Micro Chapter 2: The Market System and the Circular Flow

which of the following factors are determinants of a person's income?

- the quantities of the property and human resources supplied -the prices command by the skills of the person in the resource market

which of the following best describe how goods and services can be produced?

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

which of the following have historically been used as mediums of exchange?

-cattle -metals -shells -stones -cigarettes

what is the command system also known as?

-communism -socialism

the command economies of the former Soviet Union and of Eastern Europe failed due to:

-coordination problems -incentive problem

identify the three virtues of the market system:

-efficiency -incentives -freedom

which of the following are resources which businesses purchase from households?

-entrepreneurial ability -labor -capital -land

which of the following does competition imply:

-it enables the economy to adjust to changes in consumer taste, technology, and resource availability - no insurmountable barriers prevent an industry from expanding or contacting -it provides the economy with the flexibility needed to remain efficient over time

in the circular flow model, in which of the following markets do households obtain the income needed to buy the goods and services?

-labor market -resources market

which of the following are characteristics of the market system?

-markets and prices -freedom of enterprise -freedom of choice -self-interest -private property -competition

goods and services are produced efficiently when production is organized in combinations and ways:

-minize

the three main categories into which businesses fall are:

-partnership -sole proprietorship -corporation

capital accumulation refers to the accumulation of:

-physical capital goods that are required to advance technology -physical capital goods that are used to build consumer goods -physical capital goods they yield even greater profit income in the future

which of the following are components of a circular flow model?

-product market -businesses -resource market -households

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?

-profit income -wages -interest -rent

which of the following describe the role of government in the United States form of capitalism?

-promotes economic stability and growth -provides the rules for economic activity -provides certain goods and services that would otherwise be under-produced or not produced at all -modifies the distribution of income

freedom of entry and exit of producers enables an economy to adjust to changes in which of the following areas?

-resource availability technology -consumer taste

which of the following provide the opportunity and motivation for technological advance?

-self interest -competition -freedom of choice -personal reward

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

the least cost production technique depends on:

-the availability technology -the cost of the needed resources

which of the following help sustain the institution of private property?

-the freedom of enterprise -the right of property owners to designate who will receive their property when they die

which of the following roles does the government play in the type of capitalism practiced in the United States?

-the government promotes economic stability and growth -the government promotes modifies the distribution of income - 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

a market system decides on what to produce based on:

-the movement of resources toward an industry industry that exhibits continued profits from producing a good or service -continued economic profit from producing a good or service -total revenue exceeding total costs in the production of a good or service

which of the following are examples of capital goods?

-tools -machinery -large-scale factories

which of the following best illustrates a coincidence of wants?

Nebraska has excess wheat to trade and wants oranges. Florida has excess oranges and wants wheat. Therefore, an exchange occurs.

Two or more buyers and two or more sellers acting independently in a particular product with the freedom to enter and leave markets best describes ______________.

a competition

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

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 combinations of wages, hour, benefits, and working condition are all examples of:

acting in one's self-interest

which of the following refers to the extensive use and rapid development of capital goods in a market system?

advanced technology

the ________ system, which involves swapping goods for goods, requires coincidence of wants between the buyer and the seller

barter

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. Profits rise in the juice industry and fall in the milk industry

selling human organs or buying illicit drugs are punished through fines and imprisonment. This exemplifies the concept that freedom of enterprise and choices are limited:

by laws preventing the production of specific goods and services

the market system depends on _________ among buyers and sellers

competition

a producer that charges more than the ________ will relinquish sales to other producers in a market economy

competitive market price

which of the following describes how the market system will promote progress?

competitive markets create incentives for technological advance and capital accumulation, both of which contribute to promoting progress

which type of business structure is considered an independent legal entity?

corporation

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

which of the following effects does competition among buyers and sellers have?

diffuses economic power within businesses and households comprising the economy

________ is the human specialization of some process

division of labor

_________ is a particular set of institutional arrangements and a coordinating mechanism that responds to the economizing problem

economic system

the market system thrives on freedom of ________ and __________

enterprise;choice

The three main decisions that must be addressed by an economic system include which goods to demand, how to motivate employees , and how to distribute goods in a market.

false

True or False: in a market system, the government owns most of the property resources such as land and capital

false

True or False: the command economies of the former Soviet Union, eastern Europe, and China prior to market reforms rewarded innovation, enterprise and entrepreneurship

false

True or False: the resources market is the place where resources or the services of households are produced:

false

competition among sellers and government diffuses economic power within the economic units that make up an economy

false

competition among sellers and government diffuses economic power within the economic units that make up an economy.

false

specializing means using available resources to produce a variety of goods and services.

false

according to the circular flow model , ________ will buy resources from and sell products to households.

firms

in the circular flow model, households sell resources to, and buy products from _________

firms

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

free market system

which of the following enables owners to employ or dispose of their property and money as they see fit?

