Question 1

In what type of business do the owners bear no personal financial responsibility for the company's debts and obligations?

Accepted Answer

A)  partnerships
B)  corporations
C)  sole proprietorships
D)  in all of the businesses listed in the other answersE) C) and D)
F) B) and C)

Question 2

The Heritage Foundation in 2015 ranked which of the following economies to have the highest economic freedom?

Accepted Answer

A)  the United States
B)  Germany
C)  Japan
D)  Hong KongE) A) and B)
F) A) and C)

Question 3

Which of the following would not be emphasized in a capitalist economy?

Accepted Answer

A)  private ownership of capital and other resources
B)  competition and decentralized decisions regarding production and consumption
C)  reliance on market forces to coordinate economic activity
D)  prevention of firms from exposing themselves to financial riskE) None of the above
F) A) and D)

Question 4

College graduates who dislike business risk will mostly seek to be hired by firms as labor, rather than starting their own firms as entrepreneurs.

Accepted Answer

A) True 
 B)False

Question 5

The simple circular flow model shows that workers and capital owners offer their services to firms through the

Accepted Answer

A)  product markets.
B)  resource markets.
C)  money markets.
D)  financial markets.E) B) and D)
F) A) and B)

Question 6

In a market economy, the incomes of consumers depend primaril y upon

Accepted Answer

A)  government policies in setting wages and interest rates.
B)  the quantity and prices of resources that they possess.
C)  the amount of savings that they have accumulated.
D)  how closely connected they are to government and business leaders.Difficulty: 02 MediumE) B) and D)
F) A) and D)

Question 7

The production technique that is most efficient is the one that produces a given amount of output

Accepted Answer

A)  using the least amount of labor resources.
B)  at the highest price per unit.
C)  at the lowest cost per unit.
D)  that yields the highest revenues.E) A) and D)
F) B) and D)

Question 8

The term consumer sovereignty means that

Accepted Answer

A)  government is responsible for protecting consumers' interests.
B)  what is produced is ultimately determined by what consumers buy.
C)  there are no limits on what consumers may buy in a market system.
D)  producers have strong control over what consumers buy.E) B) and C)
F) All of the above

Question 9

Businesses seeking higher profits and resource suppliers seeking higher incomes lead to changes in the allocation of resources among different firms and end up with

Accepted Answer

A)  consumers at the losing end.
B)  output that society wants.
C)  unnecessary conflict and turmoil.
D)  a need for government action.E) None of the above
F) B) and C) B

Question 10

In a market system, more resources will move toward an industry and expand its production if the industry has

Accepted Answer

A)  positive revenues.
B)  positive costs.
C)  TC 
D)  TC > TR.E) B) and C)
F) A) and B)

Question 11

The most efficient combination of resources in producing a given output is the combination that

Accepted Answer

A)  comes closest to using the same quantities of land, labor, capital, and entrepreneurial ability.
B)  minimizes the cost per unit of output.
C)  uses the smallest total quantity of all resources.
D)  conserves most on the use of labor.E) A) and B)
F) A) and C) B

Question 12

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

Question 13

The circular flow model illustrates

Accepted Answer

A)  the importance of having a central plan for the economy.
B)  how capital and other resources are created.
C)  how money is created by the banking system.
D)  the interdependence of businesses and consumers.E) A) and D)
F) A) and B)

Question 14

The incentive problem under communist central planning refers to the idea that

Accepted Answer

A)  planners had to direct required inputs to each enterprise.
B)  workers, managers, and entrepreneurs could not personally gain by responding to shortages or surpluses or by introducing new and improved products.
C)  the immediate effect of more investment was less consumption.
D)  exports had to be equal to imports for a central plan to work.E) A) and B)
F) B) and C) B

Question 15

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

Question 16

The government may impose industrial safety regulations and occupational licensing requirements in which of the following economic systems?

Accepted Answer

A)  laissez-faire economy
B)  pure capitalism
C)  mixed-market economy
D)  macroeconomic systemE) A) and B)
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

Competition means that

Accepted Answer

A)  sellers can manipulate market price by causing product scarcities.
B)  there are independently acting buyers and sellers in each market.
C)  a product can be purchased at a number of different prices.
D)  there is more than one seller in a market.E) A) and B)
F) A) and C)

Question 19

Which of the following statements about self-interest in a market system is false?

Accepted Answer

A)  Self-interest usually motivates an individual to deliver something of value to others.
B)  Self-interest of entrepreneurs implies seeking maximum profits or minimum losses.
C)  Self-interest applies only to capitalists and entrepreneurs, not to workers employed by others.
D)  In a market system, consumers are just like firms: self-interest is what motivates them.E) None of the above
F) All of the above

Question 20

Even with the use of money, exchange and trade cannot occur if there is no coincidence of wants.

Accepted Answer

A) True 
 B)False

Exam 2: The Market System and the Circular Flow

In what type of business do the owners bear no personal financial responsibility for the company's debts and obligations?

Correct AnswerverifiedShow Answer

The Heritage Foundation in 2015 ranked which of the following economies to have the highest economic freedom?

Correct AnswerverifiedShow Answer

Which of the following would not be emphasized in a capitalist economy?

Correct AnswerverifiedShow Answer

College graduates who dislike business risk will mostly seek to be hired by firms as labor, rather than starting their own firms as entrepreneurs.

Correct AnswerverifiedShow Answer

The simple circular flow model shows that workers and capital owners offer their services to firms through the

Correct AnswerverifiedShow Answer

In a market economy, the incomes of consumers depend primaril y upon

Correct AnswerverifiedShow Answer

The production technique that is most efficient is the one that produces a given amount of output

Correct AnswerverifiedShow Answer

The term consumer sovereignty means that

Correct AnswerverifiedShow Answer

Businesses seeking higher profits and resource suppliers seeking higher incomes lead to changes in the allocation of resources among different firms and end up with

Correct AnswerverifiedB

In a market system, more resources will move toward an industry and expand its production if the industry has

Correct AnswerverifiedShow Answer

The most efficient combination of resources in producing a given output is the combination that

Correct AnswerverifiedB

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

Correct AnswerverifiedShow Answer

The circular flow model illustrates

Correct AnswerverifiedShow Answer

The incentive problem under communist central planning refers to the idea that

Correct AnswerverifiedB

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

Correct AnswerverifiedShow Answer

The government may impose industrial safety regulations and occupational licensing requirements in which of the following economic systems?

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

Competition means that

Correct AnswerverifiedShow Answer

Which of the following statements about self-interest in a market system is false?

Correct AnswerverifiedShow Answer

Even with the use of money, exchange and trade cannot occur if there is no coincidence of wants.

Correct AnswerverifiedShow Answer

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B

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B

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B

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