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Chapter 02 - The Market System and the Circular Flow
91. In product markets:
92. The money income of households consists of the sum of:
93. Which of the following would be primarily determined in the resource market?
Chapter 02 - The Market System and the Circular Flow
94. Refer to the above figure. If box A represents households, B the product market, and C
businesses, and if flow (3) represents revenues, then flow (1) would represent:
95. Refer to the above figure. If box A represents households, D the resource market, and C
businesses, then flow (8) would represent ___ while flow (6) would represent ___.
Chapter 02 - The Market System and the Circular Flow
96. Refer to the above figure. If box A represents households, B the product market, and C
businesses, and if flow (3) represents revenues, then (4) would represent ___ while flow (5)
would represent ____.
97. In the circular flow diagram, households:
98. What, according to economist Donald Boudreaux in the "Last Word" section of the
chapter, best explains why the decentralized market system is not a random, chaotic mess?
Chapter 02 - The Market System and the Circular Flow
99. A market system is characterized by the private ownership of resources and the use of
markets and prices to coordinate economic activity.
100. The economy of the United States can best be described as laissez-faire capitalism.
101. Property rights have a positive effect in a market economy because they encourage
owners to maintain their property.
102. Property rights are the right of the government to own, use, and dispose of resources in
an economy.
Chapter 02 - The Market System and the Circular Flow
103. Selfishness and self-interest are identical concepts.
104. An important part of the market system is that producers and consumers consider the
public interest in making production and consumption decisions.
105. If people tried to produce as much of what they need on their own, then this would lead
to a more efficient use of the economy's resources.
106. A division of labor enhances a society's total output by permitting people to take
advantage of existing differences in their abilities and skills.
Chapter 02 - The Market System and the Circular Flow
107. Exchange by barter is just as efficient as trading with money.
108. One of the most important economic resources is money.
109. Maximizing profits always means the same thing as maximizing revenues.
110. If economic profits exist in an industry, resource suppliers will be enticed into expanding
the industry.
Chapter 02 - The Market System and the Circular Flow
111. The concept of consumer sovereignty refers to the situation where consumers have the
right to vote for the board of directors of large corporations.
112. Firms will choose the production techniques that will give them the maximum price and
revenues.
113. Economic efficiency entails producing a certain output with the minimum number of
units of inputs.
114. The choice of the most efficient production technique is not affected by how much
buyers want to buy the product.
Chapter 02 - The Market System and the Circular Flow
115. In the market system, prices tend to guide resources from less important to more
important uses as the market system accommodates change.
116. In a competitive market economy, firms and resource suppliers will seek to further their
own self-interest and at the same time, as if guided by an "invisible hand," they will promote
the public interest.
117. The problems of central planning become more complex as an economy grows over
time.
118. Profit, but not price, is the primary success indicator in a centrally planned economy.
Chapter 02 - The Market System and the Circular Flow
119. Quantitative measures of managerial success, such as production targets or quotas, are
highly foolproof and are thus ideal to use.
120. In the circular flow model, households function as buyers in both the product and
resource markets.
121. In a market system, entrepreneurs start up businesses in order to earn a high salary.
122. In a market system, the income earned by owners of natural resources is called interest
income.
Chapter 02 - The Market System and the Circular Flow
123. A corporation is a type of business firm where the debt of the firm is fully its owners'
debt as well.
124. 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.
125. According to the circular flow model of the market system, when resource-owners'
money income is rising, then the costs to business firms must be falling.
