Macroeconomics-Chapter 2
Which of the following are found in the product market?
-goods -services
Three virtues of the market system include ___, ___, and ___.
-incentives -freedom -efficiency
Which statements about the profit system are true?
-it is actually a profit and loss system -it encourages entrepreneurs to make prudent decisions
Which of the following functions can a corporation do on its own behalf?
-own assets -acquire resources -incur debts -sue others
Which of the following are components of the circular flow model?
-product market -resource market -households -businessess
Monies that flow out of businesses to pay for resources are costs to businesses, but they represent which of the following types of flows to households?
-profit income -interest -rent -wages
This is the command system also known as?
-socialism -communism
Advanced technology and capital goods are important because:
-the new technology can enhance the productivity of workers. -the most direct methods of producing a good or service are often the lease efficient.
A partnership
An unincorporated firm owned and operated by at least two people
A sole proprietorship
An unincorporated firm owned and operated by one person.
According to the circular flow model, ___ will buy resources from and sell products to households.
firms
In the circular flow model, households see resources to, and buy products from ___.
firms
The market system thrives on ___.
freedom of enterprise and choice
In a circular flow model ___.
households spend their income in the product market.
In the circular flow model ___.
households spend their income in the product market.
Communism exhibits all the characteristics of a ____ system.
command
Freedom of entry and exit of producers enables an economy to adjust to changes in which of the following areas?
-Consumer tastes -Technology -Resource availability
Which of the following collectively direct resources to industries that are meeting consumer wants and away from industries that are not meeting consumer wants?
-Dollar votes -Consumer sovereignty
Which of the following would be an example of the system accommodating change?
Buyers want more juice and less milk. Producers increase spending only on juice.
How does the market system develop methods for analyzing and managing risk?
By presenting businesses with economic consequences of their decisions
A corporation
a legal entity that is separate and distinct from the people who own it
Entrepreneurs and owners of businesses use part of their ___ in order to accumulate more capital goods.
profits
Which of the following ensures that entrepreneurs and private businesses are free to obtain and use economic resources to produce their choice of goods and services?
Freedom of enterprise
A _______ is an institution or mechanism that brings buyers and sellers into contact.
market or marketplace
Freedom of entry and exit of producers enables an economy to adjust to changes in which of the following areas?
-Technology -Resource availability -Consumer tastes
Which of the following describes a technological advancement?
-The ability to produce better products and processes to replace inferior ones. -New and improved methods that reduce production and/or distribution costs. -The ability of a firm or entrepreneur to gain revenue and economic profit at the expense of rivals by introducing a popular new product.
Which of the following describes how the market system will promote progress?
-Competitive markets create incentives for technological advance and capital accumulation, both of which contribute to promoting progress.
Which characteristics define a command system?
- Government ownership of most or all resources. -A government-appointed central planning board.
In order to have competition in a market economy, there must be at least ____ or more sellers acting independently in a particular market.
2
Which of the following is characterized by the private ownership of ownership of resources and the use of markets to coordinate and direct economic activity?
A market system
Which of the following is true of a market system?
A market system is a combination of centralized government initiatives and decentralized actions taken by firms.
Which of the following requires a coincidence of wants between a buyer and a seller?
Barter
Who owns most property resources in a command system?
Government
In which of the following do private individuals and firms own most of the property resources such as land and capital?
Market system
Modern market economies usually have a(n) ___.
active, but limited government. (the role of government is usually limited to establishing the rules by which markets operate, as well as providing civil institutions in which markets are allowed to thrive.)
Technological advancements, such as the personal computer and medical discoveries, are primarily driven by the profit motive. However, such advancements eventually promote the public or social interest as though they are guided by ___.
an invisible hand
A trading system that involves swapping goods and requires a coincidence of wants between the buyer and the seller is called ___.
barter
The basis of competition is freedom of ____ exercised in the pursuit of ____.
choice; complexity
The market system depends on ____ both among buyers and among sellers.
competition
Two or more buyers and two or more sellers acting independently in a particular product market with the freedom to enter and leave the market best describes ___.
competition
___ is the human specialization of some process.
division of labor
A(n) _____ system is a particular set of institutional arrangements and a coordinating mechanism that responds to the economizing problem.
economic
Money performs several functions, but first and foremost it is a:
medium of exchange
Which of the following describe the concept of laissez-faire?
