ECON - Chapter 2

58. The diagram shows money flowing to the government from firms and households in a mixed economy. How would you label points a and c on the diagram? a. labor b. taxes c. government-owned factors d. government purchases

b. taxes

27. Which of the following might a government provide as part of a safety net for the people? a. general elections every four years b. unemployment compensation c. a strong military defense d. regulation of commerce

b. unemployment compensation

63. The United States government intervenes in the economy in order to a. provide competition for private firms. b. impose barriers on foreign trade. c. promote the general welfare. d. protect laissez-faire.

c. promote the general welfare.

32. An economy in which all the boys become farmers when they are adults, just as their fathers and grandfathers did, would be an example of a a. free market economy b. command economy c. traditional economy d. centrally planned economy

c. traditional economy

a political system in which the government owns and controls all resources and means of production and makes all economic decisions

communism

the struggle among producers for the dollars of consumers

competition

23. The fact that consumers have the power to decide what gets produced is called _______.

consumer sovereignty

the power of consumers to decide what gets produced

consumer sovereignty

49. How did heavy industry in the Soviet Union avoid the competition that drives a free market economy? a. The government discouraged competition by determining prices, wages, and products. b. The government used profit as an incentive to entrepreneurs. c. Farms were not in direct competition with heavy industry. d. The government banned the production of consumer goods.

a. The government discouraged competition by determining prices, wages, and products.

39. How will consumers react to the incentive of a higher price on a good or service? a. The negative incentive will cause consumers to purchase less of the good or service. b. The positive incentive will cause consumers to purchase less of the good or service. c. The negative incentive will cause consumers to purchase more of the good or service. d. The positive incentive will cause consumers to purchase more of the good or service.

a. The negative incentive will cause consumers to purchase less of the good or service.

36. On which arrow(s) would weekly grocery shopping fall? a. a and b b. a c. c d. a and d

a. a and b

48. A person who believes that wealth should be evenly distributed throughout society is a. a socialist. b. a communist. c. a capitalist. d. an entrepreneur.

a. a socialist.

25. Each society answers the three basic economic questions based on a. its unique combination of values and goals. b. the number of factor payments. c. its degree of economic growth. d. the desire to achieve economic freedom

a. its unique combination of values and goals.

54. Which of the following might be a positive aspect of centrally planned economies? a. low unemployment due to guaranteed jobs b. high levels of consumer satsfaction c. quick adjustment to changing conditions d. incentives for workers to be innovative

a. low unemployment due to guaranteed jobs

42. Which of the following is the main incentive for a manufacturer to sell a product? a. making profits on sales b. putting others out of business c. pleasing the consumer d. helping the economy grow

a. making profits on sales

59. Which of the following would be part of the flow indicated by the arrow labeled "b"? a. smoke alarms for senators' offices b. Secret Service salaries c. import taxes paid by foreign firms d. Social Security check

a. smoke alarms for senators' offices

47. A socialist society has a more flexible command economy than a communist society because a. some free market practices can combine with central economic planning. b. the central government has all economic and political power. c. an authoritarian government controls the economy. d. the centers of economic power are all under private control.

a. some free market practices can combine with central economic planning.

describes a form of government that limits individual freedoms and requires strict obedience from citizens

authoritarian

56. Which of the following philosophers argued that a free market would regulate itself with little government involvement? a. Karl Marx b. Adam Smith c. Vladimir Lenin d. Friedrich Engels

b. Adam Smith

41. Why are free market economies able to attain economic growth? a. Consumers can purchase all the goods they need, which causes firms to produce more. b. Competition encourages innovation, which causes growth. c. Everyone is acting in their own self-interest, which motivates market growth. d. Firms keep producing incentives to encourage households to purchase more goods.

b. Competition encourages innovation, which causes growth.

