unit one practice quizzes
(Consider This) Martha's Milkshake Company buys earthquake insurance from the Stable Ground Insurance Company. Based on this purchase, economists would conclude that
Martha's has a lower tolerance for earthquake risk than Stable Ground.
In a market system, which of the following is a major benefit of making the firm's owners and investors exclusively shoulder the business risk?
This allows firms to more easily attract labor and other suppliers of inputs.
If we say that two variables are inversely related, this means that
an increase in one variable is associated with a decrease in the other.
Economic theories
are generalizations based on hypotheses tested and supported with observed facts
The invisible hand concept suggests that
assuming competition, private and public interests will coincide.
The production technique that is most efficient is the one that produces a given amount of output
at the lowest cost per unit.
"Consumer sovereignty" means that
buyers determine what will be produced based on their "dollar votes" for the goods and services offered by sellers.
Refer to the diagram. Flow 4 represents
consumer expenditures and business revenue.
The advent of Netflix movie streaming and Redbox kiosks renting DVD and Blu-ray movies have virtually demolished the market for video rentals from brick and mortar stores such as Blockbuster. This is an example of
creative destruction.
(Consider This) The economic perspective used in customer decision making at fast-food restaurants is reflected in
customers selecting the shortest line.
If competitive industry Z is making substantial economic profit, output will
expand in industry Z, as more resources will move to that industry.
According to economists, economic self interest:
is a reality that underlies economic behavior.
Answer the question on the basis of the following production possibilities tables for two countries, North Cantina and South Cantina. Refer to the tables. The opportunity cost of the fifth unit of capital goods
is higher in North Cantina than in South Cantina.
The government may not implement policies intended to redistribute income in which of the following economic systems?
laissez-faire capitalism
Answer the question on the basis of the data given in the following production possibilities table.
larger and larger amounts of capital goods must be sacrificed to get additional units of consumer goods.
A typical concave (bowed out from the origin) production possibilities curve implies
that society must choose among various attainable combinations of goods.
A characteristic of centrally planned economies is that
the price is relatively unimportant in allocating resources.
Refer to the diagram. Flow 1 represents
wage, rent, interest, and profit income.
Answer the question on the basis of the data given in the following production possibilities table. Refer to the table. A total output of 3 units of capital goods and 4 units of consumer goods
would involve an inefficient use of the economy's scarce resources.
Which of the following does not illustrate the idea of creative destruction?
A firm has to destroy some of the expired products in its inventory.
The market system's answer to the fundamental question "What will be produced?" is essentially
"Goods and services that are profitable."
One essential trade-off involving business risk in a market system is reflected in which of the following statements? - Access to the firm's profits and gains are open only to those who take on the business risk of the firm. - Those who receive guaranteed payments from the firm are also guaranteed a share of the firm's profits. - Those who make bad decisions regarding risk will suffer losses; those who decide wisely will gain profits. - Those who bear the business risk of the firm are guaranteed to always gain profits.
Access to the firm's profits and gains are open only to those who take on the business risk of the firm.
Why might a company use barter rather than money to make a trade?
Barter can enable two firms to trade when their cash flows are limited.
Which is one of the five fundamental questions that need to be dealt with in any economic system?
How will goods and services be produced?
Answer the question on the basis of the following production possibilities tables for two countries, North Cantina and South Cantina. Refer to the tables. Suppose that resources in North Cantina and South Cantina are identical in quantity and quality. We can conclude that
North Cantina has better technology than South Cantina in producing consumer goods but not capital goods.
Which of the following statements about self-interest in a market system is false?
Self-interest applies only to capitalists and entrepreneurs, not to workers employed by others.
The economic perspective entails
a comparison of marginal benefits and marginal costs in decision making
Which of the following is a labor resource?
a computer programmer
Which of the following lists includes only capital resources (and therefore no labor or land resources)? - an ice arena, a professional hockey player, hockey uniforms - the owner of a new start-up firm, a chemistry lab, a researcher - a hydroelectric dam, water behind the dam, power lines - autos owned by a car rental firm, computers at the car rental agency, vans used to shuttle rental customers to and from the airport
autos owned by a car rental firm, computers at the car rental agency, vans used to shuttle rental customers to and from the airport
A person should consume more of something when its marginal
benefit exceeds its marginal cost
Refer to the diagram. The variables X and Y are
directly related
An increase in the demand for a product and a reduction in its costs of production would
encourage firms to enter an industry.
The competitive market system
encourages innovation because successful innovators are rewarded with economic profits.
A positive statement is one that
focuses on facts, descriptions, and theoretical relationships
The market system is an economic system that
gives private individuals the right to own resources used in production.
The term "laissez-faire" suggests that
government should not interfere with the operation of the economy.
In the circular flow diagram, households get their ability to pay for their consumption expenditures from the
incomes they earn for their resources.
Given the information, and assuming trade occurs between the three states, we can expect
money to flow counter-clockwise from Michigan to Texas to Washington.
Joe sold gold coins for $1,000 that he bought a year ago for $1,000. He says, "At least I didn't lose any money on my financial investment." His economist friend points out that in effect he did lose money because he could have received a 3 percent return on the $1,000 if he had bought a bank certificate of deposit instead of the coins. The economist's analysis in this case incorporates the idea of
opportunity costs
The simple circular flow model shows that workers and capital owners offer their services to firms through the
resource markets.
The economic function of profits and losses is to
signal that resources should be reallocated.
The economies of North Korea and Cuba are
similar in that they are both basically command systems.
Macroeconomics can best be described as the
study of the large aggregates of the economy or the economy as a whole.
Risk management in command economies
tends to be done poorly because decision makers are insulated from the risk of making a poor decision.
The circular flow model illustrates
the interdependence of businesses and consumers.
Which of the following would be primarily determined in the resource markets?
the wage rates for computer programmers and engineers
Refer to the diagram. The combination of computers and bicycles shown by point G is
unattainable given currently available resources and technology.