Chapter 2 Quiz
C
"Consumer sovereignty" refers to the: A. fact that a federal agency exists to protect consumers from harmful and defective products B. fact that resource prices are higher than product prices in capitalistic economies C. idea that the decisions of producers must ultimately conform to consumer demands D. idea that the pursuit of self-interest is in the public interest
A
Competition means that: A. there are independently acting buyers and sellers in each market B. there is more than one seller in a market C. sellers can manipulate market price by causing product scarcities D. a product can be purchased at a number of different prices
B
Households and businesses are: A. both buyers in the resource market B. sellers in the resource market and product markets respectively C. sellers in the product and resource market respectively D. both sellers in the product market
B
Answer the question using the following data, which shows all available techniques for producing 20 units of a particular commodity: Refer to the data. If a new production technique is developed that enables a firm to produce 20 units of output with 3 units of land, 3 of labor, 1 of capital, and 2 of entrepreneurial ability, this technique would: A. not be adopted because it entails higher production costs than other available techniques B. not be adopted because, although it reduces production costs, it does not increase profit C. be adopted, even though economic profits would be reduced slightly D. be adopted because it would lower production costs and increase economic profit
D
Command systems are also known as: A. pure capitalism B. laissez-faire capitalism C. market systems D. communism
D
Economic system differ according to which two main characteristics? A. The political system in place and the degree of scarcity facing the economy B. How goods are produced and who gets them C. The technology used in production and the quantity and quality of natural resources D. Who owns the factors of production and the methods used to coordinate economic activity
C
Examples of command economies are: A. Mexico and Brazil B. Sweden and Norway C. Cuba and North Korea D. the United States and Japan
C
From society's point of view, the economic function of profits and losses is to: A. contribute to a more equal distribution of income B. achieve full employment and price level stability C. reallocate resources from less desired to more desired uses D. promote the equal distribution of real assets and wealth
D
In a market system, employees and suppliers: A. are generally subject to as much risk as firm owners but get to share in the profits B. are usually shielded from risk and share in the profits of the firm C. bear as much risk as firm owners but don't get to share in the profits D. are usually shielded from risk, but at the cost of not sharing in the profits of the firm
A
Of the following countries, which one best exhibits the characteristics of a market? A. Canada B. Belarus C. North Korea D. Cuba
D
Specialization in production is economically beneficial primarily because it: A. facilitates trade by bartering B. guarantees full employment C. allows everyone to have a job that he or she likes D. permits the production of a larger output with fixed amounts of a resources
C
The "coincidence of wants" problem associated with barter refers to the fact that: A. money must be used as a medium of exchange or trade will never occur B. specialization is restricted by the size or scope of a market C. for exchange to occur, each seller must have a product that some buyer wants D. buyers in resource markets and sellers in product markets can never engage in exchange
B
The advent of DVDs has virtually demolished the market for videocassettes. This is an example of: A. capital accumulation B. creative destruction C. the difference between normal and economic profits D. derived demand
A
The competitive market system: A. encourages innovation because successful innovators are rewarded with economic profits B. encourages innovation because government provides tax breaks and subsidies to those who develop new products or new productive techniques C. discourages innovation because firms want to get all the profits possible from existing machinery and equipment D. discourages innovation because it is difficult to acquire additional capital in the form of new machinery and equipment
C
The division of labor means that: A. labor markets are geographically segmented B. each worker performs a large number of tasks C. workers specialize in various production tasks D. unskilled workers outnumber skilled workers
C
The invisible hand refers to the: A. fact that government controls the functioning of the market system B. fact that the U.S. tax system redistributes income from rich to poor C. notion that, under competition, decisions motivated by self-interest promote the social interest D. tendency of monopolistic sellers to raise prices above competitive levels
C
The most efficient combination of resources in producing a given output is the combination that: A. comes closest to using the same quantities of land, labor, capital, and entrepreneurial ability B. uses the smallest total quantity of all resources C. minimize the cost per unit of output D. converses most on the use of labor
B
The presence of market failures implies that: A. money is not an effective tool for exchange in a market system B. there is an active role for government, even in a market system C. individuals and firms should strive to be self-sufficient rather than specialize D. command systems are superior to market systems in the allocation of resources
D
The simple circular flow model shows that: A. households are on the buying side of both product and resource markets B. businesses are on the buying side of the product market and on the selling side the resource market C. businesses are on the selling side of both product and resource markets D. households are on the selling side of the resource market and on the buying side of the product market
D
The term "laissez-faire" suggests that: A. government action is absolutely necessary if the economy is to achieve full employment and full production B. land and other natural resources should be privately owned, but capital should be publicly owned C. land and other natural resources should be publicly owned, but capital should be privately owned D. government should not interfere with the operation of the economy
B
The used of money contributes to economic efficiency because: A. governmental direction of the production and distribution of output can be avoided by using money B. it promotes specialization by overcoming the problems with barter C. it is necessary for the creation of capital goods D. roundabout production could not occur without the availability of money
D
Two major virtues of the market system are that it: A. eliminates discrimination and minimizes environmental pollution B. results in an equitable personal distribution of income and always maintains full employment C. results in price level stability D. allocates resources efficiently and allows economic freedom
D
Which of the following is NOT a typical characteristic of a market system? A. Competition in product and resource markets B. Private property C. Freedom of enterprise D. Government ownership of most property resources
D
Which of the following is a distinguishing feature of a command system? A. Widespread dispersion of economic power B. Private ownership of all capital C. Heavy reliance on markets D. Central planning
C
Which of the following is a distinguishing feature of laissez-faire capitalism? A. Public ownership of all capital B. Central planning C. Minimal government intervention D. A circular flow of goods, resources, and money
D
Which of the following is a fundamental characteristic of the market system? A. Unselfish behavior B. Government-set wages and prices C. Central planning by government D. Property rights
C
Which of the following is not one of the five fundamental questions? A. How will the system promote progress? B. What goods and services will be produced? C. What prices will be charged for goods and services? D. Who will get the goods and services?
B
Which of the following is one of the Five Fundamental Questions? A. How much should society save? B. What goods and services will be produced? C. Which products will be in scarce supply and which in excess supply? D. Who should appoint the head of the central bank?
B
An economic system: A. requires a group of private markets linked to one another B. is a particular set of institutional arrangements and a coordinating mechanism used to respond to the economizing problem C. is a plan or scheme that allows a firm to make money at some other firm's expense D. requires some sort of centralized authority (such as government) to coordinate economic activity
D
Barter: A. is used to circumvent the problem of a lack of coincidence of wants among potential buyers and sellers B. is the major means of exchange in centrally planned economics C. accounts for over 30 percent of the dollar volume of all exchange in the U.S. economy D. entails the exchange of goods for goods