-A market system in which only mutually beneficial economic transactions are completed. -A market system in which the role of government is limited to protecting private property.
Which of the following occur in the resource market?
-Businesses buy resources from households because they are necessary for producing goods and services. -Households provide economic resources directly as workers or entrepreneurs -Households sell resources and businesses buy them
Which of the following best describe how goods and services should be produced?
-By utilizing the right mix of labor & capital. -By locating production facilities optimally to hold down production and transportation expenses.
Which of the following are resources which businesses purchases from households?
-Entrepreneurial ability -Capital -Labor -Land
Which of the following does competition require?
-Freedom of sellers and buyers to enter or leave markets. -Two or more buyers and two or more sellers acting independently in a particular market.
Which of the following were economic problems faced by the former Soviet Union, Eastern Europe, and China prior to its market forms?
-Incentive problem -Coordination problem
Which of the following are made possible because of private property rights in a market system?
-Innovation -Maintenance of property -investment -economic growth
The market system attracts inputs and focuses owners' attention on risk management by restricting business risk to which two groups?
-Investors -Owners
Which of the following does competition imply?
-It provides the economy with the flexibility needed to remain efficient over time. -It enables the economy to adjust to changes in consumer tastes, technology, and resource availability. -No insurmountable barriers prevent and industry from expanding or contracting.
Which of the following are trump of the partnership form of business organization?
-Partners share profits and losses -Partners pool financial resources and business skills
Which of the following best describe the. reasons that specialization increases the total output society derives from limited resources?
-Specialization fosters learning by doing. -Specialization makes use of differences in ability. -Specialization saves time.
Which of the following describe the market system's virtue of incentives?
-The market system encourages skill acquisition and hard work, leading to increased production and incomes and higher standards of living. -the market system promotes the efficient use of resources by encouraging the development and adoption of new production techniques. -The market system leaves participants free to further their own self-interest, and any rewards or penalties are imposed by the market system itself.
Which of the following best describe the virtue of efficiency?
-The market system promotes the efficient use of resources by guiding them into the production the goods and services most wanted by society. -The market encourages the development and adoption of new and more efficient production techniques.
Private individuals and businesses are able to utilize property as they wish as a result of:
-The right of private property -The ability to negotiate legally binding contracts.
Which of the following statements describe who will get the goods and services produced in a market economy?
-Those who have sufficient income and want to spend money on a particular good. -Those who are willing and able to pay for the goods and services.
Identify the five fundamental questions that all economies, whether market or command, must address.
-What goods and services will be produced? -How will the goods and services be produced? -Who will get the output (goods and services)? -How will the system accommodate change? -How will the system promote progress?
Which are major decisions that must be addressed by an economic system?
-Which goods are produced. -Who gets the goods that are produced. -how to promote technological progress
How does the profit system guide entrepreneurs?
-by punishing them with losses when they choose poorly -by rewarding them with profits when they choose wisely.
Capital accumulation refers to the accumulation of ___.
-capital goods that are required to advance technology -capital goods that yield even greater profit income in the future -capital goods that are used to produce consumer goods.
If increasing numbers of consumers decide to purchase organically farmed fruit rather than conventionally farmed fruit, how is the market likely to respond?
-conventional fruit profits will fall. -organic fruit profits will rise
The command economies of the former Soviet Union and of Eastern Europe failed due to:
-coordination problems -incentive problems
Competition among economic units
-diffuses economic power within the business and households that make up the economy. -implies that producers can enter or leave an industry.
The five questions that every society must address reflect the reality of ___ resources in a world of ___ wants.
-scarce, limited or finite -unlimited, insatiable, limitless, infinite , or endless
The three main categories into which businesses fall are:
-sole proprietorship -corporation -partnership
Private individuals and businesses are able to utilize property as they wish as a result of:
-the right of private property. -the ability to negotiate legally binding contracts.
Which of the following is inherent in competition and limits the potential abuse of power?
