BJU Economics Chapter 6

Why are public goods sometimes necessary?

A good or service is necessary, but for varying reasons(such as profitability) it cannot be provided by private enterprise.

Which of the following is an example of a public good in America? A. highways B. banks C. telecommunications D. air travel

A. highways

Adam Smith defined wealth as A. items that provide some measure of utility. B. having money to buy more than basic supplies. C. a nation's average standard of living. D. an individual's accumulated savings.

A. items that provide some measure of utility

Individuals are the sole owners and decision makers in economic affairs. A. radical capitalism B. classic liberal capitalism C. state capitalism D. social democracy E. centralized socialism F. communism

A. radical capitalism

Which of the following is characteristic of a welfare state? A. very high taxes B. governmental ownership of businesses C. economic leveling D. laissez-faire economics

A. very high taxes

List and very briefly explain three of the five points of a mercantilist program.

Any three of the following: Exploration was encouraged in order to gain new sources of gold and silver. Trade was guided by the idea of a "favorable balance"---- keeping a country's exports greater than its imports-----to acquire more gold and silver. Domestic manufacturing was primarily for export(rather than domestic consumption) to acquire more gold and silver. Colonization was conducted to gain new factors of production, resources that were then sold only to the mother country. Alliances, treaties, and conquest were foreign relation tools aimed at decreasing or eliminating competition.

Which of the following is not necessary for radical capitalism to exist? A. Private citizens own all factors of production. B. The government enforces private ownership. C. Private citizens decide the output question. D. The economic market is free from interference.

B. The government enforces private ownership

In a social democracy, which of the following is most likely to be privately owned? A. trucking companies B. chocolate manufacturers C. airports D. hospitals

B. chocolate manufacturers

Karl Marx saw economic history as characterized primarily by A. international struggles. B. class struggles. C. individual struggles. D. political struggles.

B. class struggles

The extreme form creates a welfare state. A. radical capitalism B. classic liberal capitalism C. state capitalism D. social democracy E. centralized socialism F. communism

B. classic liberal capitalism

Mercantilism measured a nation's wealth primary by its? A. level of domestic manufacturing. B. reserves of gold and silver. C. deep pool of skilled labor. D. acquisition of new colonies.

B. reserves of gold and silver

Which of the following is not necessary for a communist system? A. The government is disbanded. B. Factors of production are owned by everyone. C. All citizens are employed. D. Personal income is voluntarily redistributed.

C. All citizens are employed

What is one significant similarity between radical capitalism and communism? A. They have been adopted by many countries. B. They both promote greed. C. They see no need for government, ideally. D. They are based on scriptural principles

C. They see no need for government, ideally.

The favorable balance of trade that mercantilist countries sought to maintain refers to A. an equal amount of imports and exports. B. a higher amount of imports than exports. C. a higher amount of exports than imports. D. a growing amount of imports and exports.

C. a higher amount of exports than imports

In his writings Karl Marx envisioned which economic system as a stepping stone to a perfect society? A. state capitalism B. social democracy C. centralized socialism D. communism

C. centralized socialism

The state's economic decision-making power and ownership of resources is minimal. A. radical capitalism B. classic liberal capitalism C. state capitalism D. social democracy E. centralized socialism F. communism

C. state capitalism

Which economic system best describes modern America? A. radical capitalism B. classic liberal capitalism C. state capitalism D. social democracy

C. state capitalism

According to centralized socialism, what is the solution to the workers' problems? A. to work harder B. to negotiate through unions C. to possess the means of production D. to cooperate with business owners

C. to possess the means of production

What modern economic system is based on Adam Smith's writings? A. communism B. radical capitalism C. state capitalism D. classic liberal capitalism

D. classic liberal capitalism

Which of the following was not a major trait of laissez-faire liberalism? A. personal responsibility B. limited government C. profit seeking D. fair trade

D. fair trade

Which of the following is not a function of government according to Adam Smith? A. military B. courts C. public schools D. hospitals

D. hospitals

The state owns the cornerstone industries of the nation's economy. A. radical capitalism B. classic liberal capitalism C. state capitalism D. social democracy E. centralized socialism F. communism

D. social democracy

The state is both owner and decision maker in all economic matters. A. radical capitalism B. classic liberal capitalism C. state capitalism D. social democracy E. centralized socialism F. communism

E. centralized socialism

Collective ownership and decision making are guided by the mantra "from each according to his ability, to each according to his need." A. radical capitalism B. classic liberal capitalism C. state capitalism D. social democracy E. centralized socialism F. communism

F. communism

True or False: In the late 1600s new economic philosophies began to reshape Western thought.

False

True or False: There is no clear dividing line between capitalism and socialism.

False

What real problem does communism seek to address, and what is its fundamental flaw in doing so? What lesson does this flaw present to advocates of radical capitalism?

It acknowledges that man often uses business to exploits others. Communism's basic flaw in its solution to this problem is the correct assumption that man is basically and will voluntarily seek the good of others. Man's sinful nature should also concern advocates of radical capitalism: a market system regulated solely by individuals' desires will end either in chaos or in rule by a few powerful and ruthless people

What economic system arose in response to mercantilism? What was the core new idea of this approach?

Laissez-faire liberalism. The central new idea was that governments should (within the bounds of morality) leave citizens to conduct their economic affairs in their own best interests.

According to Adam Smith, what was the root problem with mercantilism? Name two adverse results Smith predicted if mercantilism were taken to its logical conclusion.

Mercantilism's root problem was its definition of wealth as money. Smith pointed out that a nation following mercantilism eventually would be barren of resources, full of deprived and angry citizens, and surrounded by enemy nations.

What was the primary criticism of Adam Smith's solution to the economic problem? How did Smith answer that criticism?

Most critics thought that laissez-faire liberalism would create a nation of selfish, greedy, and antisocial people. Smith responded that as long as the government prevented crimes,such as theft and fraud, people would choose to find and meet the needs of others for a profit because doing so would be in their best interest.

From a scriptural point of view, what are the advantages and disadvantages of the socialistic and capitalistic systems?

The Bible clearly supports the principles of private ownership and personal accountability. While capitalism is based on and tends to reinforce these principles,socialism often condemns private ownership and undermines personal accountability for one's actions. Particularly for the latter reason, socialism remains a flawed model for biblical living. On the other hand, though conforming to the aforementioned scriptural principles, capitalism can lead to several pitfalls pointed out in Scripture. First, businessmen can and have used their economic power to mistreat others less fortunate. In addition, the wealth that capitalism brings can be a spiritual stumbling block for people, distracting them from their true source of fulfillment—God. As 1 Timothy 6:10 warns, "For the love of money is the root of all evil: which while some coveted after, they have erred from the faith, and pierced themselves through with many sorrows."

List the two books most foundational to the modern economic systems discussed in the text.

The Wealth of Nations and The Communist Manifesto

List two ways in which critics have deemed centralized socialism inefficient.

Three answers are possible from the text. First, governmental takeover of the tools of production and outlawing of profits destroys incentives to take the risks associated with developing new products. Second, leveling wages ruins incentives for workers to work harder and better. Third, controlling prices leads to shortages and/or a growing black market.

True or False: According to laissez-faire liberalism, free economies are lead by an "invisible hand" that promotes the public interest.

True

True or False: Radical capitalism exists only in theory.

True

True or False: Social democracy is a transitional economic system.

True

What two questions must be answered to decide if an economy is primarily capitalistic or socialistic?

Who owns the nation's factors of production? Who answers the three economic questions?

What is the term for a government's buying all of the nation's major businesses? Should the government later sell these to private stockholders, what process will then occur?

nationalization, privatization