50
4) Which of the following is an element of a command economy?
A) The market decides distribution.
B) The means of production are privately owned.
C) Production decisions are centralized.
D) The market decides what will be produced.
Topic: Economic Systems and the Role of Government
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-1
5) Which of the following statements is not true for a command economy?
A) Consumers have some choices concerning what they buy.
B) The government decides what is produced.
C) The amount of a good supplied always equals the amount of the good demanded.
D) The state decides how to distribute what is produced.
Topic: Economic Systems and the Role of Government
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-1
6) In a laissez–faire economy, ________ what gets produced, how it is produced, and who gets it.
A) the behavior of buyers and sellers determines
B) the central government authority determines
C) firms but not consumers determine
D) consumers but not firms determine
Topic: Economic Systems and the Role of Government
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-1
7) An institution through which buyers and sellers interact and engage in exchange is
A) a central authority.
B) “laissez–faire.”
C) a market.
D) a production frontier.
Topic: Economic Systems and the Role of Government
Skill: Definition
Learning Outcome: Micro-1
51
8) A poorly functioning government can do which of the following to an economy?
A) destroy incentives
B) lead to corruption
C) waste society’s resources
D) all of the above
Topic: Economic Systems and the Role of Government
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-1
9) Consumer sovereignty
A) is dependent on profits.
B) is the idea that consumers can buy whatever they want to.
C) is the idea that consumers determine what is produced in the economy through their demands.
D) is only possible in a monarchy.
Topic: Economic Systems and the Role of Government
Skill: Definition
Learning Outcome: Micro-1
10) The idea that consumers ultimately dictate what not to produce by choosing what not to purchase is
known as
A) laissez–faire.
B) the economic problem.
C) centralized decision making.
D) consumer sovereignty.
Topic: Economic Systems and the Role of Government
Skill: Definition
Learning Outcome: Micro-1
11) The amount that households have accumulated out of past income through saving and inheritance is
A) future income.
B) wealth.
C) consumption.
D) present income.
Topic: Economic Systems and the Role of Government
Skill: Definition
Learning Outcome: Micro-1
52
12) In a free–market system, the amount of output that any one household gets depends on its
A) income.
B) wealth.
C) wage and interest income.
D) income and wealth.
Topic: Economic Systems and the Role of Government
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-1
13) Advocates of an unregulated market system argue that
A) competition promotes efficiency.
B) competition leads to innovation.
C) competition leads to product variety and quality.
D) all of the above
Topic: Economic Systems and the Role of Government
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-3
14) The basic coordinating mechanism in a free–market system is
A) quantity.
B) price.
C) a central government authority.
D) the corporation.
Topic: Economic Systems and the Role of Government
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-3
15) Which of the following statements is false?
A) In a free–market system, the basic economic questions are answered without the help of a central
government plan or directive.
B) Individuals guided by their own self–interest will produce products and services that other people
want.
C) The basic coordinating mechanism in a free–market system is quantity adjustments toward
equilibrium.
D) In a free–market system, competition forces firms to adopt efficient production techniques.
Topic: Economic Systems and the Role of Government
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-3
53
16) Some economists advocate government intervention in a market economy
A) to produce collective goods and services.
B) when resource costs for a private producer do not reflect the full cost to society.
C) to stabilize the economy.
D) all of the above
Topic: Economic Systems and the Role of Government
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-5
17) In a command economy, ________ establish(es) what will be produced and when, set(s) production
goals, and make(s) rules for distribution.
A) individuals and households
B) only privately owned firms
C) a centralized authority
D) individuals, households and privately owned firms
Topic: Economic Systems and the Role of Government
Skill: Definition
Learning Outcome: Micro-1
18) In a laissez–faire economy,
A) individual people and firms pursue their own self–interest.
B) the government decides how to distribute goods and services.
C) a centralized authority establishes what will be produced.
D) consumers do not exercise choice.
Topic: Economic Systems and the Role of Government
Skill: Definition
Learning Outcome: Micro-1
19) Which of the following statements is true?
A) Planned economies have fared very well in recent years, with many of these economies thriving.
B) Command economies operate the most efficiently because the government makes all the production
decisions.
C) In command economies consumers still exercise choice.
D) In a command economy, consumers answer the questions of what to produce, how to produce it, and
how to distribute it.
Topic: Economic Systems and the Role of Government
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro–19
54
20) Production decisions are centralized in a(n)
A) laissez–faire economy.
B) command economy.
C) invisible–hand economy.
D) utopian economy.
Topic: Economic Systems and the Role of Government
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-1
21) Which of the following statements is true for a command economy?
