Chapter 2 Economics Test

When parties trade willingly and without coercion, this is referred to as a ________.

voluntary transaction

Which of the following is NOT true about the U.S. economy?

Consumers have limited choices of goods and services.

In a market economy, the prices of goods and services are kept fixed. T/F

False

In the U.S. economy, individuals make all the decisions about their properties and businesses. T/F

False

Capitalism is associated with all the following characteristics EXCEPT___________.

government intervention in the economy's decision-making process

Which group of people ultimately determine the products that a command economy produces?

government officials

Which of the following characteristics does NOT belong to a market economy?

government price setting

Characteristics of Capitalism

individual freedom, limited government interference, unequal distribution of wealth

Which of the following advantages does NOT belong to a market economy?

less unemployment

What are the six important characteristics of free enterprise?

limited role of the government, freedom of enterprise, freedom of choice, profit incentives, competition, and private property

Private property

whatever is owned by individuals rather than by government

Economic efficiency

wise use of available resources so as to obtain the greatest benefits possible

Which of the following is not an example of capital that can be used to produce motorcycles?

workers

Who did Karl Marx believe should control the means of production in an economy?

He believed that the workers should control an economy's means of production

Explain how running shoes are produced in market economy and in a command system. Be sure to indicate the kind of shoes you believe each system would produce.

In a market economy, producers make production decisions and individual consumers make purchases decisions . Producers that offer products that do not appeal to customers go out of business. In a command economy, the government makes decisions about what kind of shoes to produce. It may not have a good sense of what consumers want and generally end up producing products of poor quality that people don't want to buy.

What are the differences between democratic socialism and authoritarian socialism

In democratic socialism, the government controls only part of the factors of production. There is a constitution framework, and the people elect socialist to office. In authoritarian socialism, a central government controls the entire economy. Authoritarian socialist support revolution to overthrow capitalism.

What are the two examples of individuals' economics responsibilities in a free-enterprise system?

to support oneself and one's family and to elect responsible government officials.

In the market economy, the basic economic decisions are driven by_________.

Individuals

What is the main message of Adam Smith's 1776 publication 'An Inquiry into the Nature and Causes of the Wealth of Nations'?

Individuals acting in their own interest will create an economic system that is efficient. The book is important today because it defines the basis for a free-enterprise system in which the role of the government in minimal.

Why is private property important in the American economic system?

Individuals and groups use private property to make economic decisions and seek prosperity driving the economy

Which of the following characteristics does NOT describe the features of a command economy?

Individuals can decide what to produce and how much to produce.

In which of the following situations is private ownership not guaranteed?

Jane's business was closed because the government wanted to reduce competition with a state-owned-businesses.

Characteristics of Democratic Socialism

Revolution through electing socialist into office; government controls part of the economy; wealth supposed to be distributed equally

Characteristics of a Authoritarian Socailism

Revolution; central government controls the entire economy; wealth supposed to be distributed equally.

What is the government's role in the modern American version of capitalism?

The U.S. government allows people and business to make many economic decisions without interference, but it does legislate limits.

Infant Mortality rate

The infant mortality rate is the number of infant deaths for every 1,000 live births. In addition to giving us key information about maternal and infant health, the infant mortality rate is an important marker of the overall health of a society.

Which type of economic system do you think is the most effective in promoting economic growth?

The market system is the best at promoting economic growth because the standard of living in market economic is higher than in most command economies.

Which of the following statements is NOT true about Chinese market reforms?

They turned the whole Chinese economy into a market economy.

In a command economy, the price of goods and services is determined by the government. T/F

True

People tend to work harder when an employer promises to increase their wages. The hard work is an effect of the incentive provided by the employer. T/F

True

The Chinese agricultural reform increased farmers' incentives by allowing them to profit from the surplus production of their leased land. Consequently, farmers began to produce more from their land. T/F

True

The Three Economic Questions

What will be produced? How will it be produced? For whom will it be produced?

Which of following choices is NOT one of the three basic economic questions?

When should the goods and services be produced?

Which of the following is NOT an example of a voluntary exchange?

Your neighbor borrows your bicycle without asking.

Which of the following combinations include only serivces?

a computer training course, a concert, and a massage

Which of the following situations is most likely to be a topic in macroeconomics?

a decrease in the national unemployment rate

Socialism

a system in which the government own the major factors of production and attempts to merge output and the distribution of goods

Which of the following examples reflects a profit-seeking behavior?

all of the above/ a worker pursuing better working conditions; a company seeking ways to increase sales; customers looking for higher levels of satisfaction.

Profit

amount of money a business subtracts its costs from its revenues

How does a traditional economy answer the question: "How should it be produced?"

by doing things the way they have always been done

According to the "invisible hand" theory, how can self-interest benefit society?

by frequently producing what consumers want

Adam Smith

considered the father of modern economics. Published book know An Inquiry into the Nature and Causes of the Wealth of Nations

Profit incentive

desire to make money that motivates people to provide and sell goods and services

Circular flow of income and output

economic model that pictures income as flowing continuously between businesses and consumers

Capitalism

economic system in which private individuals own the factors of production

Laissez-faire

economic system in which the government minimizes its interference with the economy

Which choice is not a factor of production?

energy resources

Economic growth

expansion of the economy to produce more goods, jobs, and wealth

What are the six goals of free enterprise?

freedom, efficiency, equity, security, stability, and growth.

What is the typical distribution used with manufactured goods?

producer -- wholesaler -- stores -- customers

Which of the following choices are the three main processes studied in economics?

production, distribution, and consumption

Competition

rivalry among producers or sellers of similar goods and services to win more business

No one person needs to know how to construct a car in its entirety because of __________.

specialization

Mixed economy

system combining characteristics of more than one type of economy

Traditional economy

system in which economic decisions are based on customs and beliefs that have been handed down from generation to generation

Market economy

system in which individuals own the factors of production and make economics decisions through free interaction while looking out for their own and their families' best interests

Command economy

system in which the government controls the factors of production and makes all decisions about their use

Authoritarian Socialism

system that supports revolution as a mean to overthrow capitalism and bring about socialist goals; the entire economy is controlled by a central government, also communism

Democratic Socialism

system that works within the constitutional framework of a nation to elect socialist to office; the government usually controls only some areas of the economy

Proletariat

term Karl Marx used to refer to workers

Communism

term used by Karl Marx for his idealized society in which no government is necessary

Dollar vote

the act of purchasing goods and services is actually a vote in favor of the goods and services that were purchased

Economics equity

the attempt to balance an economic policy so that everyone benefits fairly

Standard of living

the material well-being of an individual, group, or nation measured by how well their necessities and luxuries are satisfied

Entrepreneurs are motivated to invest due to _________.

the potential for capital gain

Outsourcing

the practice of having certain jobs functions done outside a company instead of having an in-house department or employee handle them; functions can be outsourced to either a company or an individual. This practice also applies to companies having products made in foreign countries with lower labor costs.

Market

the process of freely exchanging goods and services between buyers and sellers