Question 1

Of the following countries, which one best exhibits the characteristics of a market economy?

Accepted Answer

A)   Canada
B)   Cuba
C)   North Korea
D)   BelarusE) C) and D)
F) B) and C)

Question 2

The fundamental economic question regarding the distribution of output in the economy is equivalent to the question of who will produce the output.

Accepted Answer

A) True 
 B)False

Question 3

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

Accepted Answer

A)   Martha's believes a damaging earthquake is imminent.
B)   Stable Ground believes no damaging earthquakes will occur.
C)   Martha's has a lower tolerance for earthquake risk than Stable Ground.
D)   Martha's has a greater tolerance for earthquake risk than Stable Ground.E) None of the above
F) A) and B)

Question 4

The invisible hand refers to the

Accepted Answer

A)   fact that the U.S. tax system redistributes income from rich to poor.
B)   notion that, under competition, decisions motivated by self-interest promote the social interest.
C)   tendency of monopolistic sellers to raise prices above competitive levels.
D)   fact that government controls the functioning of the market system.E) A) and B)
F) B) and C)

Question 5

Which of the following guides sensible decisions regarding the management of business risk in a market system?

Accepted Answer

A)   the profit and loss system
B)   the "invisible hand"
C)   taxes and subsidies
D)   consumer sovereigntyE) A) and C)
F) None of the above

Question 6

Central planning in the Soviet Union and pre-reform China emphasized expanding the production of consumer goods to raise the domestic standard of living.

Accepted Answer

A) True 
 B)False

Question 7

An economic system in which money is not used as a medium of exchange is a

Accepted Answer

A)   planned economy.
B)   market economy.
C)   mixed economy.
D)   barter economy.E) None of the above
F) A) and D)

Question 8

In a command economy, the head of each household makes the fundamental economic choices such as what to produce and how to produce output.

Accepted Answer

A) True 
 B)False

Question 9

One of the most important economic resources is money.

Accepted Answer

A) True 
 B)False

Question 10

A characteristic of centrally planned economies is that

Accepted Answer

A)   the price is relatively unimportant in allocating resources.
B)   profits are the main measure of success of a firm.
C)   entrepreneurship is quite prevalent and highly rewarded.
D)   there are many incentives for innovation and hard work.E) B) and C)
F) A) and D)

Question 11

Which of the following is a distinguishing feature of a command system?

Accepted Answer

A)   private ownership of all capital
B)   central planning
C)   heavy reliance on markets
D)   widespread dispersion of economic powerE) B) and C)
F) B) and D)

Question 12

The term "laissez-faire" suggests that

Accepted Answer

A)   land and other natural resources should be privately owned, but capital should be publicly owned.
B)   land and other natural resources should be publicly owned, but capital should be privately owned.
C)   government should not interfere with the operation of the economy.
D)   government action is absolutely necessary if the economy is to achieve full employment and full production.E) B) and D)
F) A) and B)

Question 13

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) None of the above
F) All of the above

Question 14

(Consider This)  North Korea's command economy

Accepted Answer

A)   is one of the few remaining command economies.
B)   has grown much faster than South Korea's economy since the two countries were divided after World War II.
C)   produces a per capita GDP of nearly $25,000.
D)   has undergone significant market reforms and is now one of the fastest-growing economies.E) A) and C)
F) A) and D)

Question 15

Which of the following is not a reason why specialization and trade are beneficial to society?

Accepted Answer

A)   The total output of economic goods may be increased even without any increase in resources.
B)   Scarce resources are utilized more efficiently by exploiting differences among them.
C)   Specialization fosters learning by doing, thus lowering the unit-costs of products.
D)   Firms and workers become less dependent on others for producing goods and services.E) B) and C)
F) A) and B)

Question 16

Risk is a problem faced

Accepted Answer

A)   only in market systems.
B)   only in command systems.
C)   in both market systems and command systems.
D)   in neither market systems nor command systems, only in laissez-faire capitalism.E) B) and C)
F) A) and D)

Question 17

Even if prices are fixed and competition is restricted by the government, the invisible hand will still work in the economy and lead to economic efficiency.

Accepted Answer

A) True 
 B)False

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) B) and C)
F) C) and D)

Question 19

In a market system, self-interest is the motivating force that

Accepted Answer

A)   makes individuals unwilling to deliver anything of value to others.
B)   makes owners of resources always want to use their resources themselves.
C)   leads the economy to chaos and confusion, especially the larger economies.
D)   coordinates and creates consistency in the operations of various parts of the economy.E) A) and D)
F) A) and C)

Question 20

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

Accepted Answer

A)   product markets.
B)   resource markets.
C)   money markets.
D)   financial markets.E) A) and D)
F) A) and C)

Exam 2: The Market System and the Circular Flow

In a market system, self-interest is the motivating force that

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In a command economy, the head of each household makes the fundamental economic choices such as what to produce and how to produce output.

Correct AnswerverifiedShow Answer

The term "laissez-faire" suggests that

Correct AnswerverifiedShow Answer

(Consider This) North Korea's command economy

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Which of the following is not a reason why specialization and trade are beneficial to society?

Correct AnswerverifiedShow Answer

An economic system in which money is not used as a medium of exchange is a

Correct AnswerverifiedShow Answer

Which of the following is a distinguishing feature of a command system?

Correct AnswerverifiedShow Answer

A characteristic of centrally planned economies is that

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Even if prices are fixed and competition is restricted by the government, the invisible hand will still work in the economy and lead to economic efficiency.

Correct AnswerverifiedShow Answer

The fundamental economic question regarding the distribution of output in the economy is equivalent to the question of who will produce the output.

Correct AnswerverifiedShow Answer

Which of the following guides sensible decisions regarding the management of business risk in a market system?

Correct AnswerverifiedShow Answer

One of the most important economic resources is money.

Correct AnswerverifiedShow Answer

According to the circular flow model, product markets are where

Correct AnswerverifiedShow Answer

The invisible hand refers to the

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

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

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Of the following countries, which one best exhibits the characteristics of a market economy?

Correct AnswerverifiedShow Answer

Risk is a problem faced

Correct AnswerverifiedShow Answer

Central planning in the Soviet Union and pre-reform China emphasized expanding the production of consumer goods to raise the domestic standard of living.

Correct AnswerverifiedShow Answer

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