Problem Set 2

1) The use of money contributes to economic efficiency because A) it promotes specialization by overcoming the problems with barter. B) governmental direction of the production and distribution of output can be avoided by using money. C) it is necessary for the creation of capital goods. D) roundabout production could not occur without the availability of money.

A) it promotes specialization by overcoming the problems with barter

16) Which is an example of barter? A) a gift of tuition money from parents to their children B) A person trades a desk for a box of tools. C) A person buys clothes at a used clothing store. D) the purchase of stock on the New York Stock Exchange

B) A person trades a desk for a box of tools

3) In the circular flow model of the market system, households' major role is to A) sell products and buy resources. B) buy products and sell resources. C) sell both products and resources. D) buy both products and resources.

B) buy products and sell resources

12) "Consumer sovereignty" refers to the

B) idea that the decisions of producers must ultimately conform to consumer demands

13) Copyrights, Patents, and trademarks are examples of A) public goods. B) property rights. C) capital goods. D) human capital.

B) property rights

10) Which of the following is assumed to be most limited in scope under a market system? A) specialization B) self-interest C) government D) entrepreneurship

C) government

8) In a command economy like the old Soviet Union, one is able to improve one's lot and get ahead in society largely through A) getting high prices for one's products and resources. B) innovation and profits. C) participating in the political hierarchy. D) entrepreneurship and risk-taking.

C) participating in the political hierarchy

18) Competition is more likely to exist when A) a government-issued license is required to set up a firm in an industry. B) economic power is concentrated among a few large firms. C) there is easy entry into and exit out of industries. D) the government purchases most goods and services.

C) there is easy entry into and exit out of industries

17) In a capitalist system, the decisions and actions of millions of consumers and firms are highly coordinated by A) the state and government. B) markets and prices. C) an international organization. D) a central planning agency.

D) a central planning agency

6) Specialization is beneficial A) at the individual firm level, but not at the national and international levels. B) only if there are differences in the abilities of resources. C) only as long as money and capital goods are employed. D) at the individual, regional, and even international levels.

D) at the individual, regional, and even international levels

4) The money income of households consists of all the following, except A) wages. B) interest. C) profits. D) revenues.

D) revenues

7) The incentive problem under communist central planning refers to the idea that A) planners had to direct required inputs to each enterprise. B) exports had to be equal to imports for a central plan to work. C) the immediate effect of more investment was less consumption. D) workers, managers, and entrepreneurs could not personally gain by responding to shortages or surpluses or by introducing new and improved products.

D) workers, managers, and entrepreneurs could not personally gain by responding to shortages or surpluses or by introducing new and improved products

2) The main mechanism that regulates the market system is A) competition. B) self-interest. C) freedom of enterprise and choice. D) private property.

A) competition

9) If a nation restricts trade with other nations, then the most likely effect is: A) consumers in the nation are made worse off. B) expanded economic wealth of the nation. C) increased specialization of production. D) lower prices of goods and services in the nation.

A) consumers in the nation are made worse off

5) The market system's answer to the fundamental question "How will the goods and services be produced?" is essentially and services be produced?" is essentially A) "By exploiting labor." B) "In ways that minimize the cost per unit of output." C) "Using the latest technology." D) "With as much machinery as possible."

B) "In ways that minimize the cost per unit of output"

15) (Consider This) Martha's Milkshake Company buys earthquake insurance from the Stable Ground Insurance Company. Based on this purchase, economists would conclude that A) Martha's has a greater tolerance for earthquake risk than Stable Ground. B) Martha's has a lower tolerance for earthquake risk than Stable Ground. C) Stable Ground believes no damaging earthquakes will occur. D) Martha's believes a damaging earthquake is imminent.

B) Martha's has a lower tolerance for earthquake risk than Stable Ground.

20) One major element of the command system is A) an emphasis on private ownership of resources. B) central planning conducted by the government. C) reliance on supply-and-demand forces to guide economic activity. D) individual decentralized decision making.

B) central planning conducted by the government

11) 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: A) the difference between normal and economic profits. B) creative destruction. C) capital accumulation. D) derived demand.

B) creative destruction

19) The "coincidence of wants" problem associated with barter refers to the fact that A) buyers in resource markets and sellers in product markets can never engage in exchange. B) for exchange to occur, each seller must have a product that some buyer wants. C) specialization is restricted by the size or scope of a market. D) money must be used as a medium of exchange or trade will never occur.

B) for exchange to occur, each seller must have a product that some buyer wants

12) "Consumer sovereignty" refers to the A) idea that the pursuit of self-interest is in the public interest. B) idea that the decisions of producers must ultimately conform to consumer demands. C) fact that a federal agency exists to protect consumers from harmful and defective products. D) fact that resource prices are higher than product prices in capitalistic economies. # End of Angela's section of questions.

B) idea that the decisions of producers must ultimately conform to consumer demands

14) Laissez-faire capitalism is characterized by A) individuals and firms abiding by a government economic plan. B) the economic system of the United States today. C) very limited government role in the economy. D) active government intervention in the economy.

C) very limited government role in the economy.