Econ Chapter 2 - Test Questions

True or False: Households sell finished products to businesses. - False. - True.

- False

Ted and Fred are the owners of a gas station. They invested $150,000 each and pay an employee named Lawrence $35,000 per year. This year revenues are $900,000, while costs are $940,000. Who is legally responsible for bearing the $40,000 loss? - Lawrence. - Ted. - Ted and Fred. - Lawrence, Ted, and Fred.

- Ted and Fred.

In a command economy scarce goods are allocated by - an elected planning board based on the board's preferences. - a government-appointed planning board based on the board's preferences. - a government-appointed planning board based on the board's long-term priorities. - an elected planning board based on the board's long-term priorities.

- a government-appointed planning board based on the board's long-term priorities.

In a market system scarce goods are allocated through the operation of - fixed prices that are determined by consumers and producers acting in the public interest. - estimated prices that are determined by consumers and producers acting in their own self-interest. - market prices that are determined by consumers and producers acting in the public's interest. - market prices that are determined by consumers and producers acting in their own self-interest.

- market prices that are determined by consumers and producers acting in their own self-interest.

Suppose Natasha currently makes $60,000 per year working as a manager at a cable TV company. She then develops two possible entrepreneurial business opportunities. In one, she will quit her job to start an organic soap company. In the other, she will try to develop an Internet-based competitor to the local cable company. For the soap-making opportunity, she anticipates annual revenue of $465,000 and costs for the necessary land, labor, and capital of $395,000 per year. For the Internet opportunity, she anticipates costs for land, labor, and capital of $3,250,000 per year as compared to revenues of $3,275,000 per year. a. Should she quit her current job to become an entrepreneur? (YES/NO) . b. If she does quit her current job, which opportunity would she pursue? . - The organic soap company - The internet-based company - Neither

a.) YES b.) - The organic soap company

Barter requires that you - are a member of an established barter network. - live in an area where there are people with diverse talents and a market with diverse products. - find a person who has what you want and a person who needs what you have to offer. - know the market value of all the goods and services that you want and have to offer.

- find a person who has what you want and a person who needs what you have to offer.

In market economies, firms rarely worry about the availability of inputs to produce their products, whereas in command economies input availability is a constant concern because - in market economies, buyers of inputs know that sellers want to earn profits. - in command economies, input availability is determined by a market that may not provide adequate inputs. - in command economies, input availability is determined by planners that may not correctly respond to consumer demand. - in market economies, buyers of inputs know that consumers want the product.

- in market economies, buyers of inputs know that sellers want to earn profits.

The emergence of the MP3 (iPod) technology is an example of "creative destruction" because - it is less expensive than compact discs for the storage and transfer of music. - it has replaced compact discs as a technology used for the storage and transfer of music. - the MP3 (iPod) industry is becoming more efficient. - the firms that produced compact discs now produce DVDs.

- it has replaced compact discs as a technology used for the storage and transfer of music.

Millions of economic resources tend to get arranged logically and productively rather than haphazardly and unproductively because - private property owners are motivated to protect and maximize the benefits from their property. - markets coordinate buyers and sellers. - producers could not produce products if it was any other way. - consumers would not buy products if it was any other way.

- private property owners are motivated to protect and maximize the benefits from their property.

The market system depends on private property ownership and the protection of private property rights to - provide an incentive to maintain property and allow for the orderly transfer of property ownership. - ensure that those who own property use it wisely. - establish the cost of administration and transfer of property. - make sure that there are adequate safeguards against theft.

- provide an incentive to maintain property and allow for the orderly transfer of property ownership.

The use of money - provides a common value that makes buying and selling transactions simpler as long as there is one currency in use. - provides a common value that makes buying and selling transactions simpler than would be the case with barter. - provides a common value that makes bartering transactions simpler. - establishes the value of goods and services.

- provides a common value that makes buying and selling transactions simpler than would be the case with barter.

Consider the statement: "We want money only to part with it." When people express a desire to 'have money,' they really want - to be rich. - a larger balance in their checking accounts. - the goods and services that money can buy. - a better paying job.

- the goods and services that money can buy.

Consider the following statement: "Competition is the disciplinarian of the market economy." This statement is - false, because when consumers realize there is competition, they are driven to demand more goods. - false, because when producers face competition, they are driven to provide more goods and services and costs will rise. - true, because when producers face competition they are driven to provide goods and services at the lowest possible cost. - true, because when consumers realize there is competition, they are driven to demand more goods.

- true, because when producers face competition they are driven to provide goods and services at the lowest possible cost.

a. Suppose that businesses buy a total of $160 billion of the four resources (labor, land, capital, and entrepreneurial ability) from households. If households receive $84 billion in wages, $22 billion in rent, and $32 billion in interest, how much are households paid for providing entrepreneurial ability? $_______ billion. b. If households spend $85 billion on goods and $75 billion on services, how much in revenues do businesses receive in the product market? $ __________billion.

a.) 22 billion b.) 160 billion

Match each term with the correct definition. - Mutually agreeable - Market - Freedom of choice - Private property - Self-interest - Competition - Freedom of enterprise a. An institution that brings buyers and sellers together: . b. The right of private persons and firms to obtain, control, employ, dispose of, and bequeath land, capital, and other property: . c. The presence in a market of independent buyers and sellers who compete with one another and who are free to enter and exit the market as they each see fit: . d. The freedom of firms to obtain economic resources, decide what products to produce with those resources, and sell those products in markets of their choice: . e. What each individual or firm believes is best for itself and seeks to obtain: . f. Economic transactions willingly undertaken by both the buyer and the seller because each feels that the transaction will make him or her better off: . g. The freedom of resource owners to dispose of their resources as they think best; of workers to enter any line of work for which they are qualified; and of consumers to spend their incomes in whatever way they feel is most appropriate: .

a.) Market b.) Private property c.) Competition d.) Freedom of enterprise e.) Self-interest f.) Mutually agreeable g.) Freedom of choice