Micro Ch 2 LearnSmart

Choose those characteristics that best describe a command system.

-A central planning board makes all economic decisions concerning resources. -The government owns most property resources.

Which characteristics define a command system?

-A government-appointed central planning board -Government ownership of most or all resources

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

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

Which of the following best describe how goods and services should be produced?

-By utilizing the right mix of labor and capital -By locating production facilities optimally to hold down production and transportation expenses

Which of the following were economic problems faced by the former Soviet Union, Eastern Europe, and China prior to its market reforms?

-Coordination problem -Incentive problem

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 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.

Identify the five fundamental questions that all economies, whether market or command, must address.

-How will the system accommodate change? -How will the goods and services be produced? -What goods and services will be produced? -Who will get the goods and services? -How will the system promote progress?

The market system attracts inputs and focuses owners' attention on risk management by restricting business risk to which two groups?

-Investors -Owners

Which statements about the profit system are true?

-It is actually a profit and loss system. -It encourages entrepreneurs to make prudent decisions.

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.

Which of the following statements describe who will get the goods and services produced in a market economy?

-Those who have sufficient income and want to spend money on a particular good -Those who are willing and able to pay for the goods and services

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 are components of the circular flow model?

-product market -resource market -households -businesses

Private individuals and businesses are able to utilize property as they wish as a result of:

-the ability to negotiate legally binding contracts. -the right of private property.

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

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 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 would be an example of the system accommodating change?

Buyers want more juice and less milk. Producers increase spending only on juice.

How does the market system develop methods for analyzing and managing risk?

By presenting businesses with the economic consequences of their decisions

Which of the following is the reason why every society needs to develop an economic system?

Every society faces the economizing problem.

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

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

An active, but limited, government is characteristic of which type of economic system in modern advanced industrial economies?

Modern market system

______ ownership of capital gives capitalism its name.

Private

___________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

Which of the following is the most efficient method of production?

Using a combination of labor, capital and technology

Modern market economies usually have a(n) ______.

active, but limited, government

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 two major benefits that arise from the market system's restriction of business risk to owners and investors are

attracting inputs and focusing attention.

The product market is the place where _______.

businesses sell goods and services and households buy goods and services

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

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

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

A(n) ______ system is a particular set of institutional arrangements and a coordinating mechanism that responds to the economizing problem.

economic

Freedom of ______ ensures that entrepreneurs and private businesses are free to obtain and use economic resources to produce their choice of goods and services.

enterprise

True or false: Money complicates exchange or trade.

false

rue 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 are found in the product market?

goods and services

In the circular flow model ______.

households spend their income in the product market

The term "laissez-faire" refers to

limiting the government's interference in the economy.

In a _______ system, people act in their own self-interest.

market

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, firm ______ are subject to business risk.

owners

What is the coordinating mechanism in a market system?

prices

The "invisible hand" guides firms and resource suppliers to promote ______ even as they seek to further their own interests.

public or social interests

A firm's owners are called ______ because they are only paid after employees, suppliers, and lenders have been paid.

residual claimants

The five questions that every society must address reflect the reality of _______ resources in a world of ____________ 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

In the circular flow model, households ______ resources and ______ products.

sell; buy

A ______ 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

Goods and services are produced efficiently when production is organized in combinations and ways ______.

that minimize the cost per unit of output

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