Chapter 3
Velasquez Test Bank
MULTIPLE CHOICE
1. Distributing goods and services, and determining which members of society will receive
what, is one of the tasks that must be achieved to have
a. a utilitarian economy.
b. an economic system.
c. free trade.
d. globalization.
2. Which of the following best describes how contemporary societies carry out the production
of goods and services, and the distribution of these goods in society?
a. Commands
b. Debate
c. Free trade
d. Traditions
3. A system of normative beliefs that are shared by members of a social group are referred to as
a. free markets.
b. perfect freedom.
c. globalization.
d. ideology.
4. John Locke’s argument for free markets is based on which theory?
a. Utilitarian
b. Human nature
c. Moral rights
d. Values
5. According to John Locke, if there were no governments, what civil liberties would human
beings have?
a. Aggregate demand
b. Invisible hand welfare
c. Natural rights
d. Market resource allocation
6. According to John Locke, ________ is the right to depose of possessions and persons as one
sees fit.
a. a negative right
b. a state of perfect freedom
c. a community right
d. the invisible hand of market competition
7. There are several views on property rights, but those different views all have the same
assumption, that private property is
a. best controlled by the government.
b. a positive right.
c. best controlled by international rules.
d. a bundle of rights.
8. Which of the following is considered to be a weakness of Locke’s views on rights?
a. Locke’s belief that natural rights are negative rights and they do not conflict with positive
rights
b. Locke’s belief that human beings are atomistic
c. Locke’s belief that markets should be free because free markets reduce injustice and
inequality
d. Locke’s belief that governments should control the rights to life, liberty, and property
9. Who of the following believed that free markets and private property produce greater
benefits than government interference could?
a. John Locke
b. Adam Smith
c. David Ricardo
d. Karl Marx
10. According to Adam Smith’s view of the supply and demand process, how do consumers
affect the price of a commodity?
a. When there is not enough supply, consumers will bid the price of an item above the
natural price.
b. Producers reap greater profits when the price of the commodity is set below the natural
price.
c. When there is a shortage of a commodity, the price will sink to its natural level.
d. Producers strive to achieve a natural pricing level in order to promote social utility.
11. Which of the following best represents Adam Smith’s view of government intervention in
advancing public welfare?
a. Governments are responsible for intervening when it benefits the middle class.
b. Governments should let individuals pursue their own self-interests, and buy and sell
whatever they wish.
c. Humans do not behave like rational economic creatures and must be forced into such
behaviors.
d. Governments can influence a consumer’s desire to save, thereby lowering aggregate
demand.
12. Which of the following is a key assumption made by Adam Smith?
a. Private property is unnecessary to human life.
b. Private property encourages societies to look after each other.
c. Private property is naturally produced.
d. Private property must exist.
13. John Maynard Keynes argued that the total demand for goods and services is a combination
of three economic sectors. Which of the following represent those three economic sectors?
a. Income, interest rates, and economic depressions
b. Goods, services, and ideas
c. Households, businesses, and governments
d. Unemployment, spending, and inflation
14. Economist David Ricardo developed one of the most important concepts in international
trade theory used today. Ricardo’s idea that globalization and free trade boost economic
output is based on
a. comparative advantage.
b. injustice.
c. capitalist economics.
d. materialism.
15. According to Adam Smith, differences in things such as labor costs, skills, climate, and
natural resources create
a. comparative advantage.
b. opportunity costs.
c. free trade.
d. absolute advantage.
16. Which of the following is an assumption made by David Ricardo in supporting his claim that
comparative advantage creates free trade and supports globalization?
a. The resources used to produce goods can be easily moved from one country to another.
b. Production costs are constant and do not decline with the acquisition of new technology.
c. Workers cannot move from one industry to another.
d. Multinational companies only close when they no longer have comparative advantage.
17. David Ricardo’s theory of comparative advantage generally ignores rules of international
trade. Which of the following is the group that sets rules and guidelines for international
trade in an effort to minimize disagreements and conflicts?
a. World Bank
b. U.S. federal government
c. World Trade Organization
d. International Monetary Fund
18. Which of the following did Karl Marx claim created inequality and worker exploitation?
a. Capitalism
b. Free trade
c. Comparative advantage
d. Alienation
19. According to Karl Marx, in a capitalist economy, what type of alienation is a worker
experiencing when the worker is forced to work for someone else and makes money for the
owner of the workplace?
a. Alienating workers from their own productive work
b. Alienating workers from themselves
c. Alienating workers by denying them control
d. Alienating workers from the products of their labor
20. According to Karl Marx, which of the following best describes the way a society organizes
itself so that it can produce goods?
a. Social superstructures
b. Historical materialism
c. Principles of justice
d. Relations of production
21. Karl Marx claimed that free markets create inequalities and assume that justice means
equality or distribution according to need. What argument do critics of Karl Marx use to
dispute his claim?
a. True justice requires the presence of free markets.
b. Free markets can encourage community instead of creating alienation.
c. The principles of justice are difficult to define.
d. The benefits of private property are more important than equality.
22. Which of the following best describes a combination of government regulation, partially free
markets, and limited property rights?
a. Capitalism
b. Immiseration
c. Mixed economy
d. Communism
23. Which of the following best describes property that consists of nonphysical objects, such as
music or information?
a. Private property
b. Copyright
c. Patents
d. Intellectual property
24. Which of the following best describes a copyright?
a. An invention of machines, processes, and products that is private property of the
individual or organization
b. A nonphysical object such as music or a software program.
c. A specific expression of an idea owned by a person or organization
d. The use of government policies to remedy differences.
25. As traditionally communist countries move from economies based on pure socialism to
economies that combine the best of socialism and capitalism, there has been great debate.
Which of the following best represents the beliefs of followers of Smith and Locke toward
mixed economies?
a. Governments will favor business interests.
b. Government intervention tolerated by mixed economies does more harm than good.
c. Allowing businesses to operate without government oversight worsens economic
problems.
d. Mixed economies diminish utilitarian benefits of free markets in terms of human rights.
SHORT ANSWER
26. Discuss the three types of social devices used to organize activities, motivate people, and
determine who owns a society’s resources.
27. Discuss John Locke’s interpretation of natural rights.
28. Discuss John Locke’s idea that, in a state of nature, everyone would be political equals and
free of constraints, and how those rights affect American institutions.
29. According to Adam Smith, how does free market competition provide greater benefits than
government interference?
30. Discuss John Maynard Keynes’s criticism of Smith’s free market assumptions.
31. Discuss how Ricardo’s theory of comparative advantage supports the ideas of globalization
and free trade.
32. Discuss Karl Marx’s view on how capitalist economies alienate workers.
33. Discuss how governments control the various aspects of a mixed economy.
