Question 1

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 economy.E) B) and C)
F) A) and C)

Question 2

The fundamental economic question regarding the distribution of output in the economy is equivalent to the question of who will produce the output.

Accepted Answer

A) True 
 B)False

Question 3

The wants of consumers are expressed in the product market with "dollar votes."

Accepted Answer

A) True 
 B)False

Question 4

Innovation lagged in the centrally planned economies because

Accepted Answer

A)  there was too much domestic business competition.
B)  there was too much competition from foreign firms.
C)  enterprises resisted innovation in fear that their production targets would be raised.
D)  exports had to equal imports for the plan to work.E) B) and C)
F) All of the above

Question 5

The term "laissez-faire" suggests that

Accepted Answer

A)  land and other natural resources should be privatel y owned, but capital should be publicly owned.
B)  land and other natural resources should be publicly owned, but capital should be privately owned.
C)  government should not interfere with the operation of the economy.
D)  government action is absolutely necessary if the economy is to achieve full employment and full production.E) A) and C)
F) B) and C)

Question 6

According to economist Donald Boudreaux in the "Last Word" section of the chapter, what best explains why the market system is not a random, chaotic mess?

Accepted Answer

A)  There is active cooperation among private property owners and government officials to correct the excesses of a market economy.
B)  The roundabout methods of production allocate resources from consumers to producers in an orderly fashion.
C)  Government planning limits the chaos, and the government regulates economic activity to create stability in the market.
D)  Private property rights encourage mutual accommodation that leads to an arrangement of resources that is productive.E) A) and B)
F) None of the above

Question 7

Specialization-the division of labor-enhances productivity and efficiency by

Accepted Answer

A)  allowing workers to take advantage of existing differences in their abilities and skills.
B)  avoiding the time loss involved in shifting from one production task to another.
C)  allowing workers to develop skills by working on one, or a limited number, of tasks.
D)  all of the means identified in the other answers.E) A) and D)
F) All of the above

Question 8

"Consumer sovereignty" means that

Accepted Answer

A)  buyers can dictate the prices at which goods and services will be offered.
B)  advertising is ineffective because consumers already know what they want.
C)  buyers control the quality of goods and services through regulatory agencies.
D)  buyers determine what will be produced based on their "dollar votes" for the goods and services offered by sellers.E) B) and C)
F) A) and D)

Question 9

In a market system, self-interest is the motivating force that

Accepted Answer

A)  makes individuals unwilling to deliver anything of value to others.
B)  makes owners of resources always want to use their resources themselves.
C)  leads the economy to chaos and confusion, especiall y the larger economies.
D)  coordinates and creates consistency in the operations of various parts of the economy.E) B) and D)
F) B) and C)

Question 10

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 bequeath.Difficulty: 01 EasyE) B) and C)
F) None of the above

Question 11

McDonald's introduced the Big Mac in 1968, and it turned out to be a hit.However, the Arch Deluxe, introduced in 1996, was not.The success or failure of a product in the market system is determined by

Accepted Answer

A)  capitalism and entrepreneurship.
B)  specialization and exchange.
C)  consumer sovereignty and dollar votes.
D)  capital goods and roundabout production.Difficulty: 02 MediumE) A) and C)
F) A) and B)

Question 12

"Because the outputs of many industries are the inputs to other industries, the failure of any single industry to fulfil the output quantities specified in the central plan caused a chain reaction of adverse repercussions on production." This quotation best identifies the

Accepted Answer

A)  incentive problem under central planning.
B)  self-sufficiency dilemma under communism.
C)  resource overcommitment problem under communism.
D)  coordination problem under central planning.Topic: Economic SystemsE) All of the above
F) C) and D)

Question 13

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 wants.E) A) and B)
F) A) and C)

Question 14

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

Accepted Answer

A)  "Through government-funded research programs."
B)  "Through redistribution of income to promote greater equality."
C)  "Through training and retraining programs."
D)  "Through the profit potential that encourages development of new technology."E) A) and B)
F) None of the above

