Question 1

The wants of consumers are expressed in the product market with "dollar votes."

Accepted Answer

A) True 
 B)False

Question 2

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.

Question 3

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

Accepted Answer

A)   The desires of resource suppliers and producers to further their own self-interest will automatically further the public interest.
B)   The inability to substitute resources creates a conflict between private and public interests and calls for government intervention.
C)   The market system is the best system for overcoming the scarce resources-unlimited wants problem.
D)   Central direction by the government will improve resource allocation in a capitalistic economy.

Question 4

(Last Word)  According to economist Donald Boudreaux, the world's tens of billions of individual resources get arranged productively

Accepted Answer

A)   because government has become highly effective at central planning.
B)   because private property encourages people to consider the alternative uses of their resources and select those that provide the most rewards.
C)   because people tend to be creative and orderly.
D)   through random trial and error.

Question 5

Specialization in production is economically beneficial primarily because it

Accepted Answer

A)   allows everyone to have a job that he or she likes.
B)   permits the production of a larger output with fixed amounts of resources.
C)   facilitates trade by bartering.
D)   guarantees full employment.

Question 6

If people tried to produce most of what they need on their own, then this would lead to a more efficient use of the economy's resources.

Accepted Answer

A) True 
 B)False

Question 7

Which is an example of barter?

Accepted Answer

A)   a person trades a desk for a box of tools
B)   a person buys clothes at a used clothing store
C)   a gift of tuition money from parents to their children
D)   the purchase of stock on the New York Stock Exchange

Question 8

In a market system, a firm's employees are typically shielded from business risk by

Accepted Answer

A)   profit-sharing agreements.
B)   wage contracts.
C)   the Social Security program.
D)   paid vacation leaves.

Question 9

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.

Question 10

Property rights give the government the right to own, use, and dispose of resources in an economy.

Accepted Answer

A) True 
 B)False

Question 11

Market economies use capital goods because they improve productive efficiency.

Accepted Answer

A) True 
 B)False

Question 12

A production system where various workers concentrate on different specialized tasks to contribute toward a whole product is referred to as

Accepted Answer

A)   a coincidence of wants.
B)   roundabout production.
C)   freedom of enterprise
D)   division of labor.

Question 13

(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.

Question 14

The economic function of profits and losses is to

Accepted Answer

A)   bring about a more equal distribution of income.
B)   signal that resources should be reallocated.
C)   eliminate small firms and reduce competition.
D)   tell government which industries need to be subsidized.

Question 15

Profits are the primary "success indicator" for firms in a centrally planned economy.

Accepted Answer

A) True 
 B)False

Question 16

One basic problem faced by central planners, but hardly present in a market system, has to do with

Accepted Answer

A)   determining the production goals or targets in a factory.
B)   having limited resources and trying to match them with unlimited wants.
C)   coordinating production in various industries so that bottlenecks do not develop.
D)   providing financial resources for increasing the real flows of products in the economy.

Question 17

A market system tends to restrict business risk to owners and investors. This results in which of the following benefits?

Accepted Answer

A)   It encourages more people to become entrepreneurs.
B)   Firms have to pay more to attract inputs, as these inputs have to share the risk.
C)   Firms focus attention on prudent risk management, as it is profitable to manage risk.
D)   Income becomes more equally distributed.

Question 18

If economic profits in a particular industry increase, then we would expect

Accepted Answer

A)   resources to be diverted away from that industry.
B)   firms in that industry to produce less output.
C)   firms to enter that industry, thus expanding it.
D)   consumers to buy less from that industry.

Question 19

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.

Question 20

How does human specialization contribute toward increasing an economy's output?

Accepted Answer

A)   It exploits the differences in abilities.
B)   It is a process of creative destruction.
C)   It pushes each worker to master the whole product.
D)   It encourages people to be "jacks-of-all-trades."

Exam 2: The Market System and the Circular Flow

The division of labor means that

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The economic function of profits and losses is to

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

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Which is an example of barter?

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Specialization in production is economically beneficial primarily because it

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(Consider This) Since World War II,

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One basic problem faced by central planners, but hardly present in a market system, has to do with

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The wants of consumers are expressed in the product market with "dollar votes."

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Market economies use capital goods because they improve productive efficiency.

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A market system tends to restrict business risk to owners and investors. This results in which of the following benefits?

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If economic profits in a particular industry increase, then we would expect

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(Last Word) According to economist Donald Boudreaux, the world's tens of billions of individual resources get arranged productively

Correct AnswerverifiedShow Answer

If people tried to produce most of what they need on their own, then this would lead to a more efficient use of the economy's resources.

Correct AnswerverifiedShow Answer

In a market system, a firm's employees are typically shielded from business risk by

Correct AnswerverifiedShow Answer

The term dollar votes in a market system means

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Profits are the primary "success indicator" for firms in a centrally planned economy.

Correct AnswerverifiedShow Answer

The market economy is regarded as "efficient" in that

Correct AnswerverifiedShow Answer

Property rights give the government the right to own, use, and dispose of resources in an economy.

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How does human specialization contribute toward increasing an economy's output?

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A production system where various workers concentrate on different specialized tasks to contribute toward a whole product is referred to as

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