Econ 202 chapt 2

(Last Word) According to economist Donald Boudreaux, the world's tens of billions of individual resources get arranged productively:

because private property encourages people to consider the alternative uses of their resources and select those that provide the most rewards

In the simple circular flow model:

businesses are sellers of final products

"Consumer sovereignty" means that:

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

The most efficient combination of resources in producing a given output is the combination that:

can be obtained for the smallest money outlay

Which of the following is a distinguishing feature of a command system?

central planning

Command systems are also known as:

communism

The regulatory mechanism of the market system is:

competition

Firms are motivated to minimize production costs because:

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

(Consider This) In 1975, McDonald's introduced its Egg McMuffin breakfast sandwich, which remains popular and profitable today. This longevity illustrates the idea of:

consumer sovereignty

(Consider This) In 2000, McDonald's introduced its McSalad Shaker, which failed to catch on with the public and was subsequently dropped from the menu. This failure illustrates the idea of

consumer sovereignty

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:

consumer sovereignty

If competitive industry Y is incurring substantial losses, output will:

contract as resources movie away from industry Y

"Because the outputs have of many industries are the inputs to other industries, the failure of any single industry to fulfill the output quantities specified in the central plan caused a chain-reaction of adverse repercussions on production." This quotation best identifies the

coordination problem under central planning

Copyrights and trademarks are examples of:

property rights

Which of the following is a fundamental characteristic of the market system?

property rights.

(Consider This) North Korea's command economy:

is one of the few remaining command economies

The use of money contributes to economic efficiency because:

it promotes specialization by overcoming the problems with barter.

The division of labor means that:

workers specialize in various production tasks.

The incentive problem under communist central planning refers to the idea that:

workers, managers, and entrepreneurs could not personally gain by responding to shortages or surpluses or by introducing new and improved products

The invisible hand concept suggests that:

assuming competition, private and public interests will coincide

The market system's answer to the fundamental question "What will be produced?" is essentially:

"Goods and services that are profitable."

The market system's answer to the fundamental question "Who will get the goods and services?" is essentially:

"Those willing and able to pay for them."

The market system's answer to the fundamental question "How will the system accommodate change?" is essentially:

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

The market system's answer to the fundamental question "How will the system promote progress?" is essentially:

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

The market system's answer to the fundamental question "How will the goods and services be produced?" is essentially:

"Using the least-cost production techniques."

The French term "laissez-faire" means:

"let it be."

Economic profits and losses:

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

Which of the following best illustrates the circular flow model in action?

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

Of the following countries, which one best exhibits the characteristics of a market economy?

Canada.

In what type of business do the owners bear no personal financial responsibility for the company's debts and obligations?

Corporations

Examples of command economies are:

Cuba and North Korea

(Consider This) Since World War II:

South Korea's market economy has significantly outperformed North Korea's command economy.

Which of the following best describes the invisible-hand concept?

The desires of resource suppliers and producers to further their own self-interest will automatically further the public interest

Which of the following is one of the Five Fundamental Questions?

What goods and services will be produced?

Which of the following is not one of the five fundamental questions?

What prices will be charged for goods and services?

Economic systems differ according to which two main characteristics?

Who owns the factors of production, and the methods used to coordinate economic activity.

If consumer desire for product X increases, all of the following will occur except:

a decrease in the quantity of resources employed in industry X

Specialization-the division of labor-enhances productivity and efficiency by:

all of the means identified in the other answers.

Two major virtues of the market system are that it:

allocates resources efficiently and allows economic freedom

"Under central planning, some group has to decide how to get the necessary inputs produced in the right amounts and delivered to the right places at the right time. This is a nearly impossible task without markets and profits." This quotation best identifies the:

coordination problem under central planning.

The advent of DVDs has virtually demolished the market for videocassettes. This is an example of:

creative destruction

In a market economy a significant change in consumers' desire for product X will:

do all of these

If a competitive industry is neither expanding nor contracting, we would expect:

economic profits to be zero.

The marker system

effectively harnesses the incentives of workers and entrepreneurs

Property rights are important because they:

encourage cooperation by improving the chances of mutually agreeable transactions

The competitive market system:

encourages innovation because successful innovators are rewarded with economic profits.

Private property:

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

Barter

entails the exchange of goods for goods.

Innovation lagged in the centrally planned economies because:

enterprises resisted innovation in fear that their production targets would be raised

If competitive industry Z is making substantial economic profit, output will:

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

The "coincidence of wants" problem associated with barter refers to the fact that:

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

Which of the following is not a characteristic of the market system?

government ownership of major industries.

The term laissez-faire suggests that:

government should not interfere with the operation of the economy

The simple circular flow Mosel shows that:

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

In the resourced market:

households sell resources to businesses

"Consumer sovereignty" refers to the:

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

Suppose that an individual sees a tremendous opportunity to produce and sell a new product, but dismisses the idea because there is no way to exploit this opportunity for personal gain. This situation best identifies the:

incentive problem under communist central planning

An increase in consumer desire for strawberries is most likely to:

increase the number of strawberry pickers needed by farmers

Broadly defined, competition involves:

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

The invisible hand promotes society's interests because:

individuals pursuing their self-interest will try to produce goods and services that people in society want and are willing to purchase.

An economic system:

is a particular set of institutional arrangements and a coordinating mechanism used to respond to the economizing problem

The invisible hand refers to the:

notion that, under competition, decisions motivated by self-interest promote the social interest.

Specialization in production is economical my beneficial primarily because it:

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

The coordination problem in the centrally planned economies refers to the idea that:

planners had to direct required inputs to each enterprise

(Last Word) According to economist Donald Boudreaux:

private property eliminates the possibility that resource arrangements will be random

If products were in short or surplus supply in the Soviet Union:

producers would not react because no price or profit signals occurred

The two basic markets shown by the simple circular flow model are:

product and resource

The fact that the major indicator of enterprise success in the Soviet Union and pre-reform China was the quantity of output implied that:

product quality was neglected

In terms of the circular flow diagram, businesses obtain revenue through the _____ market and make expenditures in the _____ market

product; resource

In terms of the circular flow diagram, businesses obtain revenue through the _____ market and make expenditures in the _____ market.

product; resource

In terms of the circular flow diagram, households make expenditures in the _____ market and receive income through the _____ market

product; resource

Enterprise managers and workers in the Soviet Union often resisted innovations in production methods because

production targets were often increased when innovation occurred.

From society's point of view the economic function of profits and losses is to:

reallocate resources from less desired to more desired uses.

Specialization in production is important primarily because it:

results in greater total output.

Households and businesses are:

sellers in the resource and product markets respectively

According to the concept of the "invisible hand," if Susie opens and operates a profitable childcare center, then:

she has served society's interests by providing a desired good or service

Economic profits in an industry suggest the industry:

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

The economic function of profits and losses is to:

signal that resources should be reallocated.

A fundamental difference between the command system and the market system is that, in command systems:

the division of output is decided by central planning rather than by individuals operating freely through markets.

In a market economy the distribution of output will be determined primarily by:

the quantities and prices of the resources that households supply

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

the widespread use of money

Competition means that:

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

The presence of market failures implies that:

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:

to do so will maximize the firms' profits

Which of the following is a distinguishing feature of a market system?

wide-spread private ownership of capital.