Question 1

How does human specialization contribute towards 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"E) All of the above
F) B) and C)

Question 2

Which of the following is the main problem with the barter system of exchange?

Accepted Answer

A)   It encourages self-interest
B)   It fosters the division of labor
C)   It requires a coincidence of wants
D)   It undermines the right to bequeathE) A) and D)
F) A) and B)

Question 3

"For whom is a given mix of goods and services to be produced? How, in other words, are the society's outputs to be distributed among its members?" In a market economy, this question is resolved primarily in the:

Accepted Answer

A)   Public sector through the mechanism of central planning
B)   Business sector through the mechanism of advertising
C)   Private sector through the earning and spending of income
D)   Money market through borrowing and saving by households and businessesE) B) and C)
F) All of the above

Question 4

According to the circular flow model of the market system, firms get their ability to pay for their costs of production from the revenues that they receive for their products.

Accepted Answer

A) True 
 B)False

Question 5

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 revenuesE) All of the above
F) A) and B)

Question 6

Suppose a firm can produce 70 units of a product, Zenia, by combining labor, land, capital, and entrepreneurial ability, as in the four alternative techniques shown in the table below. Assume further that the firm can hire labor at $3 per unit, land at $3 per unit, capital at $6 per unit, and entrepreneurship at $9 per unit.  Refer to the above table. Which technique is the most economically efficient way of producing Zenia?

Accepted Answer

A)   A
B)   B
C)   C
D)   DE) All of the above
F) C) and D)

Question 7

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

Accepted Answer

A)   Away from the expanding industry towards the contracting one
B)   From one industry due to the changes in resource prices paid by firms
C)   Towards the industry where the product demand is declining
D)   Because resource allocation will have to equalize between the two industriesE) A) and B)
F) C) and D)

Question 8

The money income of households consists of all the following, except:

Accepted Answer

A)   Wages
B)   Profits
C)   Interest
D)   RevenuesE) B) and C)
F) None of the above

Question 9

The "invisible hand" concept refers to the:

Accepted Answer

A)   Guiding function of prices in a market system
B)   Implicit influence that the government has on the actions of firms
C)   Regulatory structure that markets must operate in
D)   Underlying money flows that promote the trading of goods and servicesE) A) and C)
F) A) and B)

Question 10

Laissez-faire capitalism is characterized by:

Accepted Answer

A)   Very limited government role in the economy
B)   Active government intervention in the economy
C)   Individuals and firms abiding by a government economic plan
D)   A very fair distribution of income and wealthE) B) and D)
F) B) and C)

Question 11

Insurance companies facilitate the transfer of risk from:

Accepted Answer

A)   Those who have a low-risk tolerance to those with high risk-tolerance
B)   Those who have a high-risk tolerance to those with low risk-tolerance
C)   The insurance companies' owners to the insurance-policy holders
D)   Insurance policyholders to the bankers who lend money to the companiesE) B) and C)
F) A) and D)

Question 12

In a market system, the income earned by owners of natural resources is called interest income.

Accepted Answer

A) True 
 B)False

Question 13

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 economyE) A) and D)
F) A) and C)

Question 14

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 ExchangeE) All of the above
F) C) and D)

Question 15

In the circular flow model, households earn their incomes in the:

Accepted Answer

A)   Resource markets
B)   Product markets
C)   Capitalist markets
D)   Money marketsE) A) and D)
F) A) and C)

Question 16

When somebody buys an insurance policy, that person is seeking to transfer risk away from herself and pass it on to the insurance company.

Accepted Answer

A) True 
 B)False

Question 17

The economies of North Korea and Cuba are:

Accepted Answer

A)   Similar in that they are both basically command systems
B)   Similar in that they are both basically market systems
C)   Different in that North Korea has a command system while Cuba has a market system
D)   Different in that Cuba has a command system while North Korea has a market systemE) B) and C)
F) All of the above

Question 18

The use of money for exchange and trade:

Accepted Answer

A)   Increases the importance of barter
B)   Fosters more specialization in production
C)   Reduces consumer sovereignty
D)   Raises the need for a coincidence of wantsE) B) and D)
F) All of the above

Question 19

Anything that is generally acceptable in trading for goods and services is a:

Accepted Answer

A)   Medium of exchange
B)   Capital good
C)   Store of value
D)   Token moneyE) None of the above
F) B) and D)

Question 20

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

Accepted Answer

A)   Ample regulation of business by the government will maximize the public's best interests
B)   The market system works best when resources are free to move from one use to another
C)   The problem of scarcity can best be overcome in a system of mixed capitalism
D)   Self-interest in a market system will automatically promote the public interest as wellE) None of the above
F) B) and C)

Exam 2: The Market System and the Circular Flow

The "invisible hand" concept refers to the:

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

Correct Answer
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Insurance companies facilitate the transfer of risk from:

Correct Answer
verified

In a market system, the income earned by owners of natural resources is called interest income.

Correct Answer
verified

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

Correct Answer
verified

When somebody buys an insurance policy, that person is seeking to transfer risk away from herself and pass it on to the insurance company.

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

In the circular flow model, households earn their incomes in the:

Correct Answer
verified

Anything that is generally acceptable in trading for goods and services is a:

Correct Answer
verified

"For whom is a given mix of goods and services to be produced? How, in other words, are the society's outputs to be distributed among its members?" In a market economy, this question is resolved primarily in the:

Correct Answer
verified

The economies of North Korea and Cuba are:

Correct Answer
verified

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

Correct Answer
verified

The money income of households consists of all the following, except:

Correct Answer
verified

According to the circular flow model of the market system, firms get their ability to pay for their costs of production from the revenues that they receive for their products.

Correct Answer
verified

Laissez-faire capitalism is characterized by:

Correct Answer
verified

Which is an example of barter?

Correct Answer
verified

Which of the following is the main problem with the barter system of exchange?

Correct Answer
verified

Correct Answer
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The use of money for exchange and trade:

Correct Answer
verified

Exam 2: The Market System and the Circular Flow

The "invisible hand" concept refers to the:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Insurance companies facilitate the transfer of risk from:

Correct AnswerverifiedShow Answer

In a market system, the income earned by owners of natural resources is called interest income.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

When somebody buys an insurance policy, that person is seeking to transfer risk away from herself and pass it on to the insurance company.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In the circular flow model, households earn their incomes in the:

Correct AnswerverifiedShow Answer

Anything that is generally acceptable in trading for goods and services is a:

Correct AnswerverifiedShow Answer

"For whom is a given mix of goods and services to be produced? How, in other words, are the society's outputs to be distributed among its members?" In a market economy, this question is resolved primarily in the:

Correct AnswerverifiedShow Answer

The economies of North Korea and Cuba are:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The money income of households consists of all the following, except:

Correct AnswerverifiedShow Answer

According to the circular flow model of the market system, firms get their ability to pay for their costs of production from the revenues that they receive for their products.

Correct AnswerverifiedShow Answer

Laissez-faire capitalism is characterized by:

Correct AnswerverifiedShow Answer

Which is an example of barter?

Correct AnswerverifiedShow Answer

Which of the following is the main problem with the barter system of exchange?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The use of money for exchange and trade:

Correct AnswerverifiedShow Answer

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