macro chapter 2

Refer to the above figure. If box A represents households, B the product market, and C businesses, and if flow (3) represents revenues, then flow (1) would represent:

Consumption expenditures

Firms will tend to leave an industry when:

Demand for the industry's product is decreasing

The economies of North Korea and South Korea are:

Different in that North Korea has a command system while South Korea has a market system

The system where workers concentrate on specialized tasks to make a product is referred to as:

Division of labor

A basic characteristic of a command system is that:

Government owns most economic resources

All of the following statements describe a market economy except:

Government prescribes the desired prices for goods and services

Which fundamental economic question does a market system primarily address by focusing on technological advance and capital accumulation?

How will the system promote progress?

The circular flow model:

Illustrates the interdependence of businesses and consumers

Which statement is correct?

In a market system, prices serve to ration goods and services to consumers.

By free enterprise, we mean that:

Individuals may obtain resources, organize production, and sell the resulting output in any legal way they choose

The market economy is regarded as "efficient" in that:

It directs resources towards products that the society wants most

The major virtues of the market system include all of the following, except:

It leads to equality in the distribution of income

How does human specialization contribute to an economy's output?

It makes use of differences in abilities

Which of the following statements about the right to private ownership is false?

It weakens the incentive to maintain the property that one already owns

In the circular flow diagram, households:

Make consumption expenditures and receive goods and services

The market system communicates changes in market conditions and elicits appropriate responses from businesses and resource suppliers through changes in prices. This is known as the:

Market determination of prices (Correct)

In a market economy, entrepreneurs are most concerned with:

Maximizing profits or minimizing losses

Refer to the above figure. If box A represents households, D the resource market, and C businesses, then flow (8) would represent ___ while flow (6) would represent ___.

Money income; costs

Which is one of the five fundamental questions that need to be dealt with in any economic system?

What goods and services will be produced?

Consumer sovereignty and "dollar votes" guide the market system in dealing with which fundamental question?

What will be produced?

Issues of the distribution of goods and services and of incomes in a market system are the primary topics of which fundamental question?

Who is to receive the output?

Which is not one of the five fundamental questions that an economy must deal with?

Why should the goods and services be produced?

In product markets:

Businesses earn their revenues from households

In the circular flow model, households:

Buy products and sell resources

How do workers typically express self-interest?

By seeking jobs with the best combination of wages and benefits

The market system is often also known as:

Capitalism

One element of the command system is:

Central planning.

Consider a barter system where you have pens, but you want pencils. To satisfy your want there must be:

Coincidence of wants

The term dollar votes in a market system means:

Consumers "vote" for certain products to be produced by how they spend their incomes

Which of the following does not illustrate the idea of creative destruction?

A firm has to destroy some of the expired products in its inventory

Which is an example of barter?

A person trades a desk for a box of tools

As new firms enter an expanding industry:

Economic profits tend to decline

A required element of specialization is:

Exchange and trade

A characteristic of the market system is:

Extensive use of capital goods

With an increase in profits in a particular industry, we would expect:

Firms to enter the industry

The market system is an economic system that:

Gives private individuals the right to own resources used in production

Refer to the above figure. If box A represents households, B the product market, and C businesses, and if flow (3) represents revenues, then (4) would represent ___ while flow (5) would represent ____.

Goods and services; resources

The market system is said to be characterized by "consumer sovereignty." This is because:

Of the role of consumers in determining what goods are produced

"For whom is a given mix of goods and services to be produced? How, in other words, are the society's outputs to be distributed among its members?" In a market economy, this problem is resolved primarily in the:

Private sector through the earning and spending of income

In a market system, self-interest is the motivating force that drives the decisions and actions of the following groups, except:

Public officials

In the circular flow model, households earn their incomes in the:

Resource markets

The simple circular flow model shows that workers and capital-owners offer their services to firms through the:

Resource markets

Consumers express self-interest when they:

Seek the lowest price for a product.

The economies of Ireland and France are:

Similar in that they are both basically market systems

In a command system:

The government makes production and allocation decisions

The idea that the desires of resource suppliers and firms to further their own self-interest will automatically further the public interest is known as:

The invisible hand

In a market economy, the money incomes of individuals depend primarily upon:

The values and amounts of productive resources that the individuals possess.

Competition is more likely to exist when:

There is easy entry into and exit out of industries

The money income of households consists of the sum of:

Wages plus rents plus interest plus profits