ECON- smartbook ch.2

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 are found in the product market?

Goods Services

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

Using a combination of labor, capital and technology (More direct methods are often less efficient.)

(BLANK) ownership of capital gives capitalism its name.

private

Which of the following does competition require?

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

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

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

In the circular flow model, the market economy creates..

continuous flows of goods and services, resources, and money

The term "laissez-faire" refers to

limiting the government's interference in the economy.

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

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

economic

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

economic

The market system

effectively harnesses the incentives of workers and entrepreneurs.

*In market economies, firms rarely worry about the availability of inputs to produce their products, whereas in command economies input availability is a constant concern. This is because

in command economies, no market-pricing mechanism exists to incentivize resource suppliers to increase resource availability when a shortage occurs

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

incentive problems. coordination problems.

In a market system, (BLANK) firm are subject to business risk.

owners or entrepreneurs

The emergence of self-driving cars is an example of "creative destruction" because

self-driving cars will likely replace most cars that require drivers.

A business owned and managed by a single person is called a(n) ______.

sole

A (BLANK) proprietorship is a business owned and managed by a single person.

sole proprietorship

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

Ted and Fred are the owners of a gas station. They invested $150,000 each and pay an employee named Lawrence $35,000 per year. This year's revenues are $900,000, while costs are $940,000. Who is legally responsible for bearing the $40,000 loss? #21 and 23 and 24 and 25 not added

ted and fred

The five questions that every society must address reflect the reality of (BLANK) (scarce/infinite) resources in a world of (BLANK) (limited/unlimited) wants.

Blank 1: scarce, limited, or finite Blank 2: unlimited, insatiable, limitless, infinite, or endless

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

How does the market system develop methods for analyzing and managing risk?

By presenting businesses with the economic consequences of their decisions

How does the profit system guide entrepreneurs?

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

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 would be an example of the system accommodating change?

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

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.

a. Self-interest helps achieve society's economic goals because b. b. There is such a wide variety of desired goods and services in a market system because c. What is produced is ultimately determined by

a. as consumers and producers exercise their freedom to act in their own self-interest, markets will produce the desired goods at the lowest possible cost. Correct b. individual wants are diverse c. consumers, because if the goods offered are not what consumers want, consumers will not buy them.

For a market system to maximize its potential, it must develop methods for ______

assessing and managing risk

The two major benefits that arise from the market system's restriction of business risk to owners and investors are

attracting inputs and focusing attention.

In recent years, new MP3 and digital technologies have replaced compact disks. This is an example of ______. Multiple choice question.

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

The market system is also known as ___, while the command system is also known as _____.

capitalism; socialism

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 main mechanism that regulates the market system is

competition.

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 does competition require?

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

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

product market households resource market businesses

True or false: The resource market is the place where resources or the services of households are produced.

False

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

Modern market system

The market system attracts inputs and focuses owners' attention on risk management by restricting business risk to which two groups?

Owners Investors

For a market system to maximize its potential, it must develop methods for ______.

assessing and managing risk

Franklin, John, Henry, and Harry have decided to pool their financial resources and business skills to open and run a new coffee shop. They will share any profits or losses that the business generates and will be personally responsible for making good on any debt that their business undertakes. Their business is a

partnership

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

enterprise

Money complicates exchange or trade.

false

True or False: Households sell finished products to businesses.

false

True or False: Money must be issued by a government for people to accept it.

false

True or false: In a market system, consumers exercise consumer sovereignty, which is crucial in determining the types and quantities of goods purchased.

false

In a _______ system, people act in their own self-interest. Multiple choice question.

market

The meaning of the phrase "invisible hand" is that

market prices coordinate the economy by rationing resources and output and by providing incentives to produce the goods and services most desired by society.

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

Only in a market system do private firms and individuals own most property resources.

society/firms

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

that minimize the cost per unit of output

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

Some large hardware stores, such as Home Depot, boast of carrying as many as 20,000 different products in each store. This volume of goods is the result of

the choice of consumers regarding what to purchase to satisfy their wants and the choice of producers regarding what to produce to maximize profits.

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. Reason: Consider a farmer producing using his bare hands. This would be the most direct method of farming but the least efficient method. There are huge benefits to be derived from creating and using such capital as plows, tractors and storage bins. Reason: Consider a farmer producing using his bare hands. This would be the most direct method of farming but the least efficient method. There are huge benefits to be derived from creating and using such capital as plows, tractors and storage bins.

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 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 occur in the resource market?

Households provide economic resources directly as workers or entrepreneurs. Businesses buy resources from households because they are necessary for producing goods and services. Households sell resources and businesses buy them.

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

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

How does the market system answer the following fundamental question: How will the goods and services be produced? 27 not added

In ways that minimize the cost per unit of output.

Which statements about the profit system are true?

It is actually a profit and loss system. It encourages entrepreneurs to make prudent decisions.

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.

(one word) 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.

Specialization

BLANK) 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.

