Question 1

If the total costs of producing 1,500 units of output is $15,000 and this output sold to consumers for a total of $16,500, then the firm would earn economic profits of

Accepted Answer

A)  $31,500.
B)  $16,500.
C)  $1,500.
D)  $15,000.E) All of the above
F) None of the above

Question 2

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 3

In a command economy like the old Soviet Union, one is able to improve one's lot and get ahead in society largely through

Accepted Answer

A)  entrepreneurship and risk-taking.
B)  innovation and profits.
C)  participating in the political hierarchy.
D)  getting high prices for one's products and resources.E) C) and D)
F) B) and D)

Question 4

The market system is said to be characterized by "consumer sovereignty." This is because

Accepted Answer

A)  a sovereign government determines which consumer goods will be produced.
B)  the prices of consumer goods are regulated by a sovereign government.
C)  firms must match their production decisions to the consumers' choices.
D)  consumer goods are considered to be more important than capital goods.E) A) and B)
F) A) and C)

Question 5

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

Question 6

According to the circular flow model, product markets are where

Accepted Answer

A)  households earn their money incomes.
B)  households acquire economic resources from businesses.
C)  businesses acquire their inputs from households.
D)  businesses earn their revenues from households.E) B) and D)
F) None of the above

Question 7

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) All of the above
F) None of the above

Question 8

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

Question 9

Which of the following does not foster innovation and technological advance?

Accepted Answer

A)  competition in markets
B)  freedom of choice and enterprise
C)  self-interest and personal rewards
D)  fear and avoidance of riskE) C) and D)
F) All of the above

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

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

Question 12

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 13

An economic system

Accepted Answer

A)  requires a grouping of private markets linked to one another.
B)  is a particular set of institutional arrangements and a coordinating mechanism used to respond to the economizing problem.
C)  requires some sort of centralized authority (such as government) to coordinate economic activity.
D)  is a plan or scheme that allows a firm to make money at some other firm's expense.E) None of the above
F) C) and D)

Question 14

Refer to the provided figure. If box A represents households, B the product market, and C businesses, and if flow (3) represents revenues, then flow (1) would represent

Accepted Answer

A)  costs.
B)  money income.
C)  consumption expenditures.
D)  resources.E) None of the above
F) A) and B)

Question 15

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) None of the above
F) B) and C)

Question 16

In a market system, resources will move away from an industry when

Accepted Answer

A)  profits of firms in the industry are rising.
B)  demand for the industry's product is decreasing.
C)  the production of output in the industry is rising.
D)  profits of firms in other industries are falling.E) None of the above
F) C) and D)

Question 17

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 18

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

Question 19

Which of the following is not a consequence of government subsidized flood insurance?

Accepted Answer

A)  More people will choose to live in areas susceptible to flooding.
B)  Taxpayers will have to help pay for the rebuilding of flooded properties.
C)  It makes actual risks of flooding look artificially low.
D)  More people will choose to live and work on higher ground.E) All of the above
F) C) and D)

Question 20

In a market system, which of the following is a major benefit of making the firm's owners and investors exclusively shoulder the business risk?

Accepted Answer

A)  Those who deeply dislike business risk will not have anything to do with the business.
B)  This allows firms to more easily attract labor and other suppliers of inputs.
C)  This reduces the business risk in the economy.
D)  It makes it easier for the government to monitor and manage the business risk.E) All of the above
F) B) and C)

Exam 2: The Market System and the Circular Flow

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 market system is said to be characterized by "consumer sovereignty." This is because

Correct AnswerverifiedShow Answer

In a market system, resources will move away from an industry when

Correct AnswerverifiedShow Answer

According to the circular flow model, product markets are where

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

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

Correct AnswerverifiedShow Answer

In a market system, which of the following is a major benefit of making the firm's owners and investors exclusively shoulder the business risk?

Correct AnswerverifiedShow Answer

In a command economy like the old Soviet Union, one is able to improve one's lot and get ahead in society largely through

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following does not foster innovation and technological advance?

Correct AnswerverifiedShow Answer

In a market system,

Correct AnswerverifiedShow Answer

If the total costs of producing 1,500 units of output is $15,000 and this output sold to consumers for a total of $16,500, then the firm would earn economic profits of

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

With specialization in a market economy, individual

Correct AnswerverifiedShow Answer

Which of the following is not a consequence of government subsidized flood insurance?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

An economic system

Correct AnswerverifiedShow Answer

Refer to the provided figure. If box A represents households, B the product market, and C businesses, and if flow (3) represents revenues, then flow (1) would represent

Correct AnswerverifiedShow 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

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Within legal limitations, freedom of ent...
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