the furniture store uses some of the money from the sale to pay her supplier, and uses the rest to take her family out to dinner. C. Boeing experiences a surge in orders for new airplanes, prompting the company to hire more workers. D. All of these answers illustrate the workings of the circular flow model.

D. All of these answers illustrate the workings of the circular flow model.

Which of the following is one of the Five Fundamental Questions? A. Which products will be in scarce supply and which in excess supply? B. Who should appoint the head of the central bank? C. How much should society save? D. What goods and services will be produced?

D. What goods and services will be produced?

If consumer desire for product X increases, all of the following will occur except: A. an increase in the profits of industry X. B. an increase in the quantity of resources employed by industry X. C. an increase in the output of industry X. D. a decrease in the quantity of resources employed in industry X.

D. a decrease in the quantity of resources employed in industry X.

The competitive market system: 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.

D. encourages innovation because successful innovators are rewarded with economic profits.

The use of money contributes to economic efficiency because: A. governmental direction of the production and distribution of output can be avoided by using money. B. roundabout production could not occur without the availability of money. C. it is necessary for the creation of capital goods. D. it promotes specialization by overcoming the problems with barter.

D. it promotes specialization by overcoming the problems with barter.

From society's point of view the economic function of profits and losses is to: A. promote the equal distribution of real assets and wealth. B. achieve full employment and price level stability. C. contribute to a more equal distribution of income. D. reallocate resources from less desired to more desired uses.

D. reallocate resources from less desired to more desired uses.

The market system's answer to the fundamental question "What will be produced?" is essentially: A. "Goods and services that are profitable." B. "Low cost goods and services." C. "Goods and service that can be produced using large amounts of capital." D. "Goods and services that possess lasting value."

A. "Goods and services that are profitable."

The market system's answer to the fundamental question "Who will get the goods and services?" is essentially: A. "Those willing and able to pay for them." B. "Those who physically produced them." C. "Those who most need them." D. "Those who get utility from them."

A. "Those willing and able to pay for them."

Which of the following is not one of the five fundamental questions? A. What prices will be charged for goods and services? B. Who will get the goods and services? C. What goods and services will be produced? D. How will the system promote progress?

A. What prices will be charged for goods and services?

The advent of DVDs has virtually demolished the market for videocassettes. This is an example of: A. creative destruction. B. derived demand. C. capital accumulation. D. the difference between normal and economic profits.

A. creative destruction.

The "coincidence of wants" problem associated with barter refers to the fact that: A. for exchange to occur each seller must have a product that some buyer wants. B. money must be used as a medium of exchange or trade will never occur. C. specialization is restricted by the size or scope of a market. D. buyers in resource markets and sellers in product markets can never engage in exchange

A. for exchange to occur each seller must have a product that some buyer wants.

Which of the following is a fundamental characteristic of the market system? A. property rights. B. central planning by government. C. unselfish behavior. D. government-set wages and prices.

A. property rights.

The market system's answer to the fundamental question "How will the goods and services be produced?" is essentially: A. "With as much machinery as possible." B. "Using the latest technology." C. "By exploiting labor." D. "Using the least-cost production techniques."

D. "Using the least-cost production techniques."

"Consumer sovereignty" means that: A. buyers can dictate the prices at which goods and services will be purchased. B. advertising is ineffective because consumers already know what they want. C. buyers control the quality of goods and services through regulatory agencies. D. buyers determine what will be produced based on their "dollar votes" for the goods and services offered by sellers.

D. buyers determine what will be produced based on their "dollar votes" for the goods and services offered by sellers.

The regulatory mechanism of the market system is: A. self-interest. B. private property. C. competition. D. specialization.

C. competition.

Firms are motivated to minimize production costs because: A. it is the most environmentally friendly way to produce goods. B. least-cost production techniques use the smallest total quantity of resources. C. competitive pressures in the market will drive out higher-cost producers. D. the government provides tax credits and subsidies to low-cost producers.

C. competitive pressures in the market will drive out higher-cost producers.

If competitive industry Y is incurring substantial losses, output will: A. expand as resources move toward industry Y. B. contract as resources move toward industry Y. C. contract as resources move away from industry Y. D. expand as resources move away from industry Y.

C. contract as resources move away from industry Y.

Barter: A. is the major means of exchange in centrally planned economies. B. accounts for over 30 percent of the dollar volume of all exchange in the U.S. economy. C. entails the exchange of goods for goods. D. is used to circumvent the problem of a lack of coincidence of wants among potential buyers and sellers.

C. entails the exchange of goods for goods.

If competitive industry Z is making substantial economic profit, output will: A. fall in industry Z, and firms will likely leave the market. B. fall in all industries except industry Z. C. expand in industry Z, as more resources will move to that industry. D. expand in industry Z, but no new firms will enter the market.

C. expand in industry Z, as more resources will move to that industry.

Which of the following is not a characteristic of the market system? A. private property. B. freedom of enterprise. C. government ownership of major industries. D. competition in product and resource markets.

C. government ownership of major industries.