Diffusion of economic power
Which of the following is the reason why every society needs to develop an economic system?
Every society faces the economizing problem.
True or false: Competition among sellers and government diffuses economic power within the economic units that make up an economy.
False
True or false: Money complicates exchange or trade
False
True or false: Specialization means using available resources to produce a variety of goods and services.
False
True or false: The resource market is the place where resources or the services of households are produced.
False-The resource market is the place where resources or the services of resource suppliers are bought and sold.
Which of the following best illustrates exchange through barter?
Farmer John trades his corn for some of his neighbor's oranges.
True or false: the resource market is the place where resources or the services of households are produced.
Fasle
The use of money for exchange and trade ___.
Fosters more specialization in production
A market system allows entrepreneurs and workers to further their own self-interests, subject to the rewards and penalties that the system imposes. Which of the following virtues of the market system does this describe?
Freedom
Which of the following enables owners to employ or dispose of their property and money as they see fit?
Freedom of choice
Which is considered to be "pure capitalism," in which the role of government is essentially limited to that of protecting private property and establishing a legal environment for enforcing contracts and market activity?
Laissez-faire capitalism
Private individuals and firms, not the government, own most of the property resources such as land and capital in a free _____ system
Market, capitalist, enterprise, trade or economic
An active, but limited, government is characteristics of which type of economic system in modern advanced industrial economies?
Modern market system
In a market system, specialization requires exchange. Which of the following best describes the use of money in an exchange?
Money facilitates exchange by ending the need for a coincidence of wants required by the barter system.
Geologists working for ExxonMobil have determined that there exists a high probability that your neighborhood is located above a potentially large oil reserve. As a result, ExxonMobil offers to purchase every owners' property at a substantial price to which everyone agrees. Which of the following does this illustrate?
Mutually agreeable economic transactions
Which of the following is true when there are many buyers and sellers acting independently in a market?
No single buyer or seller can dictate the price of the product or resource because others can undercut that price.
____ ownership of capital gives capitalism its name
Private
____ property rights help to facilitate exchange in a free market system.
Private
_____ ownership of capital give capitalism its name.
Private
________ property rights help to facilitate exchange in a free market system.
Private
In which of the following markets do households buy the goods and services that businesses make available?
Product market
___ is the use of resources by an individual, firm, region, or nation to produce one or a few goods or services rather than the entire range of goods and services.
Specialization or Specialize
___ increases the total output society derives from ___ resources.
Specialization; scarce
The name of the 1776 book authored by Adam Smith noting that the operation of a market economy creates unity between private and social interests is called ___.
The Wealth of Nations
In a command economy, who determines the division of output between capital and consumer goods?
The central planning board-appointed by the government determines the division of output.
True or false: In a market system, consumers exercise consumer sovereignty, which is crucial in determining the types and quantities of goods purchased.
True
True or false: A central feature of the (pure) market system is the ability to reap monetary rewards from the innovation and creation of new products and processes.
True-Money is a financial incentive that drives firms and entrepreneurs to be innovative and creative in a market economy.
True or false: Freedom of choice allows workers to enter any line of work for which they are qualified. It also ensures that consumers are free to buy the goods and services that best satisfy their wants.
True-These are the secretions of freedom of choice. Additionally, freedom of choice ensures that owners can employ or dispose of their property in whatever manner they see fit.
Which of the following is the most efficient method of production?
Using a combination of labor, capital, and technology. (More direct methods are often less efficient)
Which of the following is determined by an economic systems?
What goods are produced
The operation of ___ creates a curious unity between private interests and social interests.
a market system
For a market system to maximize its potential, it must develop methods for ___.
assessing and managing risk
The two major benefits that arise from the market system's restriction of business risk to owners and investors are
attracting inputs and focusing attention.
A central planning board sets the division of output between capital and consumer goods in a ________ system.
command
A producer that changes more than the ___ will relinquish sales to other producers in a market economy.
competitive market price
In the circular flow model, the market economy creates ___.
continuous flows of goods and services, resources, and money
The ___ problems face by the command economies of the former Soviet Union, Eastern Europe, and China prior to market reforms became more difficult as the economies expanded and as markets became more complex.
coordination
Which type of business structure is considered an independent legal entity?
corporation
In recent years, new MP3 and digital technologies have replaced compact disks. This is an example of ___.
creative destruction-is the proper term for the creation of new products and production methods that completely destroys the market positions of firms that are wedded to existing products and older ways of doing business.
