ECO-200: Chapter 1 Test

Which of the following is true regarding the circular-flow diagram?

The simplicity of the circular-flow diagram can still be useful for the purposes of modeling how dollars and resources move throughout an economy.

Refer to the Figure below. Which arrow represents the flow of goods and service bought by households?

B

Which of the following scenario represent a flow from a firm to a household?

Bryan's paycheck of $350 per week for working as a car mechanic

Refer to the Figure. Henry received his first paycheck working as pizza delivery man. To which of the arrows does this transaction contribute?

C and D

Which of the following statements is true

Economics is the study of the choices people make in attempting to manage their scarce resources.

A ruthless dictator has recently taken over the small island of Tokoli's government and is making changes to how the government and economy used to be. One of his first actions is to enforce a command economy so as to control all aspects of the country. As you watch this new dictator's changes, which of these actions would be in line with this new command economy he is creating?

He creates a new government body called the Ministry of Planning which will set wages, prices and production targets to reach each month.

Which of the following statements is NOT TRUE about households in the circular-flow diagram?

Households produce goods and services

What are the reason(s) that explains why specialization increases an an economy's level of production? I. Division of labor II. Economies of Scale III. Scarcity

I. and II.

What are the reason(s) that explains why the division of labor increases an an economy's level of production? I. Specialization II. Economies of Scale III. Scarcity

I. and II.

Which of the following best describes a monetary policy tool? I. Government spending II. Financial capital markets III. Interest rates IV. Bank lending

II, III, and IV

Which on the following is considered a topic in MACROECONOMICS I. The effect of the increase in wages in the retail sector II. The effect of an increase in income tax on government spending III. The effect of rent control on the housing market IV. A student's decision about how to allocate his time between studying two subjects

II. The effect of an increase in income tax on government spending

Which of the following occurs in the factor market?

Jose earns $785 per week working for Benjamin's Ice Cream.

Tangi Tumolo carves and creates beautiful furniture on the island of Kiribati. Each month he takes the furniture to the capital city of South Tawara and sells what he can for the best prices he can. He also takes orders from people each month to build certain furniture indicating what is currently in demand. Each month the prices and products very a bit depending on the demand in the market. Tangi enjoys the ebb and flow of the changing market as it keeps his business interesting and current with demand. Kiribati's government takes a 'hands off' approach with the economy and the market is thriving on its own. Tangi Tumolo lives in what type of economy?

free Market

In a command economy, the __________ either makes most economic decisions itself or at least strongly influences how the decisions are made.

government

In the circular-flow diagram, which of the following does NOT flow from firms to households?

labor

In a _______________________, most economic decisions about what to produce, how to produce it, and for whom to produce it are made by buyers and sellers.

market-oriented economy

If a country has an economy where people can buy and sell freely, but the government sets some price restrictions and regulations then it likely has a________ economy.

mixed market

The main reason households and societies must make many decisions is because

people have unlimited wants but resources are scarce

A fundamental concept in economics is the idea of

scarcity

In the markets for factors of production in the circular-flow diagram, households are _________ and firms are __________.

sellers, buyers

Macroeconomics focuses on which of the following?

unemployment