Question 1

In a market system, the distribution of goods and services among consumers is largely determined by

Accepted Answer

A)   the willingness and ability of consumers to pay the prices.
B)   whoever needs the goods and services the most.
C)   whoever has the closest connection to ﬁrms and the government.
D)   a random factor that is almost impossible to predict.E) B) and D)
F) All of the above

Question 2

In a market system, a consumer's ability to pay-but not necessarily his willingness to pay-is largely
based on his income.

Accepted Answer

A) True 
 B)False

Question 3

What role does freedom play in capitalism? How important is it to the operation of a competitive market
economy?

Accepted Answer

Within legal limitations, freedom of ent...

Question 4

Government bailouts of failing businesses, like banks during the 2008 ﬁnancial crisis, will tend to reduce
the motivation among entrepreneurs to make prudent decisions in dealing with business risk.

Accepted Answer

A) True 
 B)False

Question 5

An important aspect of the market system is that producers and consumers always have to consider the
public interest in making production and consumption decisions.

Accepted Answer

A) True 
 B)False

Question 6

In the simple circular ﬂow model,

Accepted Answer

A)   households are buyers of resources.
B)   businesses are sellers of ﬁnal products.
C)   households are sellers of ﬁnal products.
D)   there are real ﬂows of goods, services, and resources, but not money ﬂows.E) A) and B)
F) A) and C)

Question 7

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 8

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

Question 9

Payments that a ﬁrm makes to obtain needed resources comprise its

Accepted Answer

A)   costs.
B)   proﬁts.
C)   capital.
D)   revenues.E) A) and B)
F) B) and C)

Question 10

Explain the importance of self-interest in the operation of a market system.

Accepted Answer

Self-interest is important because it is...

Question 11

Why is the right of private property an essential characteristic of a market system?

Accepted Answer

This right of private property, along wi...

Question 12

What conditions are necessary for economic competition to exist?

Accepted Answer

Broadly deﬁned, competition requires two...

Question 13

The major virtues of the market system include all of the following, except

Accepted Answer

A)   it promotes an eﬃcient allocation of resources.
B)   it leads to equality in the distribution of income.
C)   it provides incentives for greater production and higher incomes.
D)   it emphasizes the freedom to pursue self-interest.E) A) and C)
F) B) and C)

Question 14

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, and suppose that the ?rm uses production technique D. If each of the 70
Units of Zenia that are produced sells for $1 apiece, then how much will be the total pro?ts of the ?rm
From 70 units of Zenia?

Accepted Answer

A)   $70
B)   $57
C)   $13
D)   $83 E) C) and D)
F) All of the above

Question 15

The major "success indicator" for business managers in command economies like the Soviet Union and China in the past was

Accepted Answer

A)   the quantity or volume of production.
B)   product quality and variety.
C)   the amount of proﬁts a producer makes.
D)   morale of workers in a ﬁrm.E) C) and D)
F) B) and C)

Question 16

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

Question 17

The "invisible hand" concept refers to the

Accepted Answer

A)   guiding function of prices in a market system.
B)   implicit inﬂuence that the government has on the actions of ﬁrms.
C)   regulatory structure that markets must operate in.
D)   underlying money ﬂows that promote the trading of goods and services.E) All of the above
F) C) and D)

Question 18

Discuss the beneﬁts of restricting business risk to the owners.

Accepted Answer

Many people deeply dislike risk and woul...

Question 19

Barter

Accepted Answer

A)   is the major means of exchange in centrally planned economies.
B)   accounts for over 30 percent of the dollar volume of all exchange in the U.S. economy.
C)   entails the exchange of goods for goods.
D)   is used to circumvent the problem of a lack of coincidence of wants among potential buyers and sellers.E) A) and D)
F) All of the above

Question 20

The presence of market failures implies that

Accepted Answer

A)   money is not an effective tool for exchange in a market system.
B)   there is an active role for government, even in a market system.
C)   individuals and ﬁrms should strive to be self-suﬃcient rather than specialize.
D)   command systems are superior to market systems in the allocation of resources.E) A) and B)
F) None of the above

Exam 2: The Market System and the Circular Flow

Explain the importance of self-interest in the operation of a market system.

