Question 1

The choice of the most efficient production technique is not affected by how much buyers want to buy the product.

Accepted Answer

A) True 
 B)False

Question 2

In terms of the circular flow diagram, households make expenditures in the _____ market and receive income through the _____ market.

Accepted Answer

A)  product; financial
B)  resource; product
C)  product; resource
D)  capital; productE) A) and B)
F) B) and D)

Question 3

"Because the outputs of many industries are the inputs to other industries, the failure of any single industry to fulfil the output quantities specified in the central plan caused a chain reaction of adverse repercussions on production." This quotation best identifies the

Accepted Answer

A)  incentive problem under central planning.
B)  self-sufficiency dilemma under communism.
C)  resource overcommitment problem under communism.
D)  coordination problem under central planning.E) B) and C)
F) A) and B)

Question 4

In a market system, more resources will move toward an industry and expand its production if the industry has

Accepted Answer

A)  positive revenues.
B)  positive costs.
C)  TC 
D)  TC > TR.E) B) and D)
F) None of the above

Question 5

Which of the following would not be emphasized in a capitalist economy?

Accepted Answer

A)  private ownership of capital and other resources
B)  competition and decentralized decisions regarding production and consumption
C)  reliance on market forces to coordinate economic activity
D)  prevention of firms from exposing themselves to financial riskE) B) and C)
F) B) and D)

Question 6

In the resource market,

Accepted Answer

A)  businesses borrow financial capital from households.
B)  businesses sell services to households.
C)  households sell resources to businesses.
D)  firms sell raw materials to households.E) B) and C)
F) A) and D)

Question 7

A market system is characterized by the private ownership of resources and the use of prices to coordinate economic activity.

Accepted Answer

A) True 
 B)False

Question 8

The idea that the desires of resource suppliers and firms to further their own self-interest will automatically further the public interest is known as

Accepted Answer

A)  consumer sovereignty.
B)  the invisible hand.
C)  derived demand.
D)  creative destruction.E) None of the above
F) All of the above

Question 9

All of the following statements describe a market economy except

Accepted Answer

A)  government prescribes the market prices for goods and services.
B)  prices provide important signals to buyers and sellers.
C)  the allocation of resources is determined by their prices.
D)  the actions of buyers and sellers establish a product's price.E) All of the above
F) A) and D)

Question 10

The invisible hand concept suggests that

Accepted Answer

A)  market failures imply the need for a national economic plan.
B)  big businesses are inherently more efficient than small businesses.
C)  the competitiveness of a capitalistic market economy invariably diminishes over time.
D)  assuming competition, private and public interests will coincide.E) None of the above
F) B) and C)

Question 11

Refer to the provided figure. If box A represents households, B the product market, and C businesses, then flow (2) and flow (4) would represent

Accepted Answer

A)  the flow of labor and other resources.
B)  the flow of goods and services.
C)  business spending revenues.
D)  money incomes and consumer spending.E) None of the above
F) B) and C)

Question 12

In a market economy, a significant change in consumers' desire for product X will

Accepted Answer

A)  alter the profits or losses received by suppliers of product X.
B)  cause a reallocation of scarce resources.
C)  cause some industries to expand and others to contract.
D)  do all the things mentioned in the other answers.E) All of the above
F) None of the above

Question 13

The presence of market failures implies that

Accepted Answer

A)  money is not an effective tool for exchange in a market system.
B)  there is an active role for government, even in a market system.
C)  individuals and firms should strive to be self-sufficient rather than specialize.
D)  command systems are superior to market systems in the allocation of resources.E) None of the above
F) C) and D)

Question 14

Which of the following is not a typical characteristic of a market system?

