Question 1

By freedom of enterprise, we mean that individual

Accepted Answer

A)  workers are free to look for jobs and work in whichever firm will hire them.
B)  firms are free to employ resources, to produce their output, and to sell their products.
C)  producers are free to produce whatever the government decides is needed by the society.
D)  consumers are free to buy whatever products will satisfy their needs the most.Difficulty: 01 EasyE) B) and C)
F) All of the above

Question 2

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 D)
F) C) and D)

Question 3

Which is one of the five fundamental questions that need to be dealt with in any economic system?

Accepted Answer

A)  What makes the rate of unemployment low?
B)  Who will be the richest group in the economy?
C)  How will goods and services be produced?
D)  How high should the prices of goods and services be?E) None of the above
F) A) and D)

Question 4

Private property and freedom of choice in a market system have the following implications, except

Accepted Answer

A)  individuals are free to take on the financial risks involved in a business.
B)  trades that take place in the economy are mutually agreeable transactions among individuals.
C)  economic agents are allowed to act in their own self-interest.
D)  large firms are allowed to coerce other firms and individuals.Difficulty: 01 EasyE) A) and B)
F) A) and D)

Question 5

(Consider This)  Since World War II,

Accepted Answer

A)  North Korea's command economy has significantly outperformed South Korea's market economy.
B)  South Korea's command economy has significantly outperformed North Korea's market economy.
C)  North Korea's market economy has significantly outperformed South Korea's command economy.
D)  South Korea's market economy has significantly outperformed North Korea's command economy.E) B) and D)
F) A) and D)

Question 6

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) All of the above

Question 7

One major element of the command system is

Accepted Answer

A)  an emphasis on private ownership of resources.
B)  individual decentralized decision making.
C)  reliance on supply-and-demand forces to guide economic activity.
D)  central planning conducted by the government.E) A) and B)
F) A) and D)

Question 8

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

Question 9

In analyzing a market system, economists often assume that firms will choose the production techniques that will give them the maximum revenues.Difficulty: 02 Medium
Learning Objective: 02-03 Explain how the market system answers the five fundamental questions of what to produce, how to produce, who obtains the output, how to adjust to change, and how to promote progress.Test Bank: II Topic: Five Fundamental Questions

Accepted Answer

A) True 
 B)False

Question 10

In terms of the circular flow diagram, households make expenditures in the market and receive income through the market.

Accepted Answer

A)  product; financial
B)  resource; product
C)  product; resource
D)  capital; productE) A) and B)
F) None of the above

Question 11

In a market system, the distribution of goods and services largely depends on the distribution of income and people's preferences.

Accepted Answer

A) True 
 B)False

Question 12

If competitive industry Z is making substantial economic profit, output will

Accepted Answer

A)  fall in industry Z and firms will likely leave the market.
B)  fall in all industries except industry Z.
C)  expand in industry Z, as more resources will move to that industry.
D)  expand in industry Z, but no new firms will enter the market.E) A) and C)
F) All of the above

Question 13

The French term "laissez-faire" means

Accepted Answer

A)  "there is no free lunch."
B)  "let it be."
C)  "circular flow."
D)  "public ownership."E) A) and B)
F) A) and C)

Question 14

Property rights are important because they

Accepted Answer

A)  ensure an equal distribution of income.
B)  encourage cooperation by improving the chances of mutually agreeable transactions.
C)  guarantee that any exchange will make all parties better off than prior to the exchange.
D)  allow the government to control how resources are allocated.E) B) and C)
F) B) and D)

Question 15

Most market economies, such as the U.S.and the U.K., allow government policies and actions aimed at promoting economic growth and stability.

