Macroeconomics Ch. 2 Test
technological and medical advancements are profit driven but these advancements eventually promote public or social interest as though they are guided by an __________.
"invisible hand"
pure capitalism known as
"laissez-faire capitalism"
2 benefits of the market system restriction of businesses risk to owners and investors are
- attracting inputs - focusing attention
all of the following are made possible by private property rights in a market system
- exchange - maintenance of property - economic growth - innovation - investment
command system
1. a government appointed central planning board 2. government ownership of most of all resources.
the product market:
1. businesses determine whether a good or service should continue to be produced 2. consumer spending on goods and services yields sales revenue for businesses 3. goods and services produced are bought and sold 4. households use income received from the sale of resources to buy goods and services
which of the following best describe how goods and services can be produced?
1. by utilizing the right mix of labor and capital 2. by locating production facilities optimally to hold down production and transportation expenses
freedom of entry allows the economy to adjust to changes in
1. consumer taste 2. resource availability 3. technology
intellectual property is an extension of property rights through
1. copyrights 2. patents 3. trademarks
3 virtues of the market system:
1. efficiency 2. incentives 3. freedom
competition
1. freedom of buyers and sellers to enter or leave a market 2. two or more buyers and two or more sellers acting independently
the role of government in the US's form of capitalism.
1. provides rules for the economy 2. provides certain goods and services that would otherwise not be produced 3. modifies the distribution of income 4. promotes economic stability and growth
specialization
1. saves time 2. makes use of differences in ability 3. fosters learning by doing
the 3 categories into which businesses fall are:
1. sole proprietorship 2. partnership 3. corporation
five fundamental questions that all economies whether market or command must address
1. what goods and services will be produced? 2. how will the goods and services be produced? 3. who will get the goods and services? 4. How will the system accommodate change? 5. how will the system promote progress?
income effect
a change in your income will make a change in your consumption
Money performs several functions, but first and foremost it is
a medium of exchange
Modern advanced industrial economies usually have an
active, but limited government
_______ will buy resources form and sell products to households.
businesses
the ________ system is also known as socialism or communism
command
which of the following best serves as the regulatory mechanism of the market system
competition
in a market system consumers exercise
consumer sovereignty
the command economies of the former Soviet Union and of the eastern Europe failed due to
coordination and incentive problems
the creation of new products and production methods completely destroys the market positions of firms that are wedded to existing products and older ways of doing business
creative destruction
_______ is the human specialization of some process.
division of labor
an _____________ intends to address what goods and services are to be produced, how they are to be produced, who gets what is produced, how to accommodate change and how to promote technological progress.
economic system
consequences of property rights
encourage by ensuring that only mutually agreeable economic transactions take place
the command economies of the former Soviet Union lacked
entrepreneurship
private individuals and firms, not the government own most of the property resources such as land and capital in a ___________.
free market system
________ 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 market system thrives on
freedom of enterprise and choice
command system:
government control laissez-faire market controls economy
in the circular flow model:
households spend income into product market
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
an institution or mechanism that brings buyers and sellers into contact
market
in a _______________ people act in their own self-interest.
market system
under the market system, _____ and _____ coordinate the decisions made by households and businesses
markets and prices
the use of _____ in market systems facilitates the exchange of goods and services that specialization occurs/requires.
money
what is the coordinating mechanism in a market system?
prices
the interaction between buyers and sellers in a market system determine:
product and resource prices
the price for a new item would be determined in the ______ _______.
product market
______________ facilitate exchange and enable people to use resources to produce more goods and services.
property rights
the barter system:
requires a coincidence of wants between the buyer and seller
land and labor are sold in the _________ market.
resource
profits and losses equal the total __________ form the sale and the total ________ of production.
revenue; cost
households ______ resources and ____ products.
sell;buy
the goods and services produced by an economic unit through ________ can be exchanged for a full range of desired products by other economic units.
specialization
law of supply
the higher the price the more the supplier will supply
law of demand
the lower the price the higher the demand the higher the price the lower the demand
____________ coupled with freedom to negotiate binding legal contracts, enables individuals and businesses to obtain, use, and dispose of property resources as they see fit.
the right of private property
Adam Smith
wrote a book called "The Wealth of Nations"
demand
you are willing and able to purchase a product