Eco 535 - Digital Economy » Winter 2022 » Wk 1 Practice Ch 2, The Market System and the Circular Flow
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Question #1
______ ownership of capital gives capitalism its name.
A.
Private
B.
Public
C.
Central board
D.
Government
Question #2
A(n) ______ system is a particular set of institutional arrangements and a coordinating mechanism that responds to the economizing problem.
A.
economic
B.
democratic
C.
political
D.
Judicial
Question #3
Which is considered to be "pure capitalism," in which the role of government is essentially limited to that of protecting private property and establishing a legal environment for enforcing contracts and market activity?
A.
Planned capitalism
B.
Laissez-faire capitalism
C.
Market capitalism
D.
Command capitalism
Question #4
Choose those characteristics that best describe a command system.
A.
The government owns most property resources. A central planning board makes all economic decisions concerning resources.
B.
The division of output between capital and consumer goods is decided by market forces. Firms produce according to the demands of consumers.
C.
A central planning board makes all economic decisions concerning resources. Firms produce according to the demands of consumers.
D.
The division of output between capital and consumer goods is decided by market forces. The government owns most property resources.
Question #5
Which of the following is true of a market system?
A.
A market system discourages innovation.
B.
A market system discourages competition.
C.
A market system is characterized by government ownership of sources of production.
D.
A market system is a combination of centralized government initiatives and decentralized actions taken by firms.
Question #6
Which of the following ensures that entrepreneurs and private businesses are free to obtain and use economic resources to produce their choice of goods and services?
A.
Freedom of choice
B.
Freedom of enterprise
C.
Competition
D.
Self-interest
E.
Property rights
Question #7
When every economic unit in a society attempts to achieve its own particular goal, usually requiring delivering something of value to others, it is referred to as ______.
A.
self-interest
B.
trade
C.
greed
D.
freedom of choice
Question #8
A firm's owners are called ______ because they are only paid after employees, suppliers, and lenders have been paid.
A.
capital accumulators
B.
entrepreneurs
C.
lien holders
D.
residual claimants
Question #9
The term "laissez-faire" refers to
A.
allowing the government to significantly interfere in the economy.
B.
the government as the dominant force in the economy.
C.
mixed market or mixed capitalism.
D.
limiting the government's interference in the economy.
Question #10
Which of the following characteristics define a command system?
A.
Government ownership of most or all resources Firms and households acting in their own self-interest
B.
Government ownership of most or all resources. A government-appointed central planning board.
C.
Firms producing what consumers demand Firms and households acting in their own self-interest
D.
A government-appointed central planning board Firms and households acting in their own self-interest
Question #11
Which of the following is characterized by the private ownership of resources and the use of markets to coordinate and direct economic activity?
A.
A market system
B.
A democratic system
C.
A command system
D.
An economic system
Question #12
In a _______ system, people act in their own self-interest.
A.
socialist
B.
Market
C.
centrally-planned
D.
populist
Question #13
In a market system, firm ____ are subject to business risk.
A.
negotiators
B.
owners
C.
lenders
D.
buyers
Question #14
Which of the following describe the concept of laissez-faire?
A.
A market system in which the role of government is limited to protecting private property. A market system in which the role of government is unlimited
B.
A market system in which the role of government is to correct market failures. A market system in which only mutually beneficial economic transactions are completed
C.
A market system in which the role of government is limited to protecting private property. A market system in which only mutually beneficial economic transactions are completed
D.
A market system in which the role of government is to correct market failures. A market system in which the role of government is unlimited
Question #15
Who owns most property resources in a command system?
A.
Society
B.
Government
C.
Firms
D.
Individuals
Question #16
Which of the following does competition require?
A.
Freedom of sellers and buyers to enter or leave markets. Mutually exclusive economic transactions.
B.
Two or more buyers and two or more sellers acting independently in a particular market. Freedom of sellers and buyers to enter or leave markets
C.
Mutually exclusive economic transactions. Two or more buyers and two or more sellers acting independently in a particular market
D.
Mutually exclusive economic transactions. Two or more buyers and two or more sellers acting dependently in a particular market
Question #17
Under the market system, ______ coordinate the decisions made by households and businesses.
A.
markets and prices
B.
utility and competition
C.
the public sector and the private sector
D.
price floors and price ceilings
Question #18
Which of the following correctly state the importance of advanced technology and capital goods?
A.
The new technology can enhance the productivity of workers. The most direct methods of producing a good or service are often the least efficient.
B.
The most productive methods are often the least efficient. The most direct methods of producing a good or service are often the most efficient.
C.
The new technology can enhance the productivity of workers. The most direct methods of producing a good or service are often the most efficient.
D.
The most productive methods are often the least efficient. The new technology can enhance the productivity of workers.
Question #19
The goods and services produced by an economic unit through ______ can be exchanged for a full range of desired products produced by other economic units.
A.
competition
B.
labor intensiveness
C.
capital intensiveness
D.
specialization
Question #20
Money performs several functions, but first and foremost it is a ______.
A.
market
B.
necessary evil
C.
resource
D.
bartered good
E.
medium of exchange
Question #21
An active, but limited, government is characteristic of which type of economic system in modern advanced industrial economies?
