Question 1

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 2

According to the concept of the "invisible hand," if Susie opens and operates a proﬁtable childcare center, then

Accepted Answer

A)   government should regulate the business to ensure quality.
B)   the proﬁt Susie earns indicates that she is overcharging for her services.
C)   she has served society's interests by providing a desired good or service.
D)   this demonstrates that consumer sovereignty is not present in this market.E) A) and D)
F) None of the above

Question 3

The two basic markets shown by the simple circular ﬂow model are

Accepted Answer

A)   capital goods and consumer goods.
B)   competitive and regulated.
C)   product and resource.
D)   household and business.E) A) and B)
F) A) and C)

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) A) and C)
F) A) and B)

Question 5

In a command system,

Accepted Answer

A)   self-interest motivates and commands each business ﬁrm's decisions and actions.
B)   the head of each family decides and commands what to do with the family's resources.
C)   a government-appointed planning board makes production and allocation decisions.
D)   market traders command what outputs are produced and how they are allocated.E) A) and C)
F) None of the above

Question 6

Refer to the diagram. Flow 1 represents

Accepted Answer

A)   wage, rent, interest, and proﬁt income.
B)   land, labor, capital, and entrepreneurial ability.
C)   goods and services.
D)   consumer expenditures.E) B) and D)
F) None of the above

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

Question 8

The following table illustrates alternative production techniques for producing 18 widgets that can be sold for $1 each, for a total revenue of $18.
 Based on the data given in the table, the most economically eﬃcient production technique is

Accepted Answer

A)   A.
B)   B.
C)   C.
D)   D.E) A) and B)
F) B) and C)

Question 9

Which of the following is not a major category of business structure?

Accepted Answer

A)   sole proprietorship
B)   partnership
C)   public agency
D)   corporationE) All of the above
F) A) and B)

Question 10

The market economy is regarded as "eﬃcient" in that

Accepted Answer

A)   it achieves the lowest rate of unemployment.
B)   it leads to the lowest level of poverty in the society.
C)   it directs resources toward products that the society wants most.
D)   it puts the best people in government positions.E) B) and C)
F) C) and D)

Question 11

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 12

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 13

Quantitative measures of managerial success, such as production targets or quotas, are highly foolproof
and are thus ideal to use in increasing economic eﬃciency.

Accepted Answer

A) True 
 B)False

Question 14

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

Question 15

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) All of the above
F) B) and C)

Question 16

The main characteristics of a modern market system include all of the following except

Accepted Answer

A)   entrepreneurs are free to obtain and use resources to produce goods and services.
B)   consumers are free to buy goods and services that their budgets allow.
C)   economic power is diffused by competition among economic units.
D)   government is restricted to national defense and does not intervene at all in various markets.E) A) and D)
F) B) and D)

Question 17

According to the circular ﬂow model of the market system, ﬁrms get their ability to pay for their costs of
production from the revenues that they receive for their products.

Accepted Answer

A) True 
 B)False

Question 18

Specialization may expand total output even though the individuals involved may have identical abilities.

Accepted Answer

A) True 
 B)False

Question 19

Specialization is beneﬁcial

Accepted Answer

A)   at the individual ﬁrm level, but not at the national and international levels.
B)   at the individual, regional, and even international levels.
C)   only if there are differences in the abilities of resources.
D)   only as long as money and capital goods are employed.E) A) and B)
F) None of the above

Question 20

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.E) A) and D)
F) None of the above

Exam 2: The Market System and the Circular Flow

In a command system,

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The main characteristics of a modern market system include all of the following except

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

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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

According to the circular ﬂow model of the market system, ﬁrms get their ability to pay for their costs of production from the revenues that they receive for their products.

Correct AnswerverifiedShow Answer

The two basic markets shown by the simple circular ﬂow model are

Correct AnswerverifiedShow Answer

With specialization in a market economy, individual

Correct AnswerverifiedShow Answer

Quantitative measures of managerial success, such as production targets or quotas, are highly foolproof and are thus ideal to use in increasing 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

The following table illustrates alternative production techniques for producing 18 widgets that can be sold for $1 each, for a total revenue of $18. Based on the data given in the table, the most economically eﬃcient production technique is

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Specialization may expand total output even though the individuals involved may have identical abilities.

Correct AnswerverifiedShow Answer

The market economy is regarded as "eﬃcient" in that

Correct AnswerverifiedShow Answer

According to the concept of the "invisible hand," if Susie opens and operates a proﬁtable childcare center, then

Correct AnswerverifiedShow Answer

Refer to the diagram. Flow 1 represents

Correct AnswerverifiedShow Answer

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

Which of the following is not a major category of business structure?

Correct AnswerverifiedShow Answer

Specialization is beneﬁcial

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

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

Correct AnswerverifiedShow Answer

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