Question 1

Specialization in production is economically beneficial primarily because it:

Accepted Answer

A)   allows everyone to have a job which they like.
B)   permits the production of a larger output with fixed amounts of resources.
C)   facilitates trade by bartering.
D)   guarantees full employment.

Question 2

The private ownership of property resources and use of prices to direct and coordinate economic activity is characteristic of:

Accepted Answer

A)   a command system.
B)   a market system.
C)   communism.
D)   socialism.

Question 3

Suppose industry A is realizing substantial economic profits. Which of the following best describes the adjustment process which would bring about a new equilibrium?

Accepted Answer

A)   Firms will leave the industry, output will fall, and product price will rise.
B)   Firms will enter the industry, output will rise, and product price will rise.
C)   Firms will leave the industry, output will rise, and product price will fall.
D)   Firms will enter the industry, output will rise, and product price will fall.

Question 4

Property rights are important because they:

Accepted Answer

A)   encourage investment and growth.
B)   are conducive to the writing of books and music.
C)   facilitate exchange.
D)   do all of the above.

Question 5

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 nonsubstitutability of resources gives rise to a conflict between private and public interests and the need for government intervention.
C)   Mixed capitalism 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 6

In a competitive market economy, firms and resource suppliers will seek to further their own self-interest, but at the same time, as if guided by an "invisible hand," they will promote the public interest.

Accepted Answer

A) True 
 B)False

Question 7

In a market system, well-defined property rights are important because they:

Accepted Answer

A)   increase unnecessary investment.
B)   limit destructive economic growth.
C)   create economic problems.
D)   encourage economic activity.

Question 8

A division of labour enhances society's output by permitting people to take advantage of existing differences in their abilities and skills.

Accepted Answer

A) True 
 B)False

Question 9

-In terms of the circular flow diagram businesses obtain revenue through the _____ market and make expenditures in the _____ market.

Accepted Answer

A)   product; financial
B)   factor; product
C)   product; factor
D)   capital; product

Question 10

How do workers typically express self-interest?

Accepted Answer

A)   by minimizing the economic losses of other business firms
B)   by maximizing the economic profits of other business firms
C)   by seeking the highest price when purchasing a consumer product
D)   by seeking jobs with the best combination of wages and benefits

Question 11

The idea that the desires of resource suppliers and producers to further their own self-interest will automatically further the public interest is known as:

Accepted Answer

A)   consumer sovereignty.
B)   the invisible hand.
C)   derived demand.
D)   profit maximization.

Question 12

Economic efficiency would be primarily discussed in response to which of the fundamental questions about a competitive market economy?

Accepted Answer

A)   What will be produced?
B)   How will the goods and services be produced?
C)   How will the system accommodate change?
D)   Who is to receive the output?

Question 13

The idea that firms and resource suppliers in seeking to further their own self-interests in a competitive market economy also simultaneously promotes the public or social interest is a description of:

Accepted Answer

A)   the guiding function of prices.
B)   capital accumulation.
C)   the "invisible hand."
D)   "dollar votes."

Question 14

Consumers express self-interest when they:

Accepted Answer

A)   reduce business losses.
B)   collect economic profits.
C)   seek the lowest price for the product.
D)   search for jobs with the highest wage

Question 15

Consumer sovereignty and "dollar votes" are most related to which fundamental question about a competitive market system?

Accepted Answer

A)   What will be produced?
B)   How is the output to be produced?
C)   How can the system accommodate change?
D)   Who is to receive the output?

Question 16

Competition denotes a condition where:

Accepted Answer

A)   there is only one seller in a market.
B)   a given product can be purchased at a range of prices.
C)   there are many independent buyers and sellers in a market.
D)   a few sellers attempt to garner a larger share of the market by cutting prices.

Question 17

-Refer to the figure. If box B represents the factor market and flow (3)  represents money income, then:

Accepted Answer

A)   box A is the product market and box C is households.
B)   box C is the product market and box A is households.
C)   box D is the product market and box C is households.
D)   box C is the product market and box D is households.

Question 18

If an increase occurs in the demand for product X, we would expect all of the following to occur except:

Accepted Answer

A)   an increase in the profits of industry X.
B)   an increase in the demand for resources employed by industry X.
C)   an increase in the output of industry X.
D)   a decrease in the prices of resources employed in industry X.

Question 19

-Refer to the circular flow model of the economy. In the diagram flow (1)  represents:

Accepted Answer

A)   wage, rent, interest, and profit income.
B)   land, labour, capital, and entrepreneurial ability.
C)   goods and services.
D)   consumer expenditures.

Question 20

The command system is also known as:

Accepted Answer

A)   the market system.
B)   pure capitalism.
C)   market socialism.
D)   socialism or communism.

Exam 2: The Market System and the Circular Flow

Consumer sovereignty and "dollar votes" are most related to which fundamental question about a competitive market system?

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The idea that firms and resource suppliers in seeking to further their own self-interests in a competitive market economy also simultaneously promotes the public or social interest is a description of:

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Suppose industry A is realizing substantial economic profits. Which of the following best describes the adjustment process which would bring about a new equilibrium?

Correct AnswerverifiedShow Answer

-In terms of the circular flow diagram businesses obtain revenue through the _____ market and make expenditures in the _____ market.

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-Refer to the circular flow model of the economy. In the diagram flow (1) represents:

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A division of labour enhances society's output by permitting people to take advantage of existing differences in their abilities and skills.

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The private ownership of property resources and use of prices to direct and coordinate economic activity is characteristic of:

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Competition denotes a condition where:

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-Refer to the figure. If box B represents the factor market and flow (3) represents money income, then:

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In a competitive market economy, firms and resource suppliers will seek to further their own self-interest, but at the same time, as if guided by an "invisible hand," they will promote the public interest.

Correct AnswerverifiedShow Answer

In a market system, well-defined property rights are important because they:

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If an increase occurs in the demand for product X, we would expect all of the following to occur except:

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Consumers express self-interest when they:

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Specialization in production is economically beneficial primarily because it:

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How do workers typically express self-interest?

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The command system is also known as:

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Economic efficiency would be primarily discussed in response to which of the fundamental questions about a competitive market economy?

Correct AnswerverifiedShow Answer

Property rights are important because they:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The idea that the desires of resource suppliers and producers to further their own self-interest will automatically further the public interest is known as:

Correct AnswerverifiedShow Answer

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-In terms of the circular flow diagram businesses obtain revenue through the _ market and make expenditures in the _ market.

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