Question 15

The term dollar votes in a market system means

Accepted Answer

A)  inflation will occur if consumers don't spend wisely.
B)  voters may be offered dollars to help elect certain political candidates.
C)  government is responsible for determining what will be considered legal tender.
D)  consumers "vote" for certain products to be produced by how they spend their incomes.E) A) and D)
F) B) and C)

Question 16

The idea that the desires of resource suppliers and firms 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)  creative destruction.E) A) and B)
F) B) and D)

Question 17

Property rights give to some people the right to coerce others into giving up their property.Difficulty: 01 Easy
Learning Objective: 02-02 List the main characteristics of the market system.Test Bank: II Topic: Characteristics of the Market System

Accepted Answer

A) True 
 B)False

Question 18

The competitive market system

Accepted Answer

A)  encourages innovation because government provides tax breaks and subsidies to those who develop new products or new productive techniques.
B)  discourages innovation because it is difficult to acquire additional capital in the form of new machinery and equipment.
C)  discourages innovation because firms want to get all the profits possible from existing machinery and equipment.
D)  encourages innovation because successful innovators are rewarded with economic profits.E) C) and D)
F) None of the above

Question 19

Firms are motivated to minimize production costs because

Accepted Answer

A)  it is the most environmentally friendly way to produce goods.
B)  least-cost production techniques use the smallest total quantity of resources.
C)  competitive pressures in the market will drive out higher-cost producers.
D)  the government provides tax credits and subsidies to low-cost producers.E) A) and C)
F) All of the above

Question 20

(Consider This)  Martha's Milkshake Company buys earthquake insurance from the Stable Ground Insurance Company.Based on this purchase, economists would conclude that

Accepted Answer

A)  Martha's believes a damaging earthquake is imminent.
B)  Stable Ground believes no damaging earthquakes will occur.
C)  Martha's has a lower tolerance for earthquake risk than Stable Ground.
D)  Martha's has a greater tolerance for earthquake risk than Stable Ground.E) A) and B)
F) A) and C)

Exam 2: The Market System and the Circular Flow

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

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

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Innovation lagged in the centrally planned economies because

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

Correct AnswerverifiedShow Answer

The term dollar votes in a market system means

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McDonald's introduced the Big Mac in 1968, and it turned out to be a hit.However, the Arch Deluxe, introduced in 1996, was not.The success or failure of a product in the market system is determined by

Correct AnswerverifiedShow Answer

According to economist Donald Boudreaux in the "Last Word" section of the chapter, what best explains why the market system is not a random, chaotic mess?

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(Consider This) Martha's Milkshake Company buys earthquake insurance from the Stable Ground Insurance Company.Based on this purchase, economists would conclude that

Correct AnswerverifiedShow Answer

The use of money for exchange and trade

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Specialization-the division of labor-enhances productivity and efficiency by

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The term "laissez-faire" suggests that

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The competitive market system

Correct AnswerverifiedShow Answer

The wants of consumers are expressed in the product market with "dollar votes."

Correct AnswerverifiedShow Answer

Property rights give to some people the right to coerce others into giving up their property.Difficulty: 01 Easy Learning Objective: 02-02 List the main characteristics of the market system.Test Bank: II Topic: Characteristics of the Market System

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

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Firms are motivated to minimize production costs because

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In a market system, self-interest is the motivating force that

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The fundamental economic question regarding the distribution of output in the economy is equivalent to the question of who will produce the output.

Correct AnswerverifiedShow Answer

"Consumer sovereignty" means that

Correct AnswerverifiedShow Answer

"Because the outputs of many industries are the inputs to other industries, the failure of any single industry to fulfil the output quantities specified in the central plan caused a chain reaction of adverse repercussions on production." This quotation best identifies the

Correct AnswerverifiedShow Answer

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