freedom of choice

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

the basis of competition is ________ of _________ exercised in the pursuit of _________

freedom;choice;money

division of labor that works on a regional or international basis is known as __________ specialization

geographic

which of the following is/are found in the product market?

goods and services

which of the following does not occur in the resource market?

households purchase goods and services from firms

in the circular flow model:

households spend their income in the product market

the economies of the former Soviet Union, eastern Europe, and China prior to market reforms faced problems caused by a lack of coordination and lack of

incentive

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

incentive problem

property rights also extend to

intellectual property

the term laissez-faire refers to

limiting the government's interference in the economy

just as a producer that charges more than the competitive price will relinquish sales to other producers, so will an employer who pays less than the competitive wage rate will:

lose workers to other employers

a __________ is an institution or mechanism that brings buyers and sellers into contact

market

competition is a key feature of the ________ economic system

market

private individuals and firms, not the government, own most of the property resources such as land and capital in a free _______ system

market

the millions of decisions made by households and businesses are highly coordinated with one another by ______and ________.

markets;prices

Money performs several functions, but first and foremost it is a:

medium of exchange

In a market system, _____ create powerful incentives for firms to innovate and entrepreneurs to pioneer new products and processes.

monetary rewards

the use of _______ in market systems facilities the exchange of goods and services that specialization requires

money

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 owner's property at a substantial price to which everyone agrees. which of the following does this illustrate?

mutually agreeable economic transaction

which of the following is true when there are many buyers and sellers acting independently in a market?

no single buyer or seller can dictate the price of the product or resource because others can undercut that price

the way to get ahead in a command economy, such as in the economies of the former Soviet Union, Eastern Europe, and China prior to market reforms, was through

participation in the political hierarchy of the Communism party

what is the type of business structure when two or more individuals agree to own and operate a business together?

partnership

business success in the command economies of the former Soviet Union,Eastern Europe, and China prior to market reforms failed because it was based on

political savvy

what is the coordinating mechanism in a market system?

prices

__________ property rights help to facilitate exchange in a free market system

private

which of the following enables individuals and businesses to obtain, use, and dispose of property resources as they see fit in a market economy?

private property right

economic growth, investment, innovation, exchange, and maintenance of property are all possible because of

private property rights

According to the circular flow model, households buy goods and services that businesses make available in the __________ market

product

the price of a new 32 inch HDTV would be determined in the:

product market

entrepreneurs and owners of businesses use of their __________ in order to accumulate more capital goods

profits

mutually agreeable economic transactions take place as a result of:

property right

which of the following best exemplifies the importance of advanced technology and capital goods?

rather than producing with his bare hands, a farmer can drive huge benefits from using equipment such as a tractor, plow, and storage bin

technological improvements or advancements also include a new and improved methods that _________ production costs

reduce

competition is the ___________ mechanism of the market system, whereas the market system itself is the organizing and ____________ mechanism

regulatory;coordinating

Both land and labor would be bought and sold in the _________ market.

resource

Households obtain income in the _________ market in order to buy the goods and services that businesses produce in the _________ market.

resource;product

in the market system, competition, freedom of choice, self-interest and personal ________ provide the opportunity and motivation for technological advance

reward

the five questions that every society must address reflect the reality of __________ resources in a world of _________

scarce; unlimited

When every economic unit in a society such as individuals, firms or government attempts to achieve their own particular goal usually requiring delivering something of value to others, this is referred to as:

self-interest

in the circular flow model, households ____________ resources and ____________ products

sell;buy

a ________ proprietorship is a business owned and manged by a single person

sole

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

__________ increases the total output society derives from _________ resources

specialization;scarce

in order to cope with the difficulties in coordinating the production of goods and services, central planner in the former Soviet Union took which of the following actions?

suppressed product variety

product and resources prices in a market system are determined by:

the interaction between buyers and sellers

which of the following would be determined in the product market?

the price of a new pair of athletic shoes

the invisible hand guides firms and resource suppliers, in seeking to further their own interests, by promoting ________

the public or social interest

in a market economy, goods and services are distributed:

to consumers on the basis of their ability and willingness to pay their existing market price

which of the following best exemplifies a noncoincidence of wants?

tom wishes to buy good 1 from jack. jack wishes to buy good 2 from Mary but not good 3 from tom. also Mary wishes to buy good 3 from tom but does not want to buy good 1 from jack

True or False: Technology and capital goods are synonymous concepts in a market system

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

True or False: in a command system, the government or state decides how a country's resources will best be utilized.

true

True or False: in a market system, consumers exercise consumer sovereignty, which is crucial in determining the types and quantities of goods purchased.

true

True or False: in order to serve as money, an item must be widely accepted by the parties involved in a transaction as currently.

true

which of the following is a more desirable method of production?

using a combination of labor, capital and technology