44. What does the expression "the customer is king" mean in a free market economy? a. In a service economy, the customer is always right. b. Customers have the power to decide what gets produced. c. People with the most money are treated like royalty. d. Producers of goods are also customers.

b. Customers have the power to decide what gets produced.

26. The ways in which factors of production are combined determines the answer to which economic question? a. What will be produced? b. How will goods be produced? c. Who will consume goods? d. How can we provide a safety net?

b. How will goods be produced?

34. What does the process of specialization do for an economy? a. It eliminates unemployment. b. It makes production more efficient. c. It fosters competition. d. It makes labor easier to control.

b. It makes production more efficient.

51. How is the economic system in China today different from the one in Soviet Russia? a. The Chinese government owns firms in major industries. b. The Chinese government allows far more economic freedom. c. The Chinese government is socialist, rather than communist. d. The Chinese government is not authoritarian.

b. The Chinese government allows far more economic freedom.

45. Which of the following is characteristic of a centrally planned economy? a. The central government enforces laissez-faire policies. b. The central government makes all economic decisions. c. The central government lets factories set their own goals. d. The central government allows the market to set wages for jobs

b. The central government makes all economic decisions.

60. In which of the following lists of mixed economies does the free market system dominate? a. France, Canada, South Africa, United Kingdom b. United States, United Kingdom, Singapore, Hong Kong c. Cuba, Greece, China, United States d. Russia, Peru, France, Canada

b. United States, United Kingdom, Singapore, Hong Kong

29. To improve its standard of living, a nation's economy must a. remain stable. b. grow through innovation. c. reach economic equity. d. allow the central government to make economic decisions

b. grow through innovation.

35. Who owns the factors of production? a. individuals b. households c. firms d. the market

b. households

37. Which of the following best describes the physical flow from households to firms shown in the diagram ? a. interest and profits b. labor and land c. goods and services d. wages and salaries

b. labor and land

62. The main difference between the economies of China and North Korea is that a. North Korea does not have a centrally-planned economy. b. North Korea has begun to introduce free market practices. c. China is privatizing state-run businesses. d. China does not allow ownership of private property.

c. China is privatizing state-run businesses.

33. Why do people need to buy and sell products or services? a. People need to buy and sell products to make a profit. b. We need to maintain a competitive society. c. No one is self-sufficient. d. People need to provide the market with goods and services.

c. No one is self-sufficient.

55. What might be a hardship for citizens of a centrally planned economy making a transition to a free market economy? a. Farmers would have to grow the crops that the government instructed them to. b. Only poor quality goods would become available to consumers. c. Workers would lose job security and guaranteed incomes. d. Entrepreneurs would have fewer opportunities to start new businesses.

c. Workers would lose job security and guaranteed incomes.

46. In what kind of an economy does the government make all the decisions? a. mixed b. laissez-faire c. centrally planned d. free enterprise

c. centrally planned

53. What two systems were linked in the Soviet Union and China? a. the free market and capitalism b. socialism and democracy c. communism and central planning d. traditional economy and authoritarianism

c. communism and central planning

57. Government intervention in a modern economy is useful because a. the needs and wants of a modern society are always met by the marketplace. b. the marketplace has many incentives to create public works such as parks. c. governments are more able to meet some needs and wants of modern society. d. free market principles do not encourage growth.

c. governments are more able to meet some needs and wants of modern society.

52. How could the Chinese economy be characterized? a. free market b. centrally planned c. mixed, but more centrally planned d. mixed, but more like a free market

c. mixed, but more centrally planned

an economic system in which the government makes all decisions on the three key economic questions

centrally planned ecnomy

another name for a centrally planned economy

command economy

43. What is one of the most important advantages of a free market? a. It distributes goods equally. b. It protects the less fortunate. c. It is easy to regulate. d. It encourages growth

d. It encourages growth

31. Which of the following is a characteristic of a traditional economy? a. It encourages innovation and change. b. It is usually based on light industrial production. c. It has a high standard of living. d. It revolves around the family unit.

d. It revolves around the family unit.

