Econ 2302 - Chapter 2
What does the central planning board appointed by a command system government do?
- It makes decisions about the composition and distribution of output. - It determines production goals for each enterprise. - It makes all decisions concerning the use of government-owned systems.
sole
A ______________proprietorship is a business owned and managed by a single person.
residual claimants
A firm's owners are called ______ because they are only paid after employees, suppliers, and lenders have been paid.
freedom
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?
- Continued economic profit from producing a good or service - The movement of resources toward an industry that exhibits continued profits from producing a good or service
A market system decides what to produce based on which of the following?
competitive market price
A producer that charges more than the ______ will relinquish sales to other producers in a market economy.
barter
A trading system that involves swapping goods for goods and requires a coincidence of wants between the buyer and the seller is called ______.
firms
According to the circular flow model, ______ will buy resources from and sell products to households.
product
According to the circular flow model, households buy goods and services that businesses make available in the __________ market.
- the new technology can enhance the productivity of workers. - the most direct methods of producing a good or service are often the least efficient.
Advanced technology and capital goods are important because:
Modern market system
An active, but limited, government is characteristic of which type of economic system in modern advanced industrial economies?
technology; capital
An economic system will promote progress by advancing ______ and accumulating ______.
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
Capital accumulation refers to the accumulation of ______.
- A central planning board makes all economic decisions concerning resources. - The government owns most property resources.
Choose those characteristics that best describe a command system.
- diffuses economic power within the businesses and households that make up the economy - implies that producers can enter or leave an industry
Competition among economic units ______.
regulatory; coordinating
Competition is the ______ mechanism of the market system, whereas the system of prices and markets is the organizing and ______ mechanism.
geographic
Division of labor that works on a regional or international basis is known as (one word) specialization.
lose workers to other employers
Due to the diffusion of economic power inherent in competition, an employer who pays less than the competitive wage rate will ______.
private property rights
Economic growth, investment, innovation, exchange, and maintenance of property are all possible because of ______.
incentives
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?
profits
Entrepreneurs and owners of businesses use part of their ______ in order to accumulate more capital goods.
acting in one's self-interest
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 ______.
Private
Fill in the Blank Question ______________ property rights help to facilitate exchange in a free market system.
Private
Fill in the Blank Question ________________ property rights help to facilitate exchange in a free market system.
assessing and managing risk
For a market system to maximize its potential, it must develop methods for ______.
enterprise
Freedom of _________________ ensures that entrepreneurs and private businesses are free to obtain and use economic resources to produce their choice of goods and services.
- Consumer tastes - Technology - Resource availability
Freedom of entry and exit of producers enables an economy to adjust to changes in which of the following areas?
- Resource availability - Technology - Consumer tastes
Freedom of entry and exit of producers enables an economy to adjust to changes in which of the following areas?
Mutually agreeable economic transactions
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?
that minimize the cost per unit of output
Goods and services are produced efficiently when production is organized in combinations and ways ______.
By presenting businesses with the economic consequences of their decisions
How does the market system develop methods for analyzing and managing risk?
By rewarding them with profits when they choose wisely By punishing them with losses when they choose poorly
How does the profit system guide entrepreneurs?
Who will get the goods and services? How will the goods and services be produced? How will the system accommodate change? How will the system promote progress? What goods and services will be produced?
Identify the five fundamental questions that all economies, whether market or command, must address. (Check all that apply.)
- Organic fruit profits will rise. - Conventional fruit profits will fall.
If increasing numbers of consumers decide to purchase organically farmed fruit rather than conventionally farmed fruit, how is the market likely to respond?
fines or imprisonment
Illegal choices such as human trafficking and drug trafficking are punished through
The central planning board
In a command system, who is responsible for determining production goals for each enterprise?
to consumers on the basis of their ability and willingness to pay the existing market price
In a market economy, goods and services are distributed ______.
monetary rewards
In a market system, ______ create powerful incentives for firms to innovate and entrepreneurs to pioneer new products and processes.
entrepreneurs
In a market system, firm ___________ are subject to business risk.
Money facilitates exchange by ending the need for a coincidence of wants required by the barter system.
In a market system, specialization requires exchange. Which of the following best describes the use of money in an exchange?
Suppressed product variety
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?
2
In order to have competition in a market economy, there must be at least _____ or more sellers acting independently in a particular market.
creative destruction
In recent years, new MP3 and digital technologies have replaced compact disks. This is an example of ______.
sell; buy
In the circular flow model, households ______ resources and ______ products.
firms
In the circular flow model, households sell resources to, and buy products from _______.
continuous flows of goods and services, resources, and money
In the circular flow model, the market economy creates ______.
Product market
In which of the following markets do households buy the goods and services that businesses make available?