A(n) ________ system is a particular set of institutional arrangements and a coordinating mechanism that responds to the economizing problem.
economic
The market system directs resources to the production of goods and services that are the most desired by society. Which market system virtue does this reflect?
efficency
The market system directs resources to the production goods and services that are the most desired by society. Which market system virtue does this reflect?
efficiency
The most important consequence of property rights is that they ______.
encourage cooperation by ensuring that only mutually agreeable economic transactions take place.
Freedom of _____ ensures that entrepreneurs and private businesses are free to obtain and use economic resources to produce their choice of goods and services.
enterprise
The title to an automobile or the deed to a cattle ranch assures a buyer that the seller is the legitimate owner of that property. This is an example of property rights _______.
facilitating exchange
The economies of the former Soviet Union, Eastern Europe, and China prior to market reforms faced problems caused by a lack of coordination and a lack of ___.
incentive
The ___ describes a situation faced in command economies in which producers have no reason to adjust production in response to shortages and surpluses in the economy.
incentive problem
Suppose that an individual sees a tremendous opportunity to produce and sell a new product but dismisses the idea because there is no way to exploit this opportunity for personal gain. This situation best identifies the ___.
incentive problem under communist central planning
Encouraging hard work and skill acquisition with rewards of higher incomes and higher standards of living, is part of which virtue of the market system?
incentives
The term "laissez-faire" refers to
limiting the government's interference in the economy.
In a ___ system, people act in their own self-interest.
market
In a ________ system, people act in their own self-interest.
market
Which of the following represents an institution or mechanism that brings buyers and sellers into contact?
market
Under the market system, ____ coordinate the decisions made by households and businesses.
markets and prices
In a market system, ______ create powerful incentives for firms to innovate and entrepreneurs to pioneer new products and processes.
monetary rewards
The use of ___ in market systems facilitates the exchange of goods and services that specializations requires.
money
In a market system, firm ___ are subject to business risk.
owners or entrepreneurs
What is the type of business structure when two or more individuals agree to own and operate a business together?
partnership
What is the coordinating mechanism in a market system?
prices
Economic growth, investment, innovation, exchange, and maintenance of property are all possible because of ________.
private property rights.
The interaction between buyers and sellers in a market system determines _______.
product and resource prices.
According to the circular flow model, households buy goods and services that businesses make available in the ___ market.
product or products
The "invisible hand" guides firms and resource suppliers to promote ___ even as they seek to further their own interests.
public or social interests
The function of firms in the circular flow model is to ___ resources and ___ products.
purchase; sell
Technological improvements or advancements also include new and improved methods that ___ production costs.
reduce
A firm's owners are called ___ because they are only paid after employees, suppliers, and lenders have been paid.
residual claimants
When every economic unit in a society attempts to achieve its own particular goal, usually requiring delivering something of value o others, it is referred to as ___.
self-interest
When every economic unit in a society attempts to achieve its own particular goal, usually requiring delivering something of value to others, it is referred to as________.
self-interest
In the circular flow model, households ___ resources and ___ products.
sell; buy
In order to serve as money, an item must be generally acceptable to ___ in exchange for their goods and services
sellers.
A ___ proprietorship is a business owned and managed by a single person.
sole, single, or solitary
Rather than produce a wide array of goods and services, it is more efficient for economies to produce goods and services based upon ___.
specialization
The goods and services produced by an economic unit through ___ can be exchanged for a full range of desired products produced by other economic units.
specialization
In order to cope with the difficulties in coordinating the production of goods and services, central planners in the former Soviet Union took which of the following actions?
suppressed product variety
An economic system will progress by advancing ___ and accumulating ___.
technology; capital
Goods and services are produced efficiently when production is organized in combinations and ways ___.
that minimize the cost per unit of output.
Product and resource prices in a market system are determined by ___.
the interaction between buyers and sellers.