ECON 2143 Chapter 2

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 a. the choice of consumers regarding what to purchase to satisfy their wants and the choice of producers regarding what to produce to maximize profits. b. the purchasing agents of Home Depot who have determined what goods consumers want. c. the purchasing agents of Home Depot who have determined what goods producers have available. d. the choice of consumers regarding what to purchase to satisfy their wants and the choice of producers regarding what to produce to satisfy their wants.

a.

The three major legal forms of business enterprises are a. sole proprietorship, partnership, and corporation. b. private firm, public firm, and corporation. c. conglomerate, multinational corporation, and partnership. d. private firm, non-profit firm, and tax exempt firm.

a.

What are the major forms of household income? a. Wages and salaries; corporate profits; proprietors' income; interest income; rents b. Wages and salaries in the private sector; wages and salaries in the government sector; interest; rents; corporate profit c. Wages and salaries; proprietor's income; corporate profit; interest

a.

What is produced is ultimately determined by a. consumers because if the goods offered are not what consumers want, consumers will not buy them. b. consumers because they participate in marketing surveys. c. producers because they are driven by profits. d. producers because they determine what to produce

a.

Distinguish between a durable consumer good and a nondurable consumer good. Durable consumer goods have an expected life of __________ and non-durable consumer goods have an expected life of ____________. a. three years or longer b. two years or longer c. between three and five years a. more than three years b. less than three years c. less than two years

a. b.

Barter requires that you a. live in an area where there are people with diverse talents and a market with diverse products. b. find a person who has what you want and a person who needs what you have to offer. c. are a member of an established barter network. d. know the market value of all the goods and services that you want and have to offer.

b.

How does the combined spending on both types of consumer goods compare to the spending on services? The combined spending on both types of consumer goods is ____________ than the total spending on services. a. more b. less

b.

In a command economy scarce goods are allocated by a. an elected planning board based on the board's long-term priorities. b. a government-appointed planning board based on the board's long-term priorities. c. an elected planning board based on the board's preferences. d. a government-appointed planning board based on the board's preferences.

b.

In the circular flow model a. resource markets provide for the goods and services and product markets provide for the exchange of labor. b. resource markets provide for the exchange of labor and product markets provide for the exchange of goods and services. c. goods markets provide for the transfer of money and labor markets provide for the transfer of inputs. d. labor markets provide for the transfer of money and goods markets provide for the transfer of inputs.

b.

The market system depends on private property ownership and the protection of private property rights to a. make sure that there are adequate safeguards against theft. b. provide an incentive to maintain property and allow for the orderly transfer of property ownership. c. ensure that those who own property use it wisely. d. establish the cost of administration and transfer of property.

b.

The use of money a. provides a common value that makes buying and selling transactions simpler as long as there is one currency in use. b. provides a common value that makes buying and selling transactions simpler than would be the case with barter. c. establishes the value of goods and services. d. provides a common value that makes bartering transactions simpler.

b.

There is a wide variety of desired goods and services in a market system because a. consumers change their minds frequently. b. individual wants are diverse. c. producers determine what to produce. d. there is always a need to produce something new and improved.

b.

When an economy relies on specialization, a. centralized coordination is needed to ensure that everyone obtains the goods they need. b. trade enables individuals to obtain the goods in which they do not have a specialization. c. trade is established according to the value of the specialized product. d. there will be more efficiency in production, but there will be disruptions in the distribution of goods.

b.

Which business enterprise is the most prevalent in terms of numbers? a. Corporations b. Sole proprietorships c. Partnerships

b.

Consider the statement: "We want money only to part with it." When people express a desire to "have money," they really want a. a larger balance in their checking accounts. b. a better paying job. c. the goods and services that money can buy. d. to be rich.

c.

Contrast the wage and salary share to the profit share in terms of relative size. Wages and salaries are _________ profits (corporate and non-corporate profits combined). a. three times more than b. three times less than c. five times more than

c.

In a market system scarce goods are allocated through the operation of a. market prices that are determined by consumers and producers acting in the public's interest. b. estimated prices that are determined by consumers and producers acting in their own self-interest. c. market prices that are determined by consumers and producers acting in their own self-interest. d. fixed prices that are determined by consumers and producers acting in the public interest.

c.

In the 1990s thousands of "dot-com" companies emerged with great fanfare to take advantage of the Internet and new information technologies. A few, like eBay, and Amazon, generally thrived and prospered, but many others struggled and eventually failed. The market system answers the question "What goods and services will be produced?" The operation of the market can explain the varied outcomes of these "dot-com" companies because a. new regulations were passed, creating proft expectations; new firms entered; prices fell; and most firms failed. b. consumers experienced windfalls, creating low proft expectations; new firms entered; prices fell; and some firms failed. c. shareholders experienced windfalls, creating proft expectations; new firms entered; prices fell; and some firms failed. d. shareholder restrictions were passed, lowering proft expectations; new firms entered; prices fell; and some firms failed.

c.

The use of capital in the production process a. is more expensive than labor. b. improves efficiency, reduces output, and provides for growth. c. improves efficiency, increases output, and provides for growth. d. replaces labor.

c.

Which is the most dominant in terms of total sales revenues? a. Partnerships b. Sole proprietorships c. Corporations

c.

"Division of labor" means that workers a. identify the products than can be produced so that they can take advantage of their individual abilities and skills. b. develop skills needed to complete a job. c. share the labor needed to complete a job. d. specialize in tasks that take advantage of their individual abilities and skills.

d.

Consider the following statement: "Competition is the disciplinarian of the market economy." This statement is a. false because when producers face competition, they are driven to provide more goods and services and costs will rise. b. true because when consumers realize there is competition, they are driven to demand more goods. c. false because when consumers realize there is competition, they are driven to demand more goods. d. true because when producers face competition, they are driven to provide goods and services at the lowest possible cost.

d.

Consider the following statement: "The market system is a profit-and-loss system." This statement is a. true because consumers purchase only what they want, providing producers' profits. b. false because the market system does much more than provide profits and losses. c. false because consumers purchase only what they want, providing producers' profits. d. true because producer decisions are motivated by the attempt to earn profits.

d.

In the circular flow model a. businesses buy goods and buy labor; households sell goods and sell labor. b. businesses sell goods and sell labor; households buy goods and buy labor. c. businesses buy goods and sell labor; households sell goods and buy labor. d. businesses sell goods and buy labor; households buy goods and sell labor.

d.

In the circular flow model there is a flow of a. real goods and services and a flow of output. b. real goods and services and a flow of labor. c. labor and a flow of money. d. real goods and services and a flow of money.

d.

Self-interest helps achieve society's economic goals because a. producers know which goods consumers want the most. b. consumers and producers both operate based on society's economic goals. c. consumers know which goods can be produced at the lowest cost. d. 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.

d.

The emergence of MP3 (or iPod) technology is an example of "creative destruction" because a. the firms that produced compact discs now produce DVDs. b. it is less expensive than compact discs for the storage and transfer of music. c. the MP3 (iPod) industry is becoming more efficient. d. it has replaced compact discs as a technology used for the storage and transfer of music.

d.

The phrase "invisible hand" means that a. buyers and sellers often do not meet, so the transactions are invisible. b. market prices are not always known to buyers and sellers. c. no one person or firm actually sets the price. d. market prices provide information to consumers regarding products they wish to purchase and to producers regarding products they wish to produce.

d.