- patents - copyrights - trademarks
Intellectual property is an extension of property rights through:
Patents, copyrights, and trademarks
Intellectual property is an extension of property rights through:
A sole proprietorship An unincorporated firm owned and operated by one person A partnership An unincorporated firm owned and operated by at least two people A corporation A legal entity that is separate and distinct from the people who own it
Match the business category on the left with its description on the right.
active, but limited, government
Modern market economies usually have a(n) ______.
medium of exchange
Money performs several functions, but first and foremost it is a ______.
wages interest rent profit income
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?
Private
Multiple Choice Question ______ ownership of capital gives capitalism its name.
- The owner of an apartment building rents the apartments for the highest rent possible. - A business owner focuses on using environmentally friendly processes while maximizing profits. - A worker interviews for and is offered several positions and chooses the one that pays the most.
Multiple Select Question Select all that apply Which of the following exemplify self-interest?
Market
Private individuals and firms, not the government, own most of the property resources such as land and capital in a free _________________ system.
the interaction between buyers and sellers
Product and resource prices in a market system are determined by ______.
intellectual property
Property rights also extend to:
intellectual property through patents, copyrights, and trademarks.
Property rights also extend to:
market
Question Mode Multiple Choice Question In a _______ system, people act in their own self-interest.
specialization
Rather than produce a wide array of goods and services, it is more efficient for economies to produce goods and services based upon ______.
by laws preventing the production of specific goods and services
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 ______.
an invisible hand
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 _____. Multiple choice question.
reduce
Technological improvements or advancements also include new and improved methods that ______ production costs.
public or social interests
The "invisible hand" guides firms and resource suppliers to promote ______ even as they seek to further their own interests.
incentive problem
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.
coordination
The _______ problems faced by the command economies of the former Soviet Union, eastern Europe, and China prior to market reforms became more difficult as the economies expanded and as markets became more complex.
choice; money
The basis of competition is freedom of ______ exercised in the pursuit of ______.
coordination problems. incentive problems.
The command economies of the former Soviet Union and of Eastern Europe failed due to:
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 _____.
incentive
The economies of the former Soviet Union, eastern Europe, and China prior to market reforms faced problems caused by a lack of coordination and a lack of ________.
Blank 1: scarce, limited, or finite Blank 2: unlimited, insatiable, limitless, infinite, or endless
The five questions that every society must address reflect the reality of __________(scarce/infinite) resources in a world of ____________(limited/unlimited) wants.
purchase; sell
The function of firms in the circular flow model is to ______ resources and ______ products.
specialization
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.
product and resource prices
The interaction between buyers and sellers in a market system determines ______.
Investors Owners
The market system attracts inputs and focuses owners' attention on risk management by restricting business risk to which two groups?
competition
The market system depends on ______ both among buyers and among sellers.
efficiency
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?
freedom of enterprise and choice
The market system thrives on ______.
encourage cooperation by ensuring that only mutually agreeable economic transactions take place
The most important feature of property rights is that they ______.
The Wealth of Nations
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 ______.
a market system
The operation of ______ creates a curious unity between private interests and social interests.
businesses sell goods and services and households buy goods and services
The product market is the place where _______.
facilitating exchange
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 _________.
attracting inputs and focusing attention.
The two major benefits that arise from the market system's restriction of business risk to owners and investors are
money
The use of ______ in market systems facilitates the exchange of goods and services that specialization requires. Multiple choice question. barter
legal limitations
These choices are free only within
efficiency incentives freedom
Three virtues of the market system include ____, _____, and ______.
capital goods
Tools, large-scale factories, machinery, transportation, and facilities are all examples of ______.
False
True or false: Competition among sellers and government diffuses economic power within the economic units that make up an economy.
False
True or false: Money complicates exchange or trade.
True Reason: Money is a financial incentive that drives firms and entrepreneurs to be innovative and creative in a market economy.
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 Reason: These are the descriptions of freedom of choice. Additionally, freedom of choice ensures that owners can employ or dispose of their property in whatever manner they see fit.
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 produced.
False
True or false: Specialization means using available resources to produce a variety of goods and services.
False
True or false: The resource market is the place where resources or the services of households are produced.
competition
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 ______.
markets and prices
Under the market system, ______ coordinate the decisions made by households and businesses.
prices
What is the coordinating mechanism in a market system?
partnership
What is the type of business structure when two or more individuals agree to own and operate a business together?
self-interest
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 ______.
- Government ownership of most or all resources - A government-appointed central planning board
Which characteristics define a command system?
- The right of private property - The ability to negotiate legally binding contracts
Which of the following allow private individuals and businesses to utilize property as they wish? (Check all that apply.)
households product market resource market businesses
Which of the following are components of the circular flow model?
- machinery - tools - large-scale factories
Which of the following are examples of capital goods?
- Goods - Services
Which of the following are found in the product market?
- Investment - Economic growth - Maintenance of property - Innovation
Which of the following are made possible because of private property rights in a market system?
