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) None of the above
F) All of the above

Question 2

Specialization in production is important primarily because it

Accepted Answer

A)   results in greater total output.
B)   allows society to avoid the coincidence-of-wants problem.
C)   allows society to trade by barter.
D)   allows society to have fewer capital goods.E) A) and D)
F) B) and C)

Question 3

Competition is more likely to exist when

Accepted Answer

A)   there is easy entry into and exit out of industries.
B)   a government-issued license is required to set up a ﬁrm in an industry.
C)   the government purchases most goods and services.
D)   economic power is concentrated among a few large ﬁrms.E) B) and C)
F) A) and C)

Question 4

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

Question 5

A fundamental difference between the command system and laissez-faire capitalism is that, in command systems,

Accepted Answer

A)   the division of output is decided by central planning rather than by individuals operating freely through markets.
B)   all economic decisions are made by the government, whereas there is no government in laissez-faire capitalism.
C)   scarcity does not exist, whereas it does in laissez-faire capitalism.
D)   money is not used, whereas it is in laissez-faire capitalism.E) B) and D)
F) A) and B)

Question 6

Which of the following is true of an economy that operates entirely through central planning?

Accepted Answer

A)   An individual's success in business is based on political savvy rather than economic proﬁtability.
B)   There is relative ease in matching resource allocation to consumer demand by the central planners.
C)   Central planners receive market information and coordinate economic activity through the price mechanism.
D)   The system adapts easily to technological change, because there is a healthy entrepreneurial spirit.E) None of the above
F) A) and C)

Question 7

Explain what is meant by a command economy.

Accepted Answer

A method of organizing an economy in whi...

Question 8

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 9

In a market economy, the distribution of output will be determined primarily by

Accepted Answer

A)   consumer needs and preferences.
B)   the quantities and prices of the resources that households supply.
C)   government regulations that provide a minimum income for all.
D)   a social consensus as to which distribution of income is most equitable.E) B) and C)
F) A) and B)

Question 10

Suppose a ?rm can produce 70 units of a product, Zenia, by combining labor, land, capital, and entrepreneurial ability, as in the four alternative techniques shown in the table below. Assume further
That the ?rm can hire labor at $3 per unit, land at $3 per unit, capital at $6 per unit, and entrepreneurship
At $9 per unit.
                                            Techniques~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~Techniques                                            Techniques 
 ABCD Labor 41065 Land 5333 Capital 5244 Entrepreneurship 1111\begin{array} { | l | c | c | c | c | } \hline & A & B & C & D \\hline 	ext { Labor } & 4 & 10 & 6 & 5 \\hline 	ext { Land } & 5 & 3 & 3 & 3 \\hline 	ext { Capital } & 5 & 2 & 4 & 4 \\hline 	ext { Entrepreneurship } & 1 & 1 & 1 & 1 \\hline\end{array} Labor  Land  Capital  Entrepreneurship ​A4551​B10321​C6341​D5341​​  Refer to the provided table. If the price of labor declines from $3 to $2 per unit, then what is the least
Costly way of producing Zenias?

Accepted Answer

A)   A
B)   B
C)   C
D)   D E) All of the above
F) A) and B)

Question 11

Businesses seeking higher proﬁts and resource suppliers seeking higher incomes lead to changes in the allocation of resources among different ﬁrms and end up with

Accepted Answer

A)   consumers at the losing end.
B)   output that society wants.
C)   unnecessary conﬂict and turmoil.
D)   a need for government action.E) C) and D)
F) A) and B)

Question 12

The most eﬃcient combination of resources in producing a given output is the combination that

Accepted Answer

A)   comes closest to using the same quantities of land, labor, capital, and entrepreneurial ability.
B)   minimizes the cost per unit of output.
C)   uses the smallest total quantity of all resources.
D)   conserves most on the use of labor.E) All of the above
F) None of the above

Question 13

Firms are motivated to minimize production costs because

Accepted Answer

A)   it is the most environmentally friendly way to produce goods.
B)   least-cost production techniques use the smallest total quantity of resources.
C)   competitive pressures in the market will drive out higher-cost producers.
D)   the government provides tax credits and subsidies to low-cost producers.E) A) and D)
F) B) and D)

Question 14

In a market system, entrepreneurs start businesses in order to earn a high salary.

Accepted Answer

A) True 
 B)False

Question 15

Adam Smith in his 1776 book the Wealth of Nations describes the concept of "an invisible hand." Explain
what he means by an "invisible hand."

