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2-96
223.
In the circular flow diagram, households get their ability to pay for their
consumption expenditures from the
A.
revenues they receive for their products.
224.
In the circular flow diagram, firms get their ability to pay for the costs of production
from the
D.
goods and services they get in the product markets.
225.
In a market system, the task of assessing and managing the business risk of a firm
is taken on by the firm's
A.
labor.
2-97
226.
Which of the following guides sensible decisions regarding the management of
business risk in a market system?
D.
consumer sovereignty
227.
In a market system, a firm's employees are typically shielded from business risk by
A.
profit-sharing agreements.
228.
One essential trade-off involving business risk in a market system is reflected in
which of the following statements?
D.
Those who bear the business risk of the firm are guaranteed to always gain profits.
229.
In a market system, which of the following is a major benefit of making the firm's
owners and investors exclusively shoulder the business risk?
A.
Those who deeply dislike business risk will not have anything to do with the business.
230.
Insurance companies facilitate the transfer of risk from
D.
insurance policyholders to the government.
True / False Questions
231.
A market system is characterized by the private ownership of resources and the use
of prices to coordinate economic activity.
232.
Most market economies, such as the U.S. and the U.K., allow government policies
and actions aimed at promoting economic growth and stability.
233.
In a command economy, the head of each household makes the fundamental economic
choices such as what to produce and how to produce output.
234.
The economy of the United States in the past can best be described as laissez-faire
capitalism.
235.
Property rights give to some people the right to coerce others into giving up their
property.
236.
Property rights give the government the right to own, use, and dispose of resources in
an economy.
2-101
237.
Selfishness and self-interest are identical concepts in economics.
238.
An important aspect of the market system is that producers and consumers always
have to consider the public interest in making production and consumption decisions.
239.
If people tried to produce most of what they need on their own, then this would
lead to a more efficient use of the economy's resources.
240.
Being a "jack-of-all-trades" implies reducing the reliance on the division of labor.
241.
Even with the use of money, exchange and trade cannot occur if there is no
coincidence of wants.
242.
One of the most important economic resources is money.
243.
In a market system, the distribution of goods and services largely depends on the
distribution of income and people’s preferences.
244.
The fundamental economic question regarding the distribution of output in the
economy is equivalent to the question of who will produce the output.
245.
The concept of consumer sovereignty refers to the situation where consumers have
the right to vote for the board of directors of large corporations.
246.
In analyzing a market system, economists often assume that firms will choose the
production techniques that will give them the maximum revenues.
2-104
247.
Economic efficiency entails producing a certain output with the minimum number of
units of inputs.
248.
The choice of the most efficient production technique is not affected by how much
buyers want to buy the product.
249.
Even if prices are fixed and competition is restricted by the government, the
invisible hand will still work in the economy and lead to economic efficiency.
250.
In a market system, a consumer's ability to pay—but not necessarily his
willingness to pay—is largely based on his income.
251.
In a competitive market economy, firms and resource suppliers seeking to further
their own self-interest will end up, as though guided by an invisible hand, promoting
the public interest.
252.
The problems of central planning become less complex as an economy grows in
size over time.
2-106
253.
Profits are the primary "success indicator" for firms in a centrally planned
economy.
254.
Quantitative measures of managerial success, such as production targets or quotas,
are highly foolproof and are thus ideal to use in raising economic efficiency.
255.
In the circular flow model, households act as buyers in the resource markets.
256.
In a market system, entrepreneurs start businesses in order to earn a high salary.
257.
In a market system, the income earned by owners of natural resources is