Correct Answer
verified
Self-interest is important because it is...
View Answer

Government bailouts of failing businesses, like banks during the 2008 ﬁnancial crisis, will tend to reduce the motivation among entrepreneurs to make prudent decisions in dealing with business risk.

Correct Answer
verified

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

Correct Answer
verified

In the simple circular ﬂow model,

Correct Answer
verified

The "invisible hand" concept refers to the

Correct Answer
verified

In a market system, the distribution of goods and services among consumers is largely determined by

Correct Answer
verified

What conditions are necessary for economic competition to exist?

Correct Answer
verified
Broadly deﬁned, competition requires two...
View Answer

The division of labor means that

Correct Answer
verified

What role does freedom play in capitalism? How important is it to the operation of a competitive market economy?

Correct Answer
verified
Within legal limitations, freedom of ent...
View Answer

The major virtues of the market system include all of the following, except

Correct Answer
verified

Correct Answer
verified

The major "success indicator" for business managers in command economies like the Soviet Union and China in the past was

Correct Answer
verified

Barter

Correct Answer
verified

In a market system, a consumer's ability to pay-but not necessarily his willingness to pay-is largely based on his income.

Correct Answer
verified

Payments that a ﬁrm makes to obtain needed resources comprise its

Correct Answer
verified

An important aspect of the market system is that producers and consumers always have to consider the public interest in making production and consumption decisions.

Correct Answer
verified

The presence of market failures implies that

Correct Answer
verified

Why is the right of private property an essential characteristic of a market system?

Correct Answer
verified
This right of private property, along wi...
View Answer

Discuss the beneﬁts of restricting business risk to the owners.

Correct Answer
verified
Many people deeply dislike risk and woul...
View 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 Answer
verified

Exam 2: The Market System and the Circular Flow

Explain the importance of self-interest in the operation of a market system.

Correct AnswerverifiedSelf-interest is important because it is...View AnswerShow Answer

Government bailouts of failing businesses, like banks during the 2008 ﬁnancial crisis, will tend to reduce the motivation among entrepreneurs to make prudent decisions in dealing with business risk.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In the simple circular ﬂow model,

Correct AnswerverifiedShow Answer

The "invisible hand" concept refers to the

Correct AnswerverifiedShow Answer

In a market system, the distribution of goods and services among consumers is largely determined by

Correct AnswerverifiedShow Answer

What conditions are necessary for economic competition to exist?

Correct AnswerverifiedBroadly deﬁned, competition requires two...View AnswerShow Answer

The division of labor means that

Correct AnswerverifiedShow Answer

What role does freedom play in capitalism? How important is it to the operation of a competitive market economy?

Correct AnswerverifiedWithin legal limitations, freedom of ent...View AnswerShow Answer

The major virtues of the market system include all of the following, except

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The major "success indicator" for business managers in command economies like the Soviet Union and China in the past was

Correct AnswerverifiedShow Answer

Barter

Correct AnswerverifiedShow Answer

In a market system, a consumer's ability to pay-but not necessarily his willingness to pay-is largely based on his income.

Correct AnswerverifiedShow Answer

Payments that a ﬁrm makes to obtain needed resources comprise its

Correct AnswerverifiedShow Answer

An important aspect of the market system is that producers and consumers always have to consider the public interest in making production and consumption decisions.

Correct AnswerverifiedShow Answer

The presence of market failures implies that

Correct AnswerverifiedShow Answer

Why is the right of private property an essential characteristic of a market system?

Correct AnswerverifiedThis right of private property, along wi...View AnswerShow Answer

Discuss the beneﬁts of restricting business risk to the owners.

Correct AnswerverifiedMany people deeply dislike risk and woul...View AnswerShow 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

Correct Answer
verified
Self-interest is important because it is...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Broadly deﬁned, competition requires two...
View Answer

Correct Answer
verified

Correct Answer
verified
Within legal limitations, freedom of ent...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
This right of private property, along wi...
View Answer

Correct Answer
verified
Many people deeply dislike risk and woul...
View Answer

Correct Answer
verified