Accepted Answer

A) True 
 B)False

Question 16

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 easil y 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) A) and B)
F) B) and D)

Question 17

From society's point of view, the economic function of profits and losses is to

Accepted Answer

A)  promote the equal distribution of real assets and wealth.
B)  achieve full employment and price level stability.
C)  contribute to a more equal distribution of income.
D)  reallocate resources from less-desired to more-desired uses.Topic: Five Fundamental QuestionsE) A) and B)
F) B) and D)

Question 18

"Under central planning, some group has to decide how to get the necessary inputs produced in the right amounts and delivered to the right places at the right time.This is a nearly impossible task without markets and profits." This quotation best identifies the

Accepted Answer

A)  incentive problem under central planning.
B)  coordination problem under central planning.
C)  self-sufficiency dilemma under communism.
D)  resource overcommitment problem under communism.E) C) and D)
F) A) and B)

Question 19

The distribution of income in a market system is a primary factor that resolves which of the following fundamental economic questions?

Accepted Answer

A)  What will be produced?
B)  How will the output be produced?
C)  How will the system accommodate change?
D)  Who will get the output?E) A) and D)
F) A) and C)

Question 20

International specialization and trade

Accepted Answer

A)  has to be done on a barter system.
B)  often requires the exchange of currencies.
C)  does not illustrate the division of labor.
D)  requires active government regulation.E) C) and D)
F) All of the above

Exam 2: The Market System and the Circular Flow

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 Answer
verified

Most market economies, such as the U.S.and the U.K., allow government policies and actions aimed at promoting economic growth and stability.

Correct Answer
verified

"Under central planning, some group has to decide how to get the necessary inputs produced in the right amounts and delivered to the right places at the right time.This is a nearly impossible task without markets and profits." This quotation best identifies the

Correct Answer
verified

Correct Answer
verified

By freedom of enterprise, we mean that individual

Correct Answer
verified

International specialization and trade

Correct Answer
verified

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

Correct Answer
verified

Which is one of the five fundamental questions that need to be dealt with in any economic system?

Correct Answer
verified

(Consider This) Since World War II,

Correct Answer
verified

Private property and freedom of choice in a market system have the following implications, except

Correct Answer
verified

The distribution of income in a market system is a primary factor that resolves which of the following fundamental economic questions?

Correct Answer
verified

The French term "laissez-faire" means

Correct Answer
verified

One major element of the command system is

Correct Answer
verified

From society's point of view, the economic function of profits and losses is to

Correct Answer
verified

In terms of the circular flow diagram, households make expenditures in the market and receive income through the market.

Correct Answer
verified

If competitive industry Z is making substantial economic profit, output will

Correct Answer
verified

In a market system, the distribution of goods and services largely depends on the distribution of income and people's preferences.

Correct Answer
verified

The market economy is regarded as "efficient" in that

Correct Answer
verified

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 Answer
verified

Property rights are important because they

Correct Answer
verified

Exam 2: The Market System and the Circular Flow

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

Most market economies, such as the U.S.and the U.K., allow government policies and actions aimed at promoting economic growth and stability.

Correct AnswerverifiedShow Answer

"Under central planning, some group has to decide how to get the necessary inputs produced in the right amounts and delivered to the right places at the right time.This is a nearly impossible task without markets and profits." This quotation best identifies the

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

By freedom of enterprise, we mean that individual

Correct AnswerverifiedShow Answer

International specialization and trade

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which is one of the five fundamental questions that need to be dealt with in any economic system?

Correct AnswerverifiedShow Answer

(Consider This) Since World War II,

Correct AnswerverifiedShow Answer

Private property and freedom of choice in a market system have the following implications, except

Correct AnswerverifiedShow Answer

The distribution of income in a market system is a primary factor that resolves which of the following fundamental economic questions?

Correct AnswerverifiedShow Answer

The French term "laissez-faire" means

Correct AnswerverifiedShow Answer

One major element of the command system is

Correct AnswerverifiedShow Answer

From society's point of view, the economic function of profits and losses is to

Correct AnswerverifiedShow Answer

In terms of the circular flow diagram, households make expenditures in the market and receive income through the market.

Correct AnswerverifiedShow Answer

If competitive industry Z is making substantial economic profit, output will

Correct AnswerverifiedShow Answer

In a market system, the distribution of goods and services largely depends on the distribution of income and people's preferences.

Correct AnswerverifiedShow Answer

The market economy is regarded as "efficient" in that

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

Property rights are important because they

Correct AnswerverifiedShow Answer

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