A.
Command system
B.
Price-controlled system
C.
Centrally planned system
D.
Modern market system
Question #22
The five questions that every society must address reflect the reality of _____ (scarce/infinite) resources in a world of _____ (limited/unlimited) wants.
A.
infinite… limited….
B.
scarce… unlimited….
C.
scarce… limited….
D.
infinite… unlimited….
Question #23
Which of the following is the most efficient method of production?
A.
Using a combination of labor, capital and technology
B.
Exclusive use of labor, only when capital and technology exceed the cost of labor
C.
Exclusive use of technology as it is often changing and results in continuous creative destruction
D.
Exclusive use of capital, but only when labor exceeds the cost of capital
Question #24
_____ (one word) is the use of resources by an individual, firm, region, or nation to produce one or a few goods or services rather than the entire range of goods and services.
A.
Innovation
B.
Materialization
C.
Specialization
D.
Allocation
Question #25
Identify the five fundamental questions that all economies, whether market or command, must address.
A.
Who will get the goods and services? How will the prices of goods and services be determined? What will be the price of goods and services produced? How will the system promote progress?
B.
How will the system accommodate change? How will the goods and services be produced? How will the prices of goods and services be determined? What will be the price of goods and services produced?
C.
What goods and services will be produced? Who will get the goods and services? How will the system accommodate change? How will the goods and services be produced? How will the system promote progress?
D.
How will the system accommodate change? How will the prices of goods and services be determined? What will be the price of goods and services produced? Who will get the goods and services?
Question #26
Two or more buyers and two or more sellers acting independently in a particular product market with the freedom to enter and leave the market best describes ______.
A.
a monopoly
B.
freedom of enterprise
C.
competition
D.
self-interest
Question #27
Which of the following collectively direct resources to industries that are meeting consumer wants and away from industries that are not meeting consumer wants?
A.
High production costs. Dollar votes
B.
Consumer sovereignty. Competition among firms
C.
Dollar votes . Consumer sovereignty
D.
High production costs. Competition among firms
Question #28
Goods and services are produced efficiently when production is organized in combinations and ways ______.
A.
where the costs per unit of output are equal to the capital investment
B.
that averages the cost per unit of output
C.
that minimize the cost per unit of output
Question #29
In a market system, consumers exercise consumer sovereignty, which is crucial in determining the types and quantities of goods produced.
A.
False
B.
True
Question #30
In a market economy, goods and services are distributed ______.
A.
to consumers on the basis of their ability and willingness to pay the existing market price
B.
to the government for redistribution to the people who can afford to pay for them
C.
equally among all consumers
D.
according to the needs of society as determined by the government
Question #31
Which of the following would be an example of the system accommodating change?
A.
Buyers want less juice and more milk. Producers increase spending only on juice.
B.
Buyers want the same amount of juice and milk. Producers increase spending on juice and milk.
C.
Buyers want more juice and less milk. Producers increase spending only on juice.
D.
Buyers want less juice and milk. Producers increase spending on juice and milk.
Question #32
Which of the following best describe how goods and services should be produced?
A.
By using cost-maximizing production methods. By utilizing the right mix of labor and capital
B.
By utilizing the right mix of labor and capital. By locating production facilities optimally to hold down production and transportation expenses
C.
By using cost-maximizing production methods. By utilizing a level of labor equal to the level of capital available to a firm
D.
By locating production facilities optimally to hold down production and transportation expenses. By utilizing a level of labor equal to the level of capital available to a firm
Question #33
The creation of new products and production methods that completely destroys the market positions of firms that are wedded to existing products and older ways of doing business is called _____.
A.
central planning
B.
creative destruction
C.
capital accumulation
D.
capital deterioration
Question #34
Which of the following statements describe who will get the goods and services produced in a market economy?
A.
Those who are willing to wait for the goods and services. Those who the government says should receive the goods and services
B.
Those who are willing to wait for the goods and services. Those who have sufficient income and want to spend money on a particular good
C.
Those who are willing to wait for the goods and services. Those who are willing and able to pay for the goods and services
D.
Those who have sufficient income and want to spend money on a particular good. Those who are willing and able to pay for the goods and services
Question #35
If increasing numbers of consumers decide to purchase organically farmed fruit rather than conventionally farmed fruit, how is the market likely to respond?
A.
Organic fruit prices will fall. Conventional fruit profits will fall.
B.
Conventional fruit profits will fall. Organic fruit profits will rise.
C.
Organic fruit profits will rise. Conventional fruit prices will rise.
D.
Organic fruit prices will fall. Conventional fruit prices will rise.
Question #36
The "invisible hand" guides firms and resource suppliers to promote ______ even as they seek to further their own interests.
A.
household interests only
B.
public or social interests
C.
government interests
D.
foreign interests
Question #37
A.
Lack of investment. Poorly educated and trained labor force
B.
Lack of investment. Incentive problems
C.
Coordination problems. Incentive problems
D.
Coordination problems Poorly educated and trained labor force
Question #38
In recent years, new MP3 and digital technologies have replaced compact disks. This is an example of ______.
A.
technological destruction
B.
capital accumulation
C.
central planning
D.
creative destruction
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