Quiz #2: Chapter 2

(Consider This) North Korea's command economy: is one of the few remaining command economies. has grown much faster than South Korea's economy since the two countries were divided after World War II. produces a per capita GDP of nearly $25,000. has undergone significant market reforms and is now one of the fastest-growing economies.

is one of the few remaining command economies.

Market economies use capital goods because they improve productive efficiency. True False

True

The guiding function of prices tends to keep resources flowing toward their most highly valued uses. True False

True

The dollar votes of consumers ultimately determine the composition of output and the allocation of resources in a market economy. This statement best describes the concept of: derived demand. consumer sovereignty. the invisible hand. market failure.

consumer sovereignty.

Which of the following is a distinguishing feature of a command system? Private ownership of all capital. Central planning. Heavy reliance on markets. Widespread dispersion of economic power.

Central planning.

Refer to the diagram. Arrows (3) and (4) represent: goods and services respectively. incomes and consumer expenditures respectively. resources and goods respectively. consumer expenditures and income respectively.

incomes and consumer expenditures respectively.

In terms of the circular flow diagram, businesses obtain revenue through the _____ market and make expenditures in the _____ market. product; financial resource; product product; resource capital; product

product; resource

Enterprise managers and workers in the Soviet Union often resisted innovations in production methods because: production targets were often increased when innovation occurred. there was a chronic shortage of computers. workers could not be reallocated geographically. innovations ordinarily increased dependence on world markets.

production targets were often increased when innovation occurred.

Which of the following is a distinguishing feature of laissez-faire capitalism? Public ownership of all capital. Central planning. Minimal government intervention. A circular flow of goods, resources, and money.

Minimal government intervention.

Money functions as a medium of exchange by eliminating the need for a coincidence of wants. True False

True

Economic systems differ according to which two main characteristics? Who owns the factors of production and the methods used to coordinate economic activity. The technology used in production and the quantity and quality of natural resources. How goods are produced and who gets them. The political system in place and the degree of scarcity facing the economy.

Who owns the factors of production and the methods used to coordinate economic activity.

In the simple circular flow model: households are buyers of resources. businesses are sellers of final products. households are sellers of final products. there are real flows of goods, services, and resources, but not money flows.

businesses are sellers of final products.

The invisible hand refers to the many indirect controls that the federal government imposes in a market system. True False

False

Continued losses in an industry will cause some firms to reduce output or eventually leave the industry. True False

True

The simple circular flow model shows that: households are on the buying side of both product and resource markets. businesses are on the selling side of both product and resource markets. households are on the selling side of the resource market and on the buying side of the product market. businesses are on the buying side of the product market and on the selling side of the resource market.

households are on the selling side of the resource market and on the buying side of the product market.