Accepted Answer

Firms and resource suppliers, seeking to...

Question 16

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

Question 17

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 18

In a market system, the "What will be produced?" question is ultimately decided by

Accepted Answer

A)   proﬁtability of products.
B)   costs of production.
C)   workers in the ﬁrms.
D)   industry analysts.E) B) and C)
F) A) and D)

Question 19

The term dollar votes in a market system means

Accepted Answer

A)   inﬂation will occur if consumers don't spend wisely.
B)   voters may be offered dollars to help elect certain political candidates.
C)   government is responsible for determining what will be considered legal tender.
D)   consumers "vote" for certain products to be produced by how they spend their incomes.E) C) and D)
F) B) and C)

Question 20

What are the two main problems that have caused the demise of the command systems?

Accepted Answer

The ﬁrst diﬃculty was the coordination p...

Exam 2: The Market System and the Circular Flow

Correct Answer
verified

Firms are motivated to minimize production costs because

Correct Answer
verified

The term dollar votes in a market system means

Correct Answer
verified

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

Correct Answer
verified

A fundamental difference between the command system and laissez-faire capitalism is that, in command systems,

Correct Answer
verified

The most eﬃcient combination of resources in producing a given output is the combination that

Correct Answer
verified

Businesses seeking higher proﬁts and resource suppliers seeking higher incomes lead to changes in the allocation of resources among different ﬁrms and end up with

Correct Answer
verified

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

Correct Answer
verified

Competition is more likely to exist when

Correct Answer
verified

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

Correct Answer
verified

Specialization in production is important primarily because it

Correct Answer
verified

In a market economy, the distribution of output will be determined primarily by

Correct Answer
verified

What are the two main problems that have caused the demise of the command systems?

Correct Answer
verified
The ﬁrst diﬃculty was the coordination p...
View Answer

Which of the following is true of an economy that operates entirely through central planning?

Correct Answer
verified

Explain what is meant by a command economy.

Correct Answer
verified
A method of organizing an economy in whi...
View Answer

In a market system, the "What will be produced?" question is ultimately decided by

Correct Answer
verified

Adam Smith in his 1776 book the Wealth of Nations describes the concept of "an invisible hand." Explain what he means by an "invisible hand."

Correct Answer
verified
Firms and resource suppliers, seeking to...
View Answer

The main mechanism that regulates the market system is

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

Correct Answer
verified

In a market system, entrepreneurs start businesses in order to earn a high salary.

Correct Answer
verified

Exam 2: The Market System and the Circular Flow

Correct AnswerverifiedShow Answer

Firms are motivated to minimize production costs because

Correct AnswerverifiedShow Answer

The term dollar votes in a market system means

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

A fundamental difference between the command system and laissez-faire capitalism is that, in command systems,

Correct AnswerverifiedShow Answer

The most eﬃcient combination of resources in producing a given output is the combination that

Correct AnswerverifiedShow Answer

Businesses seeking higher proﬁts and resource suppliers seeking higher incomes lead to changes in the allocation of resources among different ﬁrms and end up with

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Competition is more likely to exist when

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Specialization in production is important primarily because it

Correct AnswerverifiedShow Answer

In a market economy, the distribution of output will be determined primarily by

Correct AnswerverifiedShow Answer

What are the two main problems that have caused the demise of the command systems?

Correct AnswerverifiedThe ﬁrst diﬃculty was the coordination p...View AnswerShow Answer

Which of the following is true of an economy that operates entirely through central planning?

Correct AnswerverifiedShow Answer

Explain what is meant by a command economy.

Correct AnswerverifiedA method of organizing an economy in whi...View AnswerShow Answer

In a market system, the "What will be produced?" question is ultimately decided by

Correct AnswerverifiedShow Answer

Adam Smith in his 1776 book the Wealth of Nations describes the concept of "an invisible hand." Explain what he means by an "invisible hand."

Correct AnswerverifiedFirms and resource suppliers, seeking to...View AnswerShow Answer

The main mechanism that regulates the market system is

Correct AnswerverifiedShow Answer

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

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In a market system, entrepreneurs start businesses in order to earn a high salary.

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Correct Answer
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Correct Answer
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The ﬁrst diﬃculty was the coordination p...
View Answer

Correct Answer
verified

Correct Answer
verified
A method of organizing an economy in whi...
View Answer

Correct Answer
verified

Correct Answer
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Firms and resource suppliers, seeking to...
View Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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