Specialization

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

a. A woman who wants to start a flower shop finds she cannot do so unless the central government has already decided to allow a flower shop in her area. b.Shops stock and sell the goods their customers want, but the government levies a sales tax on each transaction in order to fund elementary schools, public libraries, and welfare programs for the poor. c. The only taxes levied by the government are to pay for national defense, law enforcement, and a legal system designed to enforce contracts between private citizens.

a. command system b. market system c. laissez-faire system

a. "If you compare a list of today's most powerful and profitable companies with a similar list from 30 years ago, you will see lots of new entries." b. "Managers in the old Soviet Union often sacrificed product quality and variety because they were being awarded bonuses for quantitative, not qualitative, targets." c. "Each day, central planners in the old Soviet Union were tasked with setting 27 million prices—correctly." d. "It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest."

a. creative distruction b.invisible hand c. invisible hand d. invisible hand

a. Barter requires that you... b. The use of money c. Consider the statement: "We want money only to part with it." When people express a desire to have money, they really want

a. find a person who has what you want and a person who needs what you have to offer. b. provides a common value that makes buying and selling transactions simpler than would be the case with barter. c. the goods and services that money can buy.

a. An advantage of using capital in the production process is that it b. The term "division of labor" means that workers c. When an economy relies on specialization,

a. improves efficiency, increases output, and provides for growth. b.specialize in tasks that take advantage of their individual abilities and skills c. trade enables individuals to obtain the goods in which they do not have a specialization.

a. Price ceilings during a hyperinflation are problematic because b. A Venezuelan-style economic collapse would be less likely in a mixed economy like the United States because

a. inflation is always low in a mixed economy b. private industry has strong financial incentives to produce efficiently

a. An institution that brings buyers and sellers together b. The right of private persons and firms to obtain, control, employ, dispose of, and bequeath land, capital, and other property c. The presence in a market of independent buyers and sellers who compete with one another and who are free to enter and exit the market as they each see fit d. The freedom of firms to obtain economic resources, decide what products to produce with those resources, and sell those products in markets of their choice e. What each individual or firm believes is best for itself and seeks to obtain f. Economic transactions willingly undertaken by both the buyer and the seller because each feels that the transaction will make him or her better off g. The freedom of resource owners to dispose of their resources as they think best; of workers to enter any line of work for which they are qualified; and of consumers to spend their incomes in whatever way they feel is most appropriate #15 didnt add

a. maket b. private property c. competition d. freedman of enterprise e. self interest f. mutually agreeable g. freedom of choice

a. In a market system, scarce goods are allocated by b. In a command economy, scarce goods are allocated by

a. market prices that are determined by consumers and producers acting in their own self-interest. b. a government-appointed planning board based on the board's long-term priorities.

a. In the circular flow model, b. In the circular flow model, c. In the goods and services portion of the circular flow model, there is a flow of

a. resource markets provide for the exchange of labor and product markets provide for the exchange of goods and services. b.businesses sell goods and buy labor; households buy goods and sell labor. c.real goods and services and a flow of money.

a. Consider the following statement: "The market system is a profit-and-loss system." This statement is b. Consider the following statement: "Competition is the disciplinarian of the market economy." This statement is

a. true, because producer decisions are motivated by the attempt to earn profits. b.true, because when producers face competition, they are driven to provide goods and services at the lowest possible cost.

suppose Natasha currently makes $50,000 per year working as a manager at a cable TV company. She then develops two possible entrepreneurial business opportunities. In one, she will quit her job to start an organic soap company. In the other, she will try to develop an Internet-based competitor to the local cable company. For the soap-making opportunity, she anticipates annual revenue of $465,000. She estimates the costs for the necessary land, labor, and capital to be $395,000 per year. For the Internet opportunity, she anticipates costs for land, labor, and capital of $3,250,000 per year and revenues of $3,275,000 per year. a. Should she quit her current job to become an entrepreneur? b. If she does quit her job, which opportunity would she pursue?

a.Yes, she should quit her job to become an entrepreneur. b.She would pursue the soap business.

Modern market economies usually have a(n) ______.

active, but limited, government Reason: The role of government is usually limited to establishing the rules by which markets operate, as well as providing civil institutions in which markets are allowed to thrive.

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

the product market is the place where _______.

businesses sell goods and services and households buy goods and services

True or false: Money complicates exchange or trade.

false

in analyzing a market system, economists often assume that firms will choose the production techniques that will give them maximum revenues.

false

In the circular flow model, households sell resources to, and buy products from _____

firms

In the circular flow model, households sell resources to, and buy products from _______.

firms

If economic profits in a particular industry increase, then we would expect

firms to enter that industry, thus expanding it.

Who owns most property resources in a command system?

government

In the circular flow model ______.

households spend their income in the product market

Economic systems differ from one another based on who owns the factors of production and

how economic activities are coordinated and directed.

Refer to the provided figure. If box A represents households, D the resource market, and C businesses, then flow (8) would represent ___, while flow (7) would represent ___.

money income; resources

Specialization in production is economically beneficial primarily because it

permits the production of a larger output with fixed amounts of resources.

What is the coordinating mechanism in a market system?

prices

The market system depends on private property and the protection of property rights to

provide an incentive to maintain the property and allow for the orderly transfer of property ownership.

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

public or social interests

A firm's owners are called ______ because they are only paid after employees, suppliers, and lenders have been paid.

residual claimants

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

In the circular flow model, households ______ resources and ______ products.

sell; buy