Question 1

Which of the following best describes the "invisible hand" concept?

Accepted Answer

A)  Ample regulation of business by the government will maximize the public's best interests.
B)  The market system works best when resources are free to move from one use to another.
C)  The problem of scarcity can best be overcome in a system of mixed capitalism.
D)  Self-interest in a market system will automatically promote the public interest as well.E) All of the above
F) A) and B)

Question 2

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 3

In a market system,

Accepted Answer

A)  firm owners and employees share business risk more or less equally.
B)  a firm's employees and suppliers are largely shielded from risk, relative to business owners.
C)  employees and suppliers face the greatest risks, because firms can shut down without notice and leave them unpaid.
D)  a firm's owners are largely shielded from risk because they can walk away from the business at any time.E) All of the above
F) A) and B)

Question 4

In a market system, a firm's employees are typically shielded from business risk by

Accepted Answer

A)  profit-sharing agreements.
B)  wage contracts.
C)  the Social Security program.
D)  paid vacation leaves.E) All of the above
F) None of the above

Question 5

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 D)
F) All of the above

Question 6

If economic profits in a particular industry increase, then we would expect

Accepted Answer

A)  resources to be diverted away from that industry.
B)  firms in that industry to produce less output.
C)  firms to enter that industry, thus expanding it.
D)  consumers to buy less from that industry.E) None of the above
F) A) and C)

Question 7

Which of the following is a distinguishing feature of laissez-faire capitalism?

Accepted Answer

A)  public ownership of all capital
B)  central planning
C)  minimal government intervention
D)  a circular flow of goods, resources, and moneyE) B) and C)
F) A) and C)

Question 8

Property rights give the government the right to own, use, and dispose of resources in an economy.Difficulty: 01 Easy
Learning Objective: 02-02 List the main characteristics of the market system.Test Bank: II Topic: Characteristics of the Market System

Accepted Answer

A) True 
 B)False

Question 9

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

Accepted Answer

A)  revenues they receive for their products.
B)  costs they incur for resources.
C)  incomes they earn for their resources.
D)  goods and services they get in the product markets.E) A) and B)
F) A) and C)

Question 10

Which of the following characteristics is least unique to a market system?

Accepted Answer

A)  private ownership of property resources
B)  competition among buyers and sellers pursuing monetary returns
C)  the widespread use of money
D)  freedom of enterprise and choiceE) A) and B)
F) A) and C)

Question 11

Which of the following statements about the right to private ownership is false?

Accepted Answer

A)  It enables individuals to obtain, use, and dispose of land and capital resources as they see fit.
B)  It encourages investment and innovation, and thus fosters economic growth.
C)  It extends to intangibles such as pieces of music and computer programs.
D)  It weakens the incentive to maintain the property that one already owns.E) None of the above
F) A) and B)

Question 12

When somebody buys an insurance policy, that person is seeking to transfer risk away from herself and pass it on to the insurance company.

Accepted Answer

A) True 
 B)False

Question 13

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) C) and D)
F) A) and C)

Question 14

The division of labor means that

Accepted Answer

A)  labor markets are geographically segmented.
B)  unskilled workers outnumber skilled workers.
C)  workers specialize in various production tasks.
D)  each worker performs a large number of tasks.E) All of the above
F) A) and B)

Question 15

With specialization in a market economy, individual

Accepted Answer

A)  firms produce a wide range of products.
B)  producers consume little or none of the products they produce.
C)  producers consume most of the output that they produce.
D)  consumers have to produce most of what they consume.Difficulty: 01 EasyE) All of the above
F) C) and D)

Question 16

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 17

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 18

Freedom of enterprise

Accepted Answer

A)  is a characteristic that is common to most economic systems.
B)  in a market system means that entrepreneurs can obtain and use economic resources without any legal restraint.
C)  allows businesses, within broad limits, to choose what goods to produce.
D)  refers primarily to the right of consumers to purchase what they want.E) A) and B)
F) C) and D)

Question 19

Consumer sovereignty means that legislation now protects the rights of consumers to dispose of their incomes as they see fit.

Accepted Answer

A) True 
 B)False

Question 20

In a competitive market economy, firms select the least-cost production technique because

Accepted Answer

A)  such choices will result in full employment of available resources.
B)  to do so will maximize the firms' profits.
C)  this will prevent new firms from entering the industry.
D)  "dollar voting" by consumers mandates such a choice.E) A) and B)
F) A) and C)

Exam 2: The Market System and the Circular Flow

Which of the following best describes the "invisible hand" concept?

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

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With specialization in a market economy, individual

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When somebody buys an insurance policy, that person is seeking to transfer risk away from herself and pass it on to the insurance company.

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Which of the following is a distinguishing feature of laissez-faire capitalism?

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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.

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Which of the following characteristics is least unique to a market system?

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In a market system, a firm's employees are typically shielded from business risk by

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Which of the following statements about the right to private ownership is false?

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Freedom of enterprise

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

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Property rights give the government the right to own, use, and dispose of resources in an economy.Difficulty: 01 Easy Learning Objective: 02-02 List the main characteristics of the market system.Test Bank: II Topic: Characteristics of the Market System

Correct AnswerverifiedShow Answer

In a competitive market economy, firms select the least-cost production technique because

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The division of labor means that

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Risk is a problem faced

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If economic profits in a particular industry increase, then we would expect

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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

Consumer sovereignty means that legislation now protects the rights of consumers to dispose of their incomes as they see fit.

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

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In a market system,

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