unit one practice quizzes

(Consider This) Martha's Milkshake Company buys earthquake insurance from the Stable Ground Insurance Company. Based on this purchase, economists would conclude that

Martha's has a lower tolerance for earthquake risk than Stable Ground.

In a market system, which of the following is a major benefit of making the firm's owners and investors exclusively shoulder the business risk?

This allows firms to more easily attract labor and other suppliers of inputs.

If we say that two variables are inversely related, this means that

an increase in one variable is associated with a decrease in the other.

Economic theories

are generalizations based on hypotheses tested and supported with observed facts

The invisible hand concept suggests that

assuming competition, private and public interests will coincide.

The production technique that is most efficient is the one that produces a given amount of output

at the lowest cost per unit.

"Consumer sovereignty" means that

buyers determine what will be produced based on their "dollar votes" for the goods and services offered by sellers.

Refer to the diagram. Flow 4 represents

consumer expenditures and business revenue.

The advent of Netflix movie streaming and Redbox kiosks renting DVD and Blu-ray movies have virtually demolished the market for video rentals from brick and mortar stores such as Blockbuster. This is an example of

creative destruction.

(Consider This) The economic perspective used in customer decision making at fast-food restaurants is reflected in

customers selecting the shortest line.

If competitive industry Z is making substantial economic profit, output will

expand in industry Z, as more resources will move to that industry.

According to economists, economic self interest:

is a reality that underlies economic behavior.

Answer the question on the basis of the following production possibilities tables for two countries, North Cantina and South Cantina. Refer to the tables. The opportunity cost of the fifth unit of capital goods

is higher in North Cantina than in South Cantina.

The government may not implement policies intended to redistribute income in which of the following economic systems?

laissez-faire capitalism

Answer the question on the basis of the data given in the following production possibilities table.

larger and larger amounts of capital goods must be sacrificed to get additional units of consumer goods.

A typical concave (bowed out from the origin) production possibilities curve implies

that society must choose among various attainable combinations of goods.

A characteristic of centrally planned economies is that

the price is relatively unimportant in allocating resources.

Refer to the diagram. Flow 1 represents

wage, rent, interest, and profit income.

Answer the question on the basis of the data given in the following production possibilities table. Refer to the table. A total output of 3 units of capital goods and 4 units of consumer goods

would involve an inefficient use of the economy's scarce resources.

Which of the following does not illustrate the idea of creative destruction?

A firm has to destroy some of the expired products in its inventory.

The market system's answer to the fundamental question "What will be produced?" is essentially

"Goods and services that are profitable."

One essential trade-off involving business risk in a market system is reflected in which of the following statements? - Access to the firm's profits and gains are open only to those who take on the business risk of the firm. - Those who receive guaranteed payments from the firm are also guaranteed a share of the firm's profits. - Those who make bad decisions regarding risk will suffer losses; those who decide wisely will gain profits. - Those who bear the business risk of the firm are guaranteed to always gain profits.

Access to the firm's profits and gains are open only to those who take on the business risk of the firm.

Why might a company use barter rather than money to make a trade?

Barter can enable two firms to trade when their cash flows are limited.

Which is one of the five fundamental questions that need to be dealt with in any economic system?

How will goods and services be produced?

Answer the question on the basis of the following production possibilities tables for two countries, North Cantina and South Cantina. Refer to the tables. Suppose that resources in North Cantina and South Cantina are identical in quantity and quality. We can conclude that

North Cantina has better technology than South Cantina in producing consumer goods but not capital goods.

Which of the following statements about self-interest in a market system is false?

Self-interest applies only to capitalists and entrepreneurs, not to workers employed by others.

The economic perspective entails

a comparison of marginal benefits and marginal costs in decision making

Which of the following is a labor resource?

a computer programmer

Which of the following lists includes only capital resources (and therefore no labor or land resources)? - an ice arena, a professional hockey player, hockey uniforms - the owner of a new start-up firm, a chemistry lab, a researcher - a hydroelectric dam, water behind the dam, power lines - autos owned by a car rental firm, computers at the car rental agency, vans used to shuttle rental customers to and from the airport

autos owned by a car rental firm, computers at the car rental agency, vans used to shuttle rental customers to and from the airport

A person should consume more of something when its marginal

benefit exceeds its marginal cost

Refer to the diagram. The variables X and Y are

directly related

An increase in the demand for a product and a reduction in its costs of production would

encourage firms to enter an industry.

The competitive market system

encourages innovation because successful innovators are rewarded with economic profits.

A positive statement is one that

focuses on facts, descriptions, and theoretical relationships

The market system is an economic system that

gives private individuals the right to own resources used in production.

The term "laissez-faire" suggests that

government should not interfere with the operation of the economy.

In the circular flow diagram, households get their ability to pay for their consumption expenditures from the

incomes they earn for their resources.

Given the information, and assuming trade occurs between the three states, we can expect

money to flow counter-clockwise from Michigan to Texas to Washington.

Joe sold gold coins for $1,000 that he bought a year ago for $1,000. He says, "At least I didn't lose any money on my financial investment." His economist friend points out that in effect he did lose money because he could have received a 3 percent return on the $1,000 if he had bought a bank certificate of deposit instead of the coins. The economist's analysis in this case incorporates the idea of

opportunity costs

The simple circular flow model shows that workers and capital owners offer their services to firms through the

resource markets.

The economic function of profits and losses is to

signal that resources should be reallocated.

The economies of North Korea and Cuba are

similar in that they are both basically command systems.

Macroeconomics can best be described as the

study of the large aggregates of the economy or the economy as a whole.

Risk management in command economies

tends to be done poorly because decision makers are insulated from the risk of making a poor decision.

The circular flow model illustrates

the interdependence of businesses and consumers.

Which of the following would be primarily determined in the resource markets?

the wage rates for computer programmers and engineers

Refer to the diagram. The combination of computers and bicycles shown by point G is

unattainable given currently available resources and technology.