50. Why might the Soviet planners have favored heavy industry over the makers of consumer goods? a. The products of heavy industry brought in more money. b. There were more people trained to work in heavy industry. c. Consumer goods are not good economic investments. d. The products of heavy industry provide material for many other industries.

d. The products of heavy industry provide material for many other industries.

24. Which of the following is a summary of the three key economic questions? a. Who will buy which goods and services, and how much will they pay? b. How, when, and from whom should comsumers get what they want? c. When, where, and by whom should goods and services be produced? d. What goods and services should be produced, how, and for whom?

d. What goods and services should be produced, how, and for whom?

61. The United States economy is a mixed economy a. based on a traditional economy, but allowing some government intervention. b. based on a centrally planned economy, but limiting government intervention. c. based on a free market, allowing no government intervention. d. based on a free market, but allowing some government intervention

d. based on a free market, but allowing some government intervention

40. What "invisible hand" regulates the free market economy? a. incentive and efficiency b. specialization c. competition between firms d. competition and self-interest

d. competition and self-interest

28. A town votes to raise taxes on its households and businesses in order to renovate a school in one of its poorest neighborhoods. What societal goal best explains rhis decision? a. freedom b. efficiency c. growth d. equity

d. equity

64. Which of the following best describes the economy of the United States? a. free market b. centrally planned c. mixed, but more centrally planned d. mixed, but more like a free market

d. mixed, but more like a free market

30. Traditional economies are usually a. small, close communities that welcome change and new technology. b. large, widespread communities that welcome change and new technology. c. large, widespread communities that are able to deal effectively with environmental disaster. d. small, close communities that avoid change and new technology

d. small, close communities that avoid change and new technology

38. What is the product market? a. the market in which income is received for supplying land, labor, or capital b. the market in which governments collect taxes from firms and consumers c. the market in which firms purchase the factors of production from households d. the market in which households purchase the goods and services that firms produce

d. the market in which households purchase the goods and services that firms produce

the structure of methods and principles that a society uses to produce and distribute goods and services

economic system

a period of change in which a nation moves from one economic system to another

economic transition

20. The arena of exchange where firms purchase factors of production is called the _______.

factor market

the arena of exchange in which firms purchase the factors of production from households

factor market

the income people receive in return for supplying factors of production

factor payment

an organization that uses resources to produce a product or service, which it then sells

firm

an economic system characterized by private or corporate ownership of capital goods

free enterprise system

an economic system in which decisions are decided on three key economic questions are based on voluntary exchange in markets

free market economy

a person or group of people living in a single residence

household

22. The hope of reward that encourages a person to behave in a certain way is a(n) _______.

incentive

the hope of reward or fear of penalty the encourages a person to behave a certain way

incentive

the process of bringing new methods, products, or ideas to use

innovation

a term coined by Adam Smith to describe the self-regulating nature of the marketplace

invisible hand

the doctrine that government generally should not intervene in the marketplace

laissez fair

19. An arrangement that allows buyers and sellers to exchange things is a(n) _______.

market

any arrangement that allows buyers and sellers to exchange things

market

a market-based economic system in which the government is involved to some extent

mixed economy

property that is owned by individual companies, not by the government or the people as a whole

private property

the process of selling businesses or services operated by the government to individual investors, and then allowing them to compete in the marketplace

privatization

a range of economic and political systems based on the belief that wealth should be distributed evenly throughout a society

socialism

the arena of exchange in which households purchase goods and services from the firms

product market

the amount of money a business receives in excess for its expenses

profit

a set of government programs that protect people who face unfavorable economic conditions

safety net

21. An individual's own personal gain is _______.

self-interest

an individual's own personal gain

self-interest

the concentration of the productive efforts of individuals and businesses on a limited number of activites

specialization

level of economic prosperity

standard of living

an economic system that relies on habit, custom, or ritual to decide the three economic questions

traditional economy