ECON Chapter 2
Franklin, John, Henry, and Harry have decided to pool their financial resources and business skills in order to open up and run a coffee shop. They will share any profits or losses that the business generates and will be personally responsible for making good on any debt that their business undertakes. Their business should be classified as a
Partnership
Consider the following statement: "Competition is the disciplinarian of the market economy."
true, because when producers face competition they are driven to provide goods and services at the lowest possible cost
True or False: Households sell finished products to businesses.
False
A. An institution that brings buyers and sellers together: . b. The right of private persons and firms to obtain, control, employ, dispose of, and bequeath land, capital, and other property: . c. The presence in a market of independent buyers and sellers who compete with one another and who are free to enter and exit the market as they each see fit: . d. The freedom of firms to obtain economic resources, decide what products to produce with those resources, and sell those products in markets of their choice: . e. What each individual or firm believes is best for itself and seeks to obtain: . f. Economic transactions willingly undertaken by both the buyer and the seller because each feels that the transaction will make him or her better off: . g. The freedom of resource owners to dispose of their resources as they think best; of workers to enter any line of work for which they are qualified; and of consumers to spend their incomes in whatever way they feel is most appropriate: .
a. Market b. Private property c. Competition d. Freedom of enterprise e. Self-interest f. Mutually agreeable g. Freedom of choice
The emergence of the MP3 (iPod) technology is an example of "creative destruction" because
it has replaced compact discs as a technology used for the storage and transfer of music
The phrase "invisible hand" means that
market prices provide information to consumers regarding products they wish to purchase, and to producers regarding products they wish to produce.
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
the choice of consumers regarding what to purchase to satisfy their wants and the choice of producers regarding what to produce to maximize profits
Ted and Fred are the owners of a gas station. They invested $150,000 each and pay an employee named Lawrence $35,000 per year. This year revenues are $900,000, while costs are $940,000. Who is legally responsible for bearing the $40,000 loss?
Ted & Fred
In market economies, firms rarely worry about the availability of inputs to produce their products, whereas in command economies input availability is a constant concern because
in market economies, buyers of inputs know that sellers want to earn profits
A.In the circular flow model B.In the circular flow model C.In the circular flow model there is a flow of
A.resource markets provide for the exchange of labor and product markets provide for the exchange of goods and services B.businesses sell goods and buy labor; households buy goods and sell labor. C.real goods and services and a flow of money
a. Suppose that businesses buy a total of $200 billion of the four resources (labor, land, capital, and entrepreneurial ability) from households. If households receive $100 billion in wages, $30 billion in rent, and $40 billion in interest, how much are households paid for providing entrepreneurial ability? b. If households spend $105 billion on goods and $95 billion on services, how much in revenues do businesses receive in the product market?
A. 30 B.200
a. A woman who wants to start a flower shop finds she cannot do so unless the central government has already decided to allow a flower shop in her area: . b. Shops stock and sell the goods customers want but the government levies a sales tax on each transaction to fund elementary schools, public libraries, and welfare programs: .c. The only taxes levied by the government are to pay for national defense, law enforcement, and a legal system designed to enforce contracts between private citizens:
A. Command B.Market C.Laissez-faire system
A. In a market system scarce goods are allocated through the operation of B. In a command economy scarce goods are allocated by
A.Market prices that are determined by consumers are producers acting in their own self-interest. B. A government-appointed planning board based on the board's long-term priorities
A.Self-interest helps achieve society's economic goals because B.There is a wide variety of desired goods and services in a market system because c.What is produced is ultimately determined by
A.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 B.Individual wants are diverse C.Consumers because if the goods offered are not what consumers want, consumers will not buy them.
A.Barter requires that you B.The use of money C.Consider the statement: "We want money only to part with it." When people express a desire to 'have money,' they really want
A.find a person who has what you want and a person who needs what you have to offer B.provides a common value that makes buying and selling transactions simpler than would be the case with barter C.the goods and services that money can buy
A.The use of capital in the production process B."Division of labor" means that workers C.When an economy relies on specialization,
A.improves efficiency, increases output, and provides for growth B.specialize in tasks that take advantage of their individual abilities and skills. C.trade enables individuals to obtain the goods in which they do not have a specialization
Millions of economic resources tend to get arranged logically and productively rather than haphazardly and unproductively because
private properties owners are motivated to protect and maximize the benefits from their property
