Question 1

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

Question 2

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 B)
F) All of the above

Question 3

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) None of the above

Question 4

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) None of the above
F) All of the above

Question 5

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) A) and D)

Question 6

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

Question 7

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 8

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

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

Question 10

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

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

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) A) and B)

Question 13

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

Question 14

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

Question 15

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 D)
F) A) and B)

Question 16

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

Question 17

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 18

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 19

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

Exam 2: The Market System and the Circular Flow

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

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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?

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

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With specialization in a market economy, individual

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

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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

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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.

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

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

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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

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

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The fundamental economic question regarding the distribution of output in the economy is equivalent to the question of who will produce the output.

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

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An economic system

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

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

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

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According to the circular flow model, product markets are where

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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

In a market system,

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Within legal limitations, freedom of ent...
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