Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
A.
goods and resources, respectively.
92.
Refer to the diagram. Arrows (3) and (4) represent
D.
consumer expenditures and income, respectively.
93.
Refer to the diagram. Arrows (1) and (3) are associated with
D.
international trade.
94.
Which of the following best illustrates the circular flow model in action?
A.
Bobbie goes to work and builds cars; she uses the income she receives to buy food at
the grocery store.
2-43
95.
Risk is a problem faced
96.
Which of the following statements is true about risk management in market systems
versus command systems?
D.
Market systems face risk because of the possibility of profits and losses; command
systems don't face risk because they are not profit driven.
97.
Risk management in command economies
98.
In a market system,
D.
a firm's owners are largely shielded from risk because they can walk away from the
business at any time.
99.
In a market system, employees and suppliers
D.
bear as much risk as firm owners but don't get to share in the profits.
100.
A market system tends to restrict business risk to owners and investors. This
results in which of the following benefits?
D.
consistently lower prices for consumers
101.
A market system tends to restrict business risk to owners and investors. This
results in which of the following benefits?
A.
It encourages more people to become entrepreneurs.
102.
(Consider This) In 1975, McDonald's introduced its Egg McMuffin breakfast
sandwich, which remains popular and profitable today. This longevity illustrates the
idea of
A.
opportunity cost.
103.
(Consider This) In 2013, McDonald's introduced Fish McBites, which failed to catch
on with the public and was subsequently dropped from the menu. This failure illustrates
the idea of
D.
specialization.
104.
(Consider This) Since World War II,
A.
North Korea's command economy has significantly outperformed South Korea's
market economy.
B.
South Korea's command economy has significantly outperformed North Korea's
market economy.
105.
(Consider This) North Korea's command economy
D.
has undergone significant market reforms and is now one of the fastest-growing
economies.
106.
(Consider This) Which of the following statements about insurance and risk is true?
A.
Insurance inhibits economic growth and investment by discouraging risk-taking.
B.
Insurance transfers risk from those with a high tolerance for risk to those with a low
tolerance for risk.
2-48
107.
(Consider This) Martha's Milkshake Company buys earthquake insurance from the
Stable Ground Insurance Company. Based on this purchase, economists would
conclude that
A.
Martha's believes a damaging earthquake is imminent.
108.
(Last Word) According to economist Donald Boudreaux, the world's tens of billions
of individual resources get arranged productively
A.
because government has become highly effective at central planning.
109.
(Last Word) According to economist Donald Boudreaux,
C.
arranging resources under the market system is much like shuffling a deck of cards.
D.
the market system works wondrously for advanced industrial nations but not for
developing nations.
True / False Questions
110.
Market economies use capital goods because they improve productive efficiency.
111.
Money functions as a medium of exchange by eliminating the need for a coincidence
of wants.
112.
Consumer sovereignty means that legislation now protects the rights of consumers to
dispose of their incomes as they see fit.
113.
Specialization may expand total output even though the individuals involved may
have identical abilities.
114.
The wants of consumers are expressed in the product market with "dollar votes."
115.
Costs can be defined as total payments made to workers, landowners, and capital
suppliers less payments to the entrepreneur for organizing and combining the other
resources used to produce a good.
2-51
116.
Continued losses in an industry will cause some firms to reduce output or
eventually leave the industry.
117.
The guiding function of prices tends to keep resources flowing toward their most
highly valued uses.
118.
The invisible hand refers to the many indirect controls that the federal government
imposes in a market system.
119.
Central planning in the Soviet Union and pre-reform China emphasized expanding
the production of consumer goods to raise the domestic standard of living.
120.
Central planning often suffers from a coordination problem and an incentive
problem.
2-53
Multiple Choice Questions
121.
Economic systems differ from one another based on who owns the factors of
production and
A.
how many resources are available in the economy and where they are located.
122.
The market system is an economic system that
A.
produces more consumer goods than capital goods.
123.
The market system is also known as _, while the command system is also known
as _.
D.
a production system; a planning system
124.
Laissez-faire capitalism limits the government's economic functions to the following,
except
A.
protecting private property rights.
B.
establishing a legal environment to enforce contracts among individuals.
125.
One major element of the command system is
A.
an emphasis on private ownership of resources.
2-55
126.
The government may impose industrial safety regulations and occupational
licensing requirements in which of the following economic systems?
A.
laissez-faire economy
127.
In a command system,
A.
self-interest motivates and commands each business firm's decisions and actions.
128.
Which of the following would not be emphasized in a capitalist economy?
A.
private ownership of capital and other resources
129.
The government may not implement policies intended to redistribute income in
which of the following economic systems?
D.
market system
130.
The economies of North Korea and Cuba are
D.
different in that Cuba has a command system, while North Korea has a market system.
131.
Laissez-faire capitalism is characterized by
D.
the economic system of the United States today.
132.
By freedom of enterprise, we mean that individual
133.
Capitalism gets its name from the fact that capital resources are mostly
A.
owned by the state or government.
2-58
134.
The main characteristics of a modern market system include all of the following
except
A.
entrepreneurs are free to obtain and use resources to produce goods and services.
135.
In a market system, self-interest is the motivating force that
A.
makes individuals unwilling to deliver anything of value to others.
136.
Which of the following statements about self-interest in a market system is false?
A.
Self-interest usually motivates an individual to deliver something of value to others.
2-59
D. In a market system, consumers are just like firms: self-interest is what motivates them.
137.
Consumers express self-interest when they
D.
exclude others in their thinking.
138.
Private property and freedom of choice in a market system have the following
implications, except
A.
individuals are free to take on the financial risks involved in a business.
139.
Which of the following statements about the right to private ownership is false?
A.
It enables individuals to obtain, use, and dispose of land and capital resources as they
140.
Competition is more likely to exist when
D.
economic power is concentrated among a few large firms.
141.
Competition in a market system denotes a condition where
D.
a few large, dominant sellers are constantly jostling for market share.