Accepted Answer

A)  freedom of choice
B)  competition in product and resource markets
C)  consumer sovereignty
D)  lack of incentives to produce new products
E)  profit as a success indicatorF) D) and E)
G) C) and E)

Question 15

Competition in a market system denotes a condition where

Accepted Answer

A)  the diffusion of economic power limits its potential abuse.
B)  any given product can be purchased at a wide range of prices.
C)  contractual agreements among individual firms are restricted and avoided.
D)  a few large, dominant sellers are constantly jostling for market share.E) None of the above
F) B) and C)

Question 16

The main mechanism that regulates the market system is

Accepted Answer

A)  self-interest.
B)  private property.
C)  competition.
D)  freedom of enterprise and choice.E) A) and C)
F) None of the above

Question 17

In a market system, the distribution of goods and services among consumers is largely determined by

Accepted Answer

A)  the willingness and ability of consumers to pay the prices.
B)  whoever needs the goods and services the most.
C)  whoever has the closest connection to firms and the government.
D)  a random factor that is almost impossible to predict.E) A) and B)
F) B) and C)

Question 18

"Under central planning, some group has to decide how to get the necessary inputs produced in the right amounts and delivered to the right places at the right time. This is a nearly impossible task without markets and profits." This quotation best identifies the

Accepted Answer

A)  incentive problem under central planning.
B)  coordination problem under central planning.
C)  self-sufficiency dilemma under communism.
D)  resource overcommitment problem under communism.E) All of the above
F) C) and D)

Question 19

If competitive industry Y is incurring substantial losses, output will

Accepted Answer

A)  expand as resources move toward industry Y.
B)  contract as resources move toward industry Y.
C)  contract as resources move away from industry Y.
D)  expand as resources move away from industry Y.E) C) and D)
F) A) and B)

Question 20

In a market system, as one industry expands while another contracts, resources will flow

Accepted Answer

A)  away from the expanding industry toward the contracting one.
B)  across industries, driven by the changes in resource prices paid by firms.
C)  toward the industry where the product demand is declining.
D)  because resource allocation will have to equalize between the two industries.E) A) and B)
F) All of the above

Exam 2: The Market System and the Circular Flow

In terms of the circular flow diagram, households make expenditures in the _____ market and receive income through the _____ market.

Correct AnswerverifiedShow Answer

If competitive industry Y is incurring substantial losses, output will

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Refer to the provided figure. If box A represents households, B the product market, and C businesses, then flow (2) and flow (4) would represent

Correct AnswerverifiedShow Answer

"Because the outputs of many industries are the inputs to other industries, the failure of any single industry to fulfil the output quantities specified in the central plan caused a chain reaction of adverse repercussions on production." This quotation best identifies the

Correct AnswerverifiedShow Answer

Competition in a market system denotes a condition where

Correct AnswerverifiedShow Answer

All of the following statements describe a market economy except

Correct AnswerverifiedShow Answer

A market system is characterized by the private ownership of resources and the use of prices to coordinate economic activity.

Correct AnswerverifiedShow Answer

In the resource market,

Correct AnswerverifiedShow Answer

The invisible hand concept suggests that

Correct AnswerverifiedShow Answer

The presence of market failures implies that

Correct AnswerverifiedShow Answer

In a market system, the distribution of goods and services among consumers is largely determined by

Correct AnswerverifiedShow Answer

"Under central planning, some group has to decide how to get the necessary inputs produced in the right amounts and delivered to the right places at the right time. This is a nearly impossible task without markets and profits." This quotation best identifies the

Correct AnswerverifiedShow Answer

The choice of the most efficient production technique is not affected by how much buyers want to buy the product.

Correct AnswerverifiedShow Answer

In a market system, more resources will move toward an industry and expand its production if the industry has

Correct AnswerverifiedShow Answer

Which of the following would not be emphasized in a capitalist economy?

Correct AnswerverifiedShow Answer

The idea that the desires of resource suppliers and firms to further their own self-interest will automatically further the public interest is known as

Correct AnswerverifiedShow Answer

In a market system, as one industry expands while another contracts, resources will flow

Correct AnswerverifiedShow Answer

Which of the following is not a typical characteristic of a market system?

Correct AnswerverifiedShow Answer

The main mechanism that regulates the market system is

Correct AnswerverifiedShow Answer

In a market economy, a significant change in consumers' desire for product X will

Correct AnswerverifiedShow Answer

In terms of the circular flow diagram, households make expenditures in the _ market and receive income through the _ market.

Correct Answer
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