Question 1

(Consider This) Without government subsidized property insurance, people are more likely to be
cognizant of the risks of building and living in ﬁre-prone or ﬂood-prone areas because their insurance
costs will be higher.

Accepted Answer

A) True 
 B)False

Question 2

"For whom is a given mix of goods and services to be produced? How, in other words, are the society's outputs to be distributed among its members?" In a market economy, this question is resolved primarily
In the

Accepted Answer

A)   public sector through the mechanism of central planning.
B)   business sector through the mechanism of advertising.
C)   private sector through the earning and spending of income.
D)   money market through borrowing and saving by households and businesses.E) None of the above
F) B) and C)

Question 3

The dollar votes of consumers ultimately determine the composition of output and the allocation of resources in a market economy. This statement best describes the concept of

Accepted Answer

A)   derived demand.
B)   consumer sovereignty.
C)   the invisible hand.
D)   market failure.E) C) and D)
F) A) and B)

Question 4

Deﬁne the term economic system. Discuss the two ways in which economic systems can differ.

Accepted Answer

An economic system is a particular set o...

Question 5

The market system is an economic system that

Accepted Answer

A)   produces more consumer goods than capital goods.
B)   produces more capital goods than consumer goods.
C)   gives private individuals the right to own resources used in production.
D)   emphasizes the government's power to control markets and direct economic activity.E) A) and D)
F) C) and D)

Question 6

Consumer sovereignty and "dollar votes" guide the market system in dealing with which fundamental economic question?

Accepted Answer

A)   Which output will be produced?
B)   How is the output to be produced?
C)   How can the system accommodate change?
D)   Who is to receive the output?E) A) and B)
F) B) and D)

Question 7

Costs can be deﬁned as total payments made to workers, landowners, and capital suppliers less
payments to the entrepreneur for organizing and combining the other resources used to produce a
good.

Accepted Answer

A) True 
 B)False

Question 8

In a capitalist system, the decisions and actions of millions of consumers and ﬁrms are highly coordinated by

Accepted Answer

A)   the state governments.
B)   markets and prices.
C)   a central planning agency.
D)   an international organization.E) A) and C)
F) None of the above

Question 9

What advantage does a money economy have over a barter economy?

Accepted Answer

In economies where people use money as t...

Question 10

According to the circular ﬂow model, product markets are where

Accepted Answer

A)   households earn their money incomes.
B)   households acquire economic resources from businesses.
C)   businesses acquire their inputs from households.
D)   businesses earn their revenues from households.E) B) and D)
F) A) and C)

Question 11

Which of the following is one of the Five Fundamental Questions?

Accepted Answer

A)   Which products will be in scarce supply and which in excess supply?
B)   Who should appoint the head of the central bank?
C)   How much should society save?
D)   What goods and services will be produced?E) B) and D)
F) A) and C)

Question 12

Which of the following is not one of the ﬁve fundamental questions?

Accepted Answer

A)   What prices will be charged for goods and services?
B)   Who will get the goods and services?
C)   What goods and services will be produced?
D)   How will the system promote progress?E) A) and B)
F) B) and C)

Question 13

If products were in short or surplus supply in the Soviet Union,

Accepted Answer

A)   price and proﬁt signals eliminated those shortages and surpluses.
B)   price and proﬁt signals intensiﬁed those shortages and surpluses.
C)   producers would not react because no price or proﬁt signals occurred.
D)   the planners would immediately adjust production to achieve equilibrium.E) None of the above
F) B) and C)

Question 14

Market economies use capital goods because they improve productive eﬃciency.

Accepted Answer

A) True 
 B)False

Question 15

The wants of consumers are expressed in the product market with "dollar votes."

Accepted Answer

A) True 
 B)False

Question 16

Refer to the diagram. Arrows (1)  and (2)  represent

Accepted Answer

A)   goods and resources, respectively.
B)   money incomes and output, respectively.
C)   output and money incomes, respectively.
D)   resources and goods, respectively.E) A) and D)
F) None of the above

Question 17

Property rights are important because they

Accepted Answer

A)   ensure an equal distribution of income.
B)   encourage cooperation by improving the chances of mutually agreeable transactions.
C)   guarantee that any exchange will make all parties better off than prior to the exchange.
D)   allow the government to control how resources are allocated.E) B) and D)
F) All of the above

Question 18

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

Accepted Answer

A)   laissez-faire capitalism
B)   command systems
C)   a mixed economy
D)   the market systemE) C) and D)
F) B) and C)

Question 19

A market system tends to restrict business risk to owners and investors. This results in which of the following beneﬁts?

Accepted Answer

A)   It encourages more people to become entrepreneurs.
B)   Firms have to pay more to attract inputs, as these inputs have to share the risk.
C)   Firms focus attention on prudent risk management, as it is proﬁtable to manage risk.
D)   Income becomes more equally distributed.E) All of the above
F) A) and B)

Question 20

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

Accepted Answer

A)   "Goods and services that are proﬁtable."
B)   "Low-cost goods and services."
C)   "Goods and services that can be produced using large amounts of capital."
D)   "Goods and services that possess lasting value."E) B) and C)
F) A) and D)

Exam 2: The Market System and the Circular Flow

What advantage does a money economy have over a barter economy?

Correct AnswerverifiedIn economies where people use money as t...View AnswerShow Answer

Market economies use capital goods because they improve productive eﬃciency.

Correct AnswerverifiedShow Answer

Deﬁne the term economic system. Discuss the two ways in which economic systems can differ.

Correct AnswerverifiedAn economic system is a particular set o...View AnswerShow Answer

The market system is an economic system that

Correct AnswerverifiedShow Answer

A market system tends to restrict business risk to owners and investors. This results in which of the following beneﬁts?

Correct AnswerverifiedShow Answer

(Consider This) Without government subsidized property insurance, people are more likely to be cognizant of the risks of building and living in ﬁre-prone or ﬂood-prone areas because their insurance costs will be higher.

Correct AnswerverifiedShow Answer

Costs can be deﬁned as total payments made to workers, landowners, and capital suppliers less payments to the entrepreneur for organizing and combining the other resources used to produce a good.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In a capitalist system, the decisions and actions of millions of consumers and ﬁrms are highly coordinated by

Correct AnswerverifiedShow Answer

Which of the following is one of the Five Fundamental Questions?

Correct AnswerverifiedShow Answer

The wants of consumers are expressed in the product market with "dollar votes."

Correct AnswerverifiedShow Answer

Property rights are important because they

Correct AnswerverifiedShow Answer

Refer to the diagram. Arrows (1) and (2) represent

Correct AnswerverifiedShow Answer

If products were in short or surplus supply in the Soviet Union,

Correct AnswerverifiedShow Answer

"For whom is a given mix of goods and services to be produced? How, in other words, are the society's outputs to be distributed among its members?" In a market economy, this question is resolved primarily In the

Correct AnswerverifiedShow Answer

According to the circular ﬂow model, product markets are where

Correct AnswerverifiedShow Answer

Consumer sovereignty and "dollar votes" guide the market system in dealing with which fundamental economic question?

Correct AnswerverifiedShow Answer

The dollar votes of consumers ultimately determine the composition of output and the allocation of resources in a market economy. This statement best describes the concept of

Correct AnswerverifiedShow Answer

Which of the following is not one of the ﬁve fundamental questions?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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In economies where people use money as t...
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An economic system is a particular set o...
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