Question 1

The main characteristics of a modern market system include all of the following except

Accepted Answer

A)  entrepreneurs are free to obtain and use resources to produce goods and services.
B)  consumers are free to buy goods and services that their budgets allow.
C)  economic power is diffused by competition among economic units.
D)  government is restricted to national defense and does not intervene at all in various markets.E) A) and C)
F) All of the above

Question 2

The market system's answer to the fundamental question "How will the system accommodate change?" is essentially

Accepted Answer

A)  "Through government leadership and direction."
B)  "Through the guiding function of prices and the incentive function of profits."
C)  "Through training and retraining programs."
D)  "Through trial and error."E) B) and D)
F) A) and C)

Question 3

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

Question 4

In the circular flow model of the market system, households' major role is to

Accepted Answer

A)  buy both products and resources.
B)  sell both products and resources.
C)  buy products and sell resources.
D)  sell products and buy resources.E) None of the above
F) A) and B)

Question 5

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

Question 6

Specialization is beneficial

Accepted Answer

A)  at the individual firm level, but not at the national and international levels.
B)  at the individual, regional, and even international levels.
C)  only if there are differences in the abilities of resources.
D)  only as long as money and capital goods are employed.E) None of the above
F) A) and B)

Question 7

(Consider This)  In 1975, McDonald's introduced its Egg McMuffin breakfast sandwich, which remains popular and profitable today.This longevity illustrates the idea of

Accepted Answer

A)  opportunity cost.
B)  upsloping supply.
C)  consumer sovereignty.
D)  specialization.E) A) and B)
F) A) and C)

Question 8

Suppose that an individual sees a tremendous opportunity to produce and sell a new product but dismisses the idea because there is no way to exploit this opportunity for personal gain.This situation best identifies the

Accepted Answer

A)  coordination problem under communist central planning.
B)  self-sufficiency dilemma under communism.
C)  asymmetric information problem under communism.
D)  incentive problem under communist central planning.E) B) and D)
F) C) and D)

Question 9

Market economies use capital goods because they improve productive efficiency.

Accepted Answer

A) True 
 B)False

Question 10

The dollar votes of consumers ultimately determine the composition of output and the allocation of resources in a market economy.This statement best describes the concept of

Accepted Answer

A)  derived demand.
B)  consumer sovereignty.
C)  the invisible hand.
D)  market failure.E) B) and C)
F) A) and B)

Question 11

An increase in the demand for a product and a reduction in its costs of production would

Accepted Answer

A)  decrease the profits of producers.
B)  encourage firms to leave an industry.
C)  encourage firms to enter an industry.
D)  cause a shortage of the product.E) None of the above
F) All of the above

Question 12

Economic systems differ from one another based on who owns the factors of production and

Accepted Answer

A)  how many resources are available in the economy and where they are located.
B)  how economic activities are coordinated and directed.
C)  what kinds of products are produced in the economy and how they are sold.
D)  how big the population is and the makeup of the population.E) B) and C)
F) A) and C)

Question 13

In a market system, as one industry expands while another contracts, resources will flow

Accepted Answer

A)  away from the expanding industry toward the contracting one.
B)  across industries, driven by the changes in resource prices paid by firms.
C)  toward the industry where the product demand is declining.
D)  because resource allocation will have to equalize between the two industries.Difficulty: 02 MediumE) All of the above
F) C) and D)

Question 14

One of the most important economic resources is money.

Accepted Answer

A) True 
 B)False

Question 15

Copyrights and trademarks are examples of

Accepted Answer

A)  capital goods.
B)  human capital.
C)  property rights.
D)  public goods.E) All of the above
F) A) and C)

Question 16

If a nation restricts trade with other nations, then the most likely effect is

Accepted Answer

A)  lower prices of goods and services in the nation.
B)  increased specialization of production.
C)  expanded economic wealth of the nation.
D)  consumers in the nation are made worse off.E) B) and D)
F) A) and C)

Question 17

(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.E) None of the above
F) A) and D)

Question 18

In the resource market,

Accepted Answer

A)  businesses borrow financial capital from households.
B)  businesses sell services to households.
C)  households sell resources to businesses.
D)  firms sell raw materials to households.E) A) and B)
F) None of the above

Question 19

A characteristic of the market system is

Accepted Answer

A)  extensive use of direct or manual methods of production.
B)  a focus on labor, as opposed to capital resources.
C)  reliance on the use of capital goods in indirect modes of production.
D)  avoidance of producing goods that do not satisfy consumer wants directly.E) A) and D)
F) None of the above

Question 20

In the circular flow model of the market system, business firms' major role is to

Accepted Answer

A)  buy products and resources.
B)  sell products and resources.
C)  buy products and sell resources.
D)  sell products and buy resources.Difficulty: 02 MediumE) A) and D)
F) A) and C)

Exam 2: The Market System and the Circular Flow

Suppose that an individual sees a tremendous opportunity to produce and sell a new product but dismisses the idea because there is no way to exploit this opportunity for personal gain.This situation best identifies the

Correct AnswerverifiedShow Answer

In the circular flow model of the market system, households' major role is to

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A characteristic of the market system is

Correct AnswerverifiedShow Answer

The market system's answer to the fundamental question "How will the system accommodate change?" is essentially

Correct AnswerverifiedShow Answer

(Consider This) In 1975, McDonald's introduced its Egg McMuffin breakfast sandwich, which remains popular and profitable today.This longevity illustrates the idea of

Correct AnswerverifiedShow Answer

An increase in the demand for a product and a reduction in its costs of production would

Correct AnswerverifiedShow Answer

Economic systems differ from one another based on who owns the factors of production and

Correct AnswerverifiedShow Answer

Market economies use capital goods because they improve productive efficiency.

Correct AnswerverifiedShow Answer

In the circular flow model of the market system, business firms' major role is to

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

One of the most important economic resources is money.

Correct AnswerverifiedShow Answer

In a market system, as one industry expands while another contracts, resources will flow

Correct AnswerverifiedShow Answer

If a nation restricts trade with other nations, then the most likely effect is

Correct AnswerverifiedShow Answer

Specialization is beneficial

Correct AnswerverifiedShow Answer

In the resource market,

Correct AnswerverifiedShow Answer

The dollar votes of consumers ultimately determine the composition of output and the allocation of resources in a market economy.This statement best describes the concept of

Correct AnswerverifiedShow Answer

Specialization in production is economically beneficial primarily because it

Correct AnswerverifiedShow Answer

The main characteristics of a modern market system include all of the following except

Correct AnswerverifiedShow Answer

Copyrights and trademarks are examples of

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