Econ 202 Ch 2

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

- how will the goods and services be produced? -what goods and services will be produced? -how will the system accommodate change? -how will the system promote progress? -who will get the goods and services

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 profit system guide entrepreneurs?

-by punishing them with losses when they choose poorly -by rewarding them with profits when they choose wisely

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

-coordination problems -incentive problems

Which of the following occur in the resource market?

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

Identify the three virtues of the market system.

-incentives -freedom -efficiency

Which of the following does competition imply?

-it enables the economy to adjust to changes in consumer tastes, technology, and resource availability -it provides the economy with the flexibility needed to remain efficient over time -no insurmountable barriers prevent an industry from expanding or contracting

Which statements about the profit system are true?

-it is actually a profit and loss system -it encourages entrepreneurs to make prudent decisions

Which of the following describes a technological advancement?

-new and improved methods that reduce production and/or distribution costs -the ability to produce better products and processes to replace inferior ones -the ability of a firm or entrepreneur to gain revenue and economic profit at the expense of rivals by introducing a popular new product

Which of the following functions can a corporation do on its own behalf?

-own assets -sue others -incur debts -acquire resources

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

-owners -investors

Which of the following are true of the partnership form of business organization?

-partners share profits and losses -partners pool financial resources and business skills

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

-resource market -product market -businesses -households

Human specialization or division of labor contributes to a society's output in which of the following ways?

-specialization saves time -specialization fosters learning by doing -specialization makes use of differences in ability

Which of the following best describe the virtue of efficiency?

-the market encourages the development and adoption of new and more efficient production techniques -the market system promotes the efficient use of resources by guiding them into the production of the goods and services most wanted by society

Which of the following correctly states why advanced technology and capital goods are important?

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

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

The operation of ? creates a curious unity between private interests and social interests.

a market system

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 the 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

Modern market economies usually have a(n) ?

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

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

Which of the following requires a coincidence of wants between a buyer and a seller?

barter

The product market is the place where ?

businesses sell goods and services and households buy goods and services

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

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

by presenting businesses with the economic consequences of their decisions

The basis of competition is freedom of ? exercised in the pursuit of ?

choice; money

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

In the circular flow model, the market economy creates ?

continuous flow of goods and services, resources, and money

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

conventional fruit profits will fall, organic fruit profits will rise

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

coordination problems, incentive problems

Which type of business structure is considered an independent legal entity?

corporation

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

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

? is the human specialization of some process.

division of labor

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

dollar votes, consumer sovereignty

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

economic

The market system directs resources to the production of goods and services that are the most desired by society. Which market system virtue does this reflect?

efficiency

Three virtues of the market system include ?, ?, and ?

efficiency; incentives; freedom

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

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

every society faces the economizing problem

True or false: Money complicates exchange or trade.

false

True or false: Specialization means using available resources to produce a variety of goods and services.

false

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

false; resources are being bought and sold

Which of the following best illustrates exchange through barter?

farmer John trades his corn for some of his neighbor's oranges

According to the circular flow model, ? will buy resources from and sell products to households.

firms

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

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 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.

Who owns most property resources in a command system?

government

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

incentive problem, coordination problem

Which is considered to be "pure capitalism," in which the role of government is essentially limited to that of protecting private property and establishing a legal environment for enforcing contracts and market activity?

laissez-faire capitalism

In a ? system, people act in their own self-interest.

market

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

markets and prices

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

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

modern market system

Which of the following is true when there are many buyers and sellers acting independently in a market?

no single buyer or seller can dictate the price of the product or resource because others can undercut that price

In a market system, firm ? are subject to business risk

owners/entrepreneurs

What is the type of business structure when two or more individuals agree to own and operate a business together?

partnership

What is the coordinating mechanism in a market system?

prices

? ownership of capital gives capitalism its name.

private

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

public or social interests

The function of firms in the circular flow model is to ? resources and ? products.

purchase; sell

Technological improvements or advancements also include new and improved methods that ? production costs.

reduce

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

residual claimants

The five questions that every society must address reflect the reality of ? resources in a world of ? wants

scarce, unlimited

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

Which of the following are found in the product market?

services, goods

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

sole proprietorship

? 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

Rather than produce a wide array of goods and services, it is more efficient for economies to produce goods and services based upon ?

specialization

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

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. Multiple choice question.

specialization

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

that minimize the cost per unit of output

Choose those characteristics that best describe a command system.

the government owns most property resources, a central planning board makes all economic decisions concerning resources

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

Which of the following allow private individuals and businesses to utilize property as they wish?

the right of private property, the ability to negotiate legally binding contracts

The name of the 1776 book authored by Adam Smith noting that the operation of a market economy creates unity between private and social interests is called ?

the wealth of nations

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

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

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

true

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

true

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

using a combination of labor, capital and technology