A) Consumers have no choice concerning what they buy.
B) Manufacturers decide what is produced.
C) The amount of a good supplied always equals the amount of the good demanded.
D) The state decides how to distribute what is produced.
Topic: Economic Systems and the Role of Government
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-1
22) In a ________ economy, the behavior of buyers and sellers determines what gets produced, how it is
produced, and who gets it.
A) command
B) laissez–faire
C) socialist
D) utopian
Topic: Economic Systems and the Role of Government
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-1
23) In a market system, self–interest motivates most people to
A) avoid paying insurance premiums.
B) remain self–sufficient.
C) provide products for other people.
D) rely on government central planning.
Topic: Economic Systems and the Role of Government
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-1
55
24) Which of the following is true of a market economy?
A) In its pure form, it is also known as a command economy.
B) Decisions are regulated by a central agency.
C) The government answers the basic economic questions of what gets produced, how it gets produced,
and who gets it.
D) It relies on millions of individual economic decisions to determine economic outcomes.
Topic: Economic Systems and the Role of Government
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-1
25) The idea that consumers determine what is produced in the economy through their demands is
known as
A) a laissez–faire economy.
B) a command economy.
C) consumer sovereignty.
D) free enterprise.
Topic: Economic Systems and the Role of Government
Skill: Definition
Learning Outcome: Micro-1
26) The freedom of individuals to start and operate private business in search of profits is known as
A) laissez–faire.
B) free enterprise.
C) centralized decision making.
D) consumer sovereignty.
Topic: Economic Systems and the Role of Government
Skill: Definition
Learning Outcome: Micro-1
27) The amount that ________ have accumulated out of past income through saving and inheritance is
wealth.
A) governments
B) households
C) markets
D) corporations
Topic: Economic Systems and the Role of Government
Skill: Definition
Learning Outcome: Micro-1
56
28) In a ________, the amount of output that any one household gets depends on its income and wealth.
A) Marxist economy
B) socialist economy
C) command system
D) free–market system
Topic: Economic Systems and the Role of Government
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-1
29) In which system are decisions made by thousands of people who have information about resources,
production technology and consumer desires?
A) market system
B) centrally planned system
C) command system
D) socialist system
Topic: Economic Systems and the Role of Government
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-3
30) In a laissez–faire economy, what provides individuals the information needed to make decisions?
A) insurance
B) prices
C) patents
D) government
Topic: Economic Systems and the Role of Government
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-3
31) Combined, local, state, and federal governments in the United States directly employ about ________
percent of all workers.
A) 2
B) 6
C) 14
D) 27
Topic: Economic Systems and the Role of Government
Skill: Fact
AACSB: Reflective Thinking
Learning Outcome: Micro-3
57
32) Some economists advocate government intervention in a market economy when resource costs for a
private producer ________ to society.
A) are greater than the full cost
B) are equal to the full cost
C) do not reflect the full cost
D) have no relevant cost
Topic: Economic Systems and the Role of Government
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-5
33) A laissez–faire economy is one in which individual people and firms pursue their own self–interest
without any central direction or regulation.
Topic: Economic Systems and the Role of Government
Skill: Definition
Learning Outcome: Micro-1
34) A command economy is one in which a central government sets output targets, incomes, and prices.
Topic: Economic Systems and the Role of Government
Skill: Definition
Learning Outcome: Micro-1
35) A command economy eliminates markets.
Topic: Economic Systems and the Role of Government
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-1
36) Price is the coordinating mechanism in a planned economy.
Topic: Economic Systems and the Role of Government
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-1
37) The notion that buyers determine what will be produced by choosing what they purchase is called
consumer sovereignty.
Topic: Economic Systems and the Role of Government
Skill: Definition
Learning Outcome: Micro-1
58
38) The market system works by getting each person, motivated by his or her own self–interest, to
produce products for other people.
Topic: Economic Systems and the Role of Government
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-1
39) All markets involve buyers and sellers engaging in exchange.
Topic: Economic Systems and the Role of Government
Skill: Definition
Learning Outcome: Micro-1
40) In their pure forms, laissez–faire economies and command economies do not exist in the world.
Topic: Economic Systems and the Role of Government
Skill: Fact
AACSB: Reflective Thinking
Learning Outcome: Micro-1
41) Price is the coordinating mechanism in a laissez–faire economy.
Topic: Economic Systems and the Role of Government
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-1
42) No market economies exist without government involvement and government regulation.
Topic: Economic Systems and the Role of Government
Skill: Conceptual
Learning Outcome: Micro-1