Question 1

The invisible hand promotes society's interests because

Accepted Answer

A)  individuals pursuing their self-interest will try to produce goods and services that people in society want and are willing to purchase.
B)  individuals will produce goods for others out of concern for their fellow human beings.
C)  it makes sure that everyone wins from competition in the market.
D)  government regulation pushes business into producing the right mix of goods and services.E) B) and C)
F) A) and D)

Question 2

Profits are the primary "success indicator" for firms in a centrally planned economy.

Accepted Answer

A) True 
 B)False

Question 3

Laissez-faire capitalism limits the government's economic functions to the following, except

Accepted Answer

A)  protecting private property rights.
B)  establishing a legal environment to enforce contracts among individuals.
C)  preventing individuals and firms from coercing others.
D)  setting prices of individual goods and services.E) A) and B)
F) A) and C)

Question 4

Which of the following is necessary to make a trade in a barter economy?

Accepted Answer

A)  money
B)  unlimited wants
C)  a medium of exchange
D)  a coincidence of wantsE) All of the above
F) B) and D)

Question 5

If people tried to produce most of what they need on their own, then this would lead to a more efficient use of the economy's resources.

Accepted Answer

A) True 
 B)False

Question 6

The invisible hand refers to the many indirect controls that the federal government imposes in a market system.

Accepted Answer

A) True 
 B)False

Question 7

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

Accepted Answer

In economies where people use money as t...

Question 8

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) B) and C)

Question 9

The market system communicates changes in market conditions and elicits appropriate responses from businesses and resource suppliers through changes in prices. This is known as the

Accepted Answer

A)  guiding function of prices.
B)  monetary function of prices.
C)  circular flow of income.
D)  market determination of prices.E) All of the above
F) B) and D)

Question 10

The term consumer sovereignty means that

Accepted Answer

A)  government is responsible for protecting consumers' interests.
B)  what is produced is ultimately determined by what consumers buy.
C)  there are no limits on what consumers may buy in a market system.
D)  producers have strong control over what consumers buy.E) B) and C)
F) All of the above

Question 11

The highly influential book by Adam Smith, who brought up the "invisible hand" notion, is titled

Accepted Answer

A)  Freakonomics.
B)  The Principles of Economics.
C)  The Age of the Economist.
D)  The Wealth of Nations.E) A) and B)
F) B) and C)

Question 12

The market system's answer to the fundamental question "How will the goods and services be produced?" is essentially

Accepted Answer

A)  "With as much machinery as possible."
B)  "Using the latest technology."
C)  "By exploiting labor."
D)  "In ways that minimize the cost per unit of output."E) A) and C)
F) B) and C)

Question 13

In the circular flow model of the market system, households' major role is to

Accepted Answer

A)  buy both products and resources.
B)  sell both products and resources.
C)  buy products and sell resources.
D)  sell products and buy resources.E) B) and C)
F) A) and D)

Question 14

Capitalism gets its name from the fact that capital resources are mostly

Accepted Answer

A)  owned by the state or government.
B)  given the highest priority in the economy's income distribution.
C)  treated as private property.
D)  in the form of money and financial resources.E) C) and D)
F) A) and D)

Question 15

The market system

Accepted Answer

A)  produces considerable inefficiency in the use of scarce resources.
B)  effectively harnesses the incentives of workers and entrepreneurs.
C)  is not consistent with freedom of choice in the long run.
D)  has slowly lost ground to emerging command systems.E) None of the above
F) All of the above

Question 16

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 D)
F) A) and B)

Question 17

The following table illustrates alternative production techniques for producing 18 widgets that can be sold for $1 each for a total revenue of $18.  Using technique A will result in an

Accepted Answer

A)  economic loss of $2.
B)  economic profit of $1.
C)  economic profit of $2.
D)  economic profit of $3.E) A) and B)
F) None of the above

Question 18

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

Question 19

Broadly defined, competition involves

Accepted Answer

A)  private property and freedom of expression.
B)  independently acting buyers and sellers and freedom to enter or leave markets.
C)  increasing opportunity costs and diminishing marginal utility.
D)  capital goods and division of labor.E) A) and C)
F) All of the above

Question 20

Laissez-faire capitalism is characterized by

Accepted Answer

A)  a very limited government role in the economy.
B)  active government intervention in the economy.
C)  individuals and firms abiding by a government economic plan.
D)  the economic system of the United States today.E) A) and D)
F) A) and B)

Exam 2: The Market System and the Circular Flow

Which of the following is necessary to make a trade in a barter economy?

Correct AnswerverifiedShow Answer

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

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

The market system's answer to the fundamental question "How will the goods and services be produced?" is essentially

Correct AnswerverifiedShow Answer

Profits are the primary "success indicator" for firms in a centrally planned economy.

Correct AnswerverifiedShow Answer

The invisible hand refers to the many indirect controls that the federal government imposes in a market system.

Correct AnswerverifiedShow Answer

If people tried to produce most of what they need on their own, then this would lead to a more efficient use of the economy's resources.

Correct AnswerverifiedShow Answer

The market system communicates changes in market conditions and elicits appropriate responses from businesses and resource suppliers through changes in prices. This is known as the

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The market system

Correct AnswerverifiedShow Answer

Laissez-faire capitalism limits the government's economic functions to the following, except

Correct AnswerverifiedShow Answer

In the circular flow model of the market system, households' major role is to

Correct AnswerverifiedShow Answer

The term consumer sovereignty means that

Correct AnswerverifiedShow Answer

The invisible hand promotes society's interests because

Correct AnswerverifiedShow Answer

A characteristic of centrally planned economies is that

Correct AnswerverifiedShow Answer

The highly influential book by Adam Smith, who brought up the "invisible hand" notion, is titled

Correct AnswerverifiedShow Answer

Broadly defined, competition involves

Correct AnswerverifiedShow Answer

Laissez-faire capitalism is characterized by

Correct AnswerverifiedShow Answer

Capitalism gets its name from the fact that capital resources are mostly

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. Using technique A will result in an

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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In economies where people use money as t...
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