Question 1

If competitive industry Y is incurring substantial losses, output will

Accepted Answer

A)  expand as resources move toward industry Y.
B)  contract as resources move toward industry Y.
C)  contract as resources move away from industry Y.
D)  expand as resources move away from industry Y.E) A) and B)
F) B) and C)

Question 2

Economic profits and losses

Accepted Answer

A)  are both considered by economists to be a part of production costs.
B)  are essential to the reallocation of resources from less desired to more desired goods.
C)  have no influence on the composition of domestic output.
D)  equalize the distribution of income in the long run.E) B) and D)
F) A) and B)

Question 3

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.E) C) and D)
F) None of the above

Question 4

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

Accepted Answer

A)  a more stable macroeconomy with fewer recessions
B)  Firms are better able to attract inputs, as these inputs do not have to share the risk.
C)  Government agencies are better prepared to help when businesses fail.
D)  consistently lower prices for consumersE) A) and B)
F) B) and C)

Question 5

Which of the following is assumed to be most limited in scope under a market system?

Accepted Answer

A)  entrepreneurship
B)  self-interest
C)  speciali zation
D)  governmentE) A) and C)
F) All of the above

Question 6

Households and businesses are

Accepted Answer

A)  both buyers in the resource market.
B)  both sellers in the product market.
C)  sellers in the resource and product markets respectively.
D)  sellers in the product and resource markets respectively.E) B) and D)
F) A) and B)

Question 7

The guiding function of prices tends to keep resources flowing toward their most highly valued uses.

Accepted Answer

A) True 
 B)False

Question 8

The market system is an economic system that

Accepted Answer

A)  produces more consumer goods than capital goods.
B)  produces more capital goods than consumer goods.
C)  gives private individuals the right to own resources used in production.
D)  emphasizes the government's power to control markets and direct economic activity.E) B) and D)
F) None of the above

Question 9

The problems of central planning become less complex as an economy grows in size over time.

Accepted Answer

A) True 
 B)False

Question 10

Central planning often suffers from a coordination problem and an incentive problem.Topic: Economic Systems

Accepted Answer

A) True 
 B)False

Question 11

Private property

Accepted Answer

A)  discourages cooperation because people don't want to part with what they own.
B)  discourages innovation, as people are often afraid to risk losing their own property.
C)  encourages owners to maintain or improve their property so as to preserve or enhance value.
D)  does everything indicated by the other answers.E) A) and D)
F) A) and C)

Question 12

According to the circular flow model of the market system, when resource-owners' money income is rising, then the costs to business firms that employ their resources must be falling.

Accepted Answer

A) True 
 B)False

Question 13

In a market system, entrepreneurs start businesses in order to earn a high salary.

Accepted Answer

A) True 
 B)False

Question 14

In a market system, the task of assessing and managing the business risk of a firm is taken on by the firm's

Accepted Answer

A)  labor.
B)  capital suppliers.
C)  entrepreneurs.
D)  customers.Difficulty: 02 MediumE) A) and D)
F) A) and B)

Question 15

An important aspect of the market system is that producers and consumers always have to consider the public interest in making production and consumption decisions.

Accepted Answer

A) True 
 B)False

Question 16

The use of money contributes to economic efficiency because

Accepted Answer

A)  governmental direction of the production and distribution of output can be avoided by using money.
B)  roundabout production could not occur without the availability of money.
C)  it is necessary for the creation of capital goods.
D)  it promotes specialization by overcoming the problems with barter.E) A) and B)
F) A) and C)

Question 17

Economic efficiency is the primary guide in answering which of the fundamental questions in a market economy?

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?E) C) and D)
F) A) and B)

Question 18

The choice of the most efficient production technique is not affected by how much buyers want to buy the product.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 19

Which of the following is a distinguishing feature of a command system?

Accepted Answer

A)  private ownership of all capital
B)  central planning
C)  heavy reliance on markets
D)  widespread dispersion of economic powerE) B) and C)
F) A) and D)

Question 20

In a market system, the income earned by owners of natural resources is called interest income.Difficulty: 02 Medium
Learning Objective: 02-05 Describe the mechanics of the circular flow model.Test Bank: II Topic: The Circular Flow Model

Accepted Answer

A) True 
 B)False

Exam 2: The Market System and the Circular Flow

Economic efficiency is the primary guide in answering which of the fundamental questions in a market economy?

Correct Answer
verified

The use of money contributes to economic efficiency because

Correct Answer
verified

In a market system, the task of assessing and managing the business risk of a firm is taken on by the firm's

Correct Answer
verified

Which of the following is a distinguishing feature of a command system?

Correct Answer
verified

Economic profits and losses

Correct Answer
verified

Central planning often suffers from a coordination problem and an incentive problem.Topic: Economic Systems

Correct Answer
verified

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

Correct Answer
verified

The guiding function of prices tends to keep resources flowing toward their most highly valued uses.

Correct Answer
verified

An important aspect of the market system is that producers and consumers always have to consider the public interest in making production and consumption decisions.

Correct Answer
verified

Correct Answer
verified

In a market system, entrepreneurs start businesses in order to earn a high salary.

Correct Answer
verified

In a market system, the income earned by owners of natural resources is called interest income.Difficulty: 02 Medium Learning Objective: 02-05 Describe the mechanics of the circular flow model.Test Bank: II Topic: The Circular Flow Model

Correct Answer
verified

If competitive industry Y is incurring substantial losses, output will

Correct Answer
verified

Households and businesses are

Correct Answer
verified

The market system is an economic system that

Correct Answer
verified

Private property

Correct Answer
verified

According to the circular flow model of the market system, when resource-owners' money income is rising, then the costs to business firms that employ their resources must be falling.

Correct Answer
verified

Which of the following is assumed to be most limited in scope under a market system?

Correct Answer
verified

The problems of central planning become less complex as an economy grows in size over time.

Correct Answer
verified

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

Correct Answer
verified

Exam 2: The Market System and the Circular Flow

Economic efficiency is the primary guide in answering which of the fundamental questions in a market economy?

Correct AnswerverifiedShow Answer

The use of money contributes to economic efficiency because

Correct AnswerverifiedShow Answer

In a market system, the task of assessing and managing the business risk of a firm is taken on by the firm's

Correct AnswerverifiedShow Answer

Which of the following is a distinguishing feature of a command system?

Correct AnswerverifiedShow Answer

Economic profits and losses

Correct AnswerverifiedShow Answer

Central planning often suffers from a coordination problem and an incentive problem.Topic: Economic Systems

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The guiding function of prices tends to keep resources flowing toward their most highly valued uses.

Correct AnswerverifiedShow Answer

An important aspect of the market system is that producers and consumers always have to consider the public interest in making production and consumption decisions.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

In a market system, entrepreneurs start businesses in order to earn a high salary.

Correct AnswerverifiedShow Answer

In a market system, the income earned by owners of natural resources is called interest income.Difficulty: 02 Medium Learning Objective: 02-05 Describe the mechanics of the circular flow model.Test Bank: II Topic: The Circular Flow Model

Correct AnswerverifiedShow Answer

If competitive industry Y is incurring substantial losses, output will

Correct AnswerverifiedShow Answer

Households and businesses are

Correct AnswerverifiedShow Answer

The market system is an economic system that

Correct AnswerverifiedShow Answer

Private property

Correct AnswerverifiedShow Answer

According to the circular flow model of the market system, when resource-owners' money income is rising, then the costs to business firms that employ their resources must be falling.

Correct AnswerverifiedShow Answer

Which of the following is assumed to be most limited in scope under a market system?

Correct AnswerverifiedShow Answer

The problems of central planning become less complex as an economy grows in size over time.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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