M2: Fundamentals of Economics and Types of Markets

How many factors of production are there?

5

Which product is the least scarce?

A $7 tube of sunscreen

Income inequality

A CEO makes 335 times the pay of an average worker.

What is another term for capitalism?

A free-market economy

Which item is the most scarce?

A piano built in the 18th century by a master piano maker

Which of the following is most likely to be a monopolist?

A power utility

Monopoly

A type of free market in which there is only one seller and no competition

Oligopoly

A type of free market that has a few sellers offering similar, but not identical, products to many small buyers

Monopolistic competition

A type of free market that has many sellers who sell similar, but distinguishable products

Perfect competition

A type of free market that has many small sellers who sell interchangeable products to many informed buyers

Exploitation

A worker is threatened by his manager to make him work faster.

Select the sectors of the economy in which oligopolies commonly occur.

Air travel Automobiles Cola drinks

Which of the following is most likely to be part of a perfectly competitive market?

An alfalfa farm

Select all of the examples of macroeconomics.

An article indicates that the agricultural industry contributes approximately 5% to 6% to the U.S. economy. National unemployment increases, so people have less income to spend.

Possibility of heavy losses

An investor risks all of her money in the stock market.

Which country has a capitalist economy?

Australia

Select all of the examples of capital.

Buildings Tools

Which statement about the primary types of economies is true?

Businesses tend to be most profitable in a free-market economy.

Select all of the ways in which consumers affect the marketplace.

By choosing what to buy By choosing what not to buy

How can sellers affect the market?

By hiding essential information about their products

Lorena makes her living cultivating and selling specialty orchids to wealthy customers. What benefit of capitalism is Lorena experiencing?

Career choices and entrepreneurial activity

Command economy

Communism Socialism

Select all of the examples of the benefits of capitalism.

Company B hopes to grow and hire more people. Company A is bringing better-quality products to its consumers.

What is the name of the idea that consumers influence the marketplace through their decisions as to which products they choose to buy or not to buy?

Consumer sovereignty

Scarce

Diamond rings Paintings by famous artists Thoroughbred horses

According to Adam Smith, which of the following is an incentive?

Earning profit

Microeconomics

Effect of coupons on consumers' buying behavior How e-books affect the sales of printed books How gas prices affect which cars people buy

Which European countries have capitalist economies?

England Germany Ireland

What is the the process of taking risks to create a new enterprise called?

Entrepreneurship

Which factor of production requires taking risks to build a new business?

Entrepreneurship

Which drawback of capitalism led to the phrase "cut-throat capitalism"?

Exploitation

Which force affects the market by imposing regulations that businesses must follow?

Government influences

Will is hiring people to work in his ice cream shop for the summer. He is paying them the minimum wage. What kind of force that affects markets does the minimum wage represent?

Government influences

Macroeconomics

Gross domestic product (GDP) Consumer price index Industrial production

Select the benefits of capitalism.

Help for the less fortunate More goods and services More jobs and higher incomes

Which of the following would a macroeconomist study?

How government policies affect the nation's economy

A benefit of capitalism is that successful businesses can choose to give back to their community. Select all of the critiques of this benefit.

In a capitalist system, companies, not the government, are charged with supporting the disadvantaged. This leaves human welfare in the hands of profit-driven organizations. Companies may give back only to community members that they care about and ignore other community members who are deserving of support too. There is no law that requires companies to give back, so some companies may decide not to.

Abdul runs a small distribution company. During the holiday season, he donates food to homeless shelters. Since he started his business a few years ago, he has hired about 15 full-time employees. His employees make minimum wage, while Abdul brings home 20 to 25 times that amount. Select all of the benefits and drawbacks of capitalism shown in this example.

Income inequality More jobs Help for the less fortunate

No buyer or seller can know everything about the marketplace. What force does this refer to?

Incomplete information

What do microeconomists study?

Individual economic units

Which of the three forces that affect markets involves consumers' feelings?

Irrationality and consumer sovereignty

Select all of the advantages of knowledge as one of the factors of production.

It gives entrepreneurs the ability to understand consumers' wants and needs. It gives entrepreneurs the ability to create new products.

Which statement best describes monopolistic competition?

Many sellers sell similar products that have slight differences.

Which phrase best describes monopolistic competition?

Many sellers, some product differences

BLANK price is also referred to as equilibrium price. (Enter only one word in the blank.)

Market

Select the two main fields of economics.

Microeconomics Macroeconomics

Fatima runs a small coffee shop that sells artisan coffee beverages, such as lattes and cappuccinos. Environmentally conscious customers flock to Fatima's coffee shop over the many other coffee shops nearby because she offers shade-grown coffee, a type of coffee that is friendly to birds. What type of free market is Fatima operating in?

Monopolistically competitive

Carly runs a business and needs electricity for her new office premises. She discovers that she is only able to purchase electricity from one supplier, Zippity Power and Light. To which economic competition category does the electricity supplier belong?

Monopoly

Which type of free market has no competition?

Monopoly

When Tamara goes to the store, she can choose between many different types of cereal. What benefit of capitalism is Tamara experiencing?

More goods and services

Tonya just hired three new full-time workers. What benefit of capitalism is Tonya providing to the community at large?

More jobs and higher incomes

Who has complete information about product needs and information?

Neither the buyer nor the seller

Select the statements about perfect competition that are true.

No seller is large enough to determine the price of a product. It involves many small sellers who sell products that are virtually the same.

Garfield sells organic weight management foods, which is a market with a few players offering similar products. As a result, while Garfield has multiple brands in his store, all of them are produced by just three large companies. In what type of market do the organic weight management foods manufacturers operate?

Oligopoly

Which phrase best describes a monopoly?

One seller only, no competition

Based on price alone, which product is likely the most scarce?

One with a $10,000 price tag

Not very scarce

Pencils Soda Headphones

Select all of the drawbacks of capitalism.

People unsuited to competition Exploitation of the less fortunate

Jeff is a farmer who grows sugar beets in Michigan. Many of his local friends are farmers who grow sugar beets too, and Jeff knows that across the state there are hundreds of sugar beet farmers who are all selling their products for about the same amount of money per unit. What kind of free market is Jeff operating in?

Perfect competition

Select the free markets that are characterized as having many sellers.

Perfect competition Monopolistic competition

Jerry wasted $10 million after buying stock in a company that soon went bankrupt. This is an example of which drawback of capitalism?

Possibility of heavy losses

Select examples of monopolistically competitive firms.

Quiznos Banana Republic

Select the characteristics that correctly describe oligopolies.

Some product differences Few sellers

Microeconomics

Studies the economic behavior of individual economic units Concentrates on specific groups or people

Macroeconomics

Studies the whole economy Concentrates on large economic units

Select all of the ways through which the government affects markets

Taxation Regulation Infrastructure development

Select all the aspects of knowledge as an economic resource.

Technological expertise Practical experience

Select all of the countries that have capitalist economies.

The United States Australia

What is capital?

The buildings and tools used to produce goods and services

Which statement about the buyer-seller relationship is true?

The buyer has the upper hand.

Select all of the topics that macroeconomists study.

The consumer price index National job growth rate Gross domestic product (GDP)

The invisible hand

The government should play no role in determining production, pricing, and distribution of products and services. In pursuit of prosperity, businesspeople produce goods and services that benefit consumers and provide more choices.

Jada is a jeweler and the owner of a small jewelry store. Select all of the microeconomic issues she must deal with.

The jewelry prices of her competitors in town State taxes

Tony's Pizzeria is a restaurant in Boise, Idaho. What is a microeconomic issue that might affect Tony's?

The labor shortage in Boise

What do economists study?

The production, distribution, and consumption of products

Mary decided to rent a building near a local bus stop so that her business space is easily accessible to customers. Which basic right under capitalism is she exercising?

The right to free choice

Anna decides to purchase the building in which her business is located. Which basic right under capitalism is she exercising?

The right to own property

What is resource development?

The study of how to cultivate the resources for creating and best utilizing goods and services

What is knowledge?

The technological expertise and practical experience that allow entrepreneurs to determine new wants and needs and deliver new products

What is demand?

The willingness and ability of buyers to purchase products at different prices

What is supply?

The willingness and ability of sellers to provide products at different prices

Select characteristics of monopolies.

There is zero competition. There is only one seller.

Select all of the examples of capital.

Tools Company headquarters

Incentives

With freedom to earn profits, business owners will be motivated to work hard. If individuals are to take big risks, there must be the potential for big rewards.

When the production and distribution of goods and services are controlled by private individuals rather than by the government, this is known as BLANK. (Enter only one word in the blank.)

capitalism

To be successful, a business must pay attention to what buyers do and do not purchase, known as BLANK sovereignty.

consumer

The term BLANK expresses how willing and able buyers are to purchase goods and services at different prices.

demand

Resource BLANK is the study of how to cultivate the resources for creating and best utilizing goods and services.

development

The study of the production, distribution, and consumption of scarce goods and services is known as BLANK. (Enter one word in the blank.)

economics

The means for developing goods and services, and for satisfying consumers' demand, are known as the five BLANK of production

factors

Adam Smith's theory of the invisible hand holds that ______.

individuals' drive for prosperity produces the products that provide benefits to all

The study of the economy as a whole is known as BLANK

macroeconomics

In a perfectly competitive environment, there are:

many sellers

The study of the economic behavior of individual economic units is known as BLANK

microeconomics

In order to enter the market and effectively compete, companies in a(n) ______ need to make a massive initial investment.

oligopoly

No matter how much of something there seems to be, all things are essentially limited. This illustrates the economic concept of BLANK. (Enter one word in the blank.)

scarcity

The fact that there are a limited number of products is referred to as ______.

scarcity

The term BLANK expresses how willing and able sellers are to provide goods and services at different prices.

supply

Market price is established when:

the quantity supplied equals the quantity demanded

Adam Smith believed that in capitalist economies, profit incentives inspire people to ______.

work harder