- Land - Labor - Capital - Entrepreneurial ability
Which of the following are resources which businesses purchase from households?
- Partners share profits and losses. - Partners pool financial resources and business skills.
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 true of the partnership form of business organization?
- 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 best describe how goods and services should be produced?
- Specialization saves time. - Specialization makes use of differences in ability. - Specialization fosters learning by doing.
Which of the following best describe the reasons that specialization increases the total output society derives from limited resources?
- 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.
Which of the following best describe the virtue of efficiency?
Tom has extra apples, but wishes he had oranges. Aura has oranges, but wishes she had apples.
Which of the following best exemplifies 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 best illustrates a coincidence of wants?
Competition
Which of the following best serves as the regulatory mechanism of the market system?
- Consumer sovereignty - Dollar votes
Which of the following collectively direct resources to industries that are meeting consumer wants and away from industries that are not meeting consumer wants? (Check all that apply.)
- The market system encourages skill acquisition and hard work, leading to increased production and incomes and higher standards of living. - 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 promotes the efficient use of resources by encouraging the development and adoption of new production techniques.
Which of the following describe the market system's virtue of incentives?
- Modifies the distribution of income - Provides certain goods and services - Provides the rules for economic activity - Promotes economic stability and growth
Which of the following describe the role of government in the United States' form of capitalism?
- Modifies the distribution of income - Provides the rules for economic activity - Promotes economic stability and growth - Provides certain goods and services Reason: Consider the provision of public goods by the government. Also, consider the correction of market failures such as externalities.
Which of the following describe the role of government in the United States' form of capitalism?
- The ability of a firm or entrepreneur to gain revenue and economic profit at the expense of rivals by introducing a popular new product - The ability to produce better products and processes to replace inferior ones - New and improved methods that reduce production and/or distribution costs
Which of the following describes a technological advancement?
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 describes how a market system decides what will be produced?
Competitive markets create incentives for technological advance and capital accumulation, both of which contribute to promoting progress.
Which of the following describes how the market system will promote progress?
- 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 of the following does competition imply?
- Freedom of sellers and buyers to enter or leave markets - Two or more buyers and two or more sellers acting independently in a particular market
Which of the following does competition require? (Check all that apply.)
It diffuses economic power within businesses and households comprising the economy.
Which of the following effects does competition have among buyers and sellers?
Freedom of choice
Which of the following enables owners to employ or dispose of their property and money as they see fit?
freedom of enterprise
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?
Own assets Incur debts Sue others Acquire resources
Which of the following functions can a corporation do on its own behalf?
A market system
Which of the following is characterized by the private ownership of resources and the use of markets to coordinate and direct economic activity?
Diffusion of economic power
Which of the following is inherent in competition and limits the potential abuse of power?
Using a combination of labor, capital and technology
Which of the following is the most efficient method of production?
No single buyer or seller can dictate the price of the product or resource because others can undercut that price.
Which of the following is true when there are many buyers and sellers acting independently in a market?
Households sell resources and businesses buy them. Households provide economic resources directly as workers or entrepreneurs. Businesses buy resources from households because they are necessary for producing goods and services.
Which of the following occur in the resource market? (Check all that apply.)
Market
Which of the following represents an institution or mechanism that brings buyers and sellers into contact?
barter
Which of the following requires a coincidence of wants between a buyer and a seller?
- The government provides certain goods and services that otherwise would be under-produced or not produced at all. - The government provides the rules for economic activity. - The government promotes economic stability and growth. - The government modifies the distribution of income.
Which of the following roles does the government play in the type of capitalism practiced in the United States?
- The government provides the rules for economic activity. - 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 promotes economic stability and growth.
Which of the following roles does the government play in the type of capitalism practiced in the United States?
- 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 statements describe who will get the goods and services produced in a market economy?
- Coordination problem - Incentive problem
Which of the following were economic problems faced by the former Soviet Union, Eastern Europe, and China prior to its market reforms?
Buyers want more juice and less milk. Producers increase spending only on juice.
Which of the following would be an example of the system accommodating change?
Freedom of enterprise and freedom of choice have legal limitations.
Which statement about freedom of enterprise and freedom of choice is true?
It encourages entrepreneurs to make prudent decisions. It is actually a profit and loss system.
Which statements about the profit system are true?
corporation
Which type of business structure is considered an independent legal entity?
Specialization; scarce
______ increases the total output society derives from ______ resources.
Division of labor
______ is the human specialization of some process.
Specialization or Specialize
__________(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.
Freedom of choice
allows owners to employ or dispose of their property and money as they see fit. It also allows workers to try to ensure any line of work for which they are qualified. Finally, it ensures that consumers are free to buy the goods and services that best satisfy their wants and that their budgets allow.
Freedom of enterprise
ensures that entrepreneurs and private businesses are free to obtain and use economic resources to produce their choice of goods and services and to sell them in their chosen markets.