Econ ch 2

How does the profit system guide entrepreneurs?

1)By punishing them with losses when they choose poorly 2)By rewarding them with profits when they choose wisely

Choose those characteristics that best describe a command system.

A central planning board makes all economic decisions concerning resources . The government owns most property resources.

Which of the following is characterized by the private ownership of resources and the use of markets to coordinate and direct economic activity?

A market system

Which of the following describe the concept of laissez-faire?

A market system in which the role of government is limited to protecting private property A market system in which only mutually beneficial economic transactions are completed

Which of the following is true of a market system?

A market system is a combination of centralized government initiatives and decentralized actions taken by firms.

Which of the following would be an example of the system accommodating change?

Buyers want more juice and less milk. Producers increase spending only on juice.

Which of the following best describe how goods and services should be produced?

By locating production facilities optimally to hold down production and transportation expenses By utilizing the right mix of labor and capital

Which of the following collectively direct resources to industries that are meeting consumer wants and away from industries that are not meeting consumer wants?

Consumer sovereignty Dollar votes

Which of the following were economic problems faced by the former Soviet Union, Eastern Europe, and China prior to its market reforms?

Coordination problem Incentive problem

Which of the following is the reason why every society needs to develop an economic system?

Every society faces the economizing problem.

Which of the following 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

Which characteristics define a command system?

Government ownership of most or all resources A government-appointed central planning board

Identify the five fundamental questions that all economies, whether market or command, must address

How will the system promote progress? How will the system accommodate change? How will the goods and services be produced? What goods and services will be produced? Who will get the goods and services?

An active, but limited, government is characteristic of which type of economic system in modern advanced industrial economies?

Modern market system

If increasing numbers of consumers decide to purchase organically farmed fruit rather than conventionally farmed fruit, how is the market likely to respond?

Organic fruit profits will rise. Conventional fruit profits will fall.

______ ownership of capital gives capitalism its name.

Private

is the use of resources by an individual, firm, region, or nation to produce one or a few goods or services rather than the entire range of goods and services.

Specialize

Which of the following allow private individuals and businesses to utilize property as they wish? (Check all that apply.)

The ability to negotiate legally binding contracts The right of private property

Which of the following statements describe who will get the goods and services produced in a market economy?

Those who are willing and able to pay for the goods and services Those who have sufficient income and want to spend money on a particular good

Which of the following does competition require?

Two or more buyers and two or more sellers acting independently in a particular market Freedom of sellers and buyers to enter or leave markets

Which of the following is the most efficient method of production?

Using a combination of labor, capital and technology

Modern market economies usually have a

active, but limited, government

Technological advancements, such as the personal computer and medical discoveries, are primarily driven by the profit motive. However, such advancements eventually promote the public or social interest as though they are guided by

an invisible hand

Two or more buyers and two or more sellers acting independently in a particular product market with the freedom to enter and leave the market best describes ______.

competition

The creation of new products and production methods that completely destroys the market positions of firms that are wedded to existing products and older ways of doing business is called

creative destruction

The creation of new products and production methods that completely destroys the market positions of firms that are wedded to existing products and older ways of doing business is called _____.

creative destruction

n recent years, new MP3 and digital technologies have replaced compact disks. This is an example of

creative destruction

A(n) ______ system is a particular set of institutional arrangements and a coordinating mechanism that responds to the economizing problem.

economic

Freedom of ensures that entrepreneurs and private businesses are free to obtain and use economic resources to produce their choice of goods and services.

enterprise

In the circular flow model

households spend their income in the product market

The command economies of the former Soviet Union and of Eastern Europe failed due to:

incentive problems. coordination problems.

The term "laissez-faire" refers to

limiting the government's interference in the economy.

Under the market system, ______ coordinate the decisions made by households and businesses.

markets and prices

Money performs several functions, but first and foremost it is a

medium of exchange

What is the coordinating mechanism in a market system?

prices

The "invisible hand" guides firms and resource suppliers to promote ______ even as they seek to further their own interests.

public or social interests

Which of the following are components of the circular flow model?

resource market households businesses product market

When every economic unit in a society attempts to achieve its own particular goal, usually requiring delivering something of value to others, it is referred to as ______.

self-interest

The goods and services produced by an economic unit through ______ can be exchanged for a full range of desired products produced by other economic units.

specialization

Goods and services are produced efficiently when production is organized in combinations and ways

that minimize the cost per unit of output

Goods and services are produced efficiently when production is organized in combinations and ways ______.

that minimize the cost per unit of output

Advanced technology and capital goods are important because

the new technology can enhance the productivity of workers the most direct methods of producing a good or service are often the least efficient.

In a market economy, goods and services are distributed

to consumers on the basis of their ability and willingness to pay the existing market price

In a market economy, goods and services are distributed ______.

to consumers on the basis of their ability and willingness to pay the existing market price