Econ 2.3
Which of the following are the two key groups of participants in the circular flow of income?
households and firms
A free market is a market with ________ government restrictions on how a good or service can be produced or sold and with ________ government restrictions on how a factor of production can be employed.
few; few
What role do they play in the working of a market system? Private property rights:
both a and b.
What definition of socialism is the columnist using if he doesn't consider the programs he lists to be socialist? Is the columnist's definition of socialism one that U.S. socialists like Senator Bernie Sanders and Congresswoman Alexandria Ocasio-Cortez would be likely to accept? The columnist is likely defining socialism to refer to a
centrally planned economy in which the government directly controls most production. Bernie Sanders would be unlikely to accept this definition of socialism because he is more concerned with the provision of services such as health care and not government ownership of businesses.
What is the outcome of enforcing contracts and property rights in a market system?
increased economic activity
The household ---the good and the firm ---the good.
-demands -supplies
Firms are likely to produce more of a good or service when its price ---- and less of a good or service when its price---
-rises -falls
The household --- the factor of production and the firm --- the factor of production.
-supply -demands
The households ---- the labor and the firm ---- the labor.
-supply -demands
The households ---- the labor and the firm ---- the labor.(16)
-supply -demands
In what ways does a free market economy differ from a centrally planned economy? Unlike a free market economy,
. centrally planned economies have extensive government controls.
It is possible for the outcomes in a market system to be different from what firms and consumers intended them to be because
. neither firms nor consumers are directly interested in increasing economic efficiency or the standard of living of the average person.
What is a free market?
A free market is one where the government does not control the production of goods and services.
Psychic rewards that an entrepreneur might receive include (check all that apply):
A. being one's own boss. C. status within the community. D. the pride of self-accomplishment.
In a simple circular-flow model, there are flows of _________ and flows of _________.
Both (a) and (b) are correct.
b. Which of the following statements is true?
By protecting private property rights, governments make it more likely that investments will be made in businesses that provide jobs and income for workers.
Which participants are of greatest importance in determining what goods and services are produced?
Households
What is an entrepreneur?
Entrepreneurs operate businesses that produce goods and services.
What incentives does a market system provide to encourage self-interest?
Financial reward.
What are the two main categories of participants in markets?
Firms and households.
According to Adam Smith, which of the following is necessary for the proper functioning of the market system?
For markets to work, people must be free to pursue their self-interest.
Source: Leonard E. Read, I, Pencil: My Family Tree as told to Leonard E. Read, Irvington-on-Hudson, NY: The Foundation for Economic Education, Inc. December 1958. Which of the following statements is true?
It was not necessary for the managers of any of firms that participated in the making of the pencils to know how the components they produced were used to make pencils.
What is the circular-flow diagram and what does it illustrate?
The circular-flow diagram shows how households and firms are linked through product and factor markets.
a. Which of the following statements regarding secure property rights is true?
Property rights provide incentives for people to maintain and increase the value of the property they own.
Why do entrepreneurs play a key role in a market system?
They bring together factors of production.
Evaluate the following argument: "Adam Smith's analysis is based on a fundamental flaw: He assumes that people are motivated by self-interest. But this isn't true. I'm not selfish, and most people I know aren't selfish."
This statement is based on the misconception that following your self-interest and being selfish are the same thing.
What is the role of an entrepreneur?
all of the above
c. What problems might African farmers have because they lack secure property rights?
all of the above
Why are independent courts important for a well-functioning economy? Independence is necessary for courts:
all of the above.
If a market system functions well, which of the following is necessary for the enforcement of contracts and property rights?
an independent court system
In a market system, an increase in demand for a good leads to _________ in the price of the good. This ________ price provides a signal to producers that the good has become _________ profitable. Given that lithium prices are ______, mining firms are likely to switch some of their labor and capital from producing _____________________.
an increase; higher; more; rising; iron, copper, and cobalt to producing lithium
George sells land he owns to McDonald's so it can build a new restaurant. This takes place in the --- market.
factor
George works 20 hours per week at McDonald's. This takes place in the--- market.
factor
Tesla increases employment at its Fremont plant. This takes place in the --- market.
factor
The term "psychic rewards" refers to
nonmonetary forms of remuneration that are psychologically uplifting.
According to Adam Smith, which of the following is the instrument the invisible hand uses to direct economic activity?
prices
George buys a Tesla Model S. This takes place in the ---- market.
product
This idea is an important intellectual contribution because
the interaction of firms and consumers in markets produces outcomes that are economically efficient and that promote the economic growth that results in rising living standards.
What are private property rights? Private property rights are:
the rights individuals and firms have to the exclusive use of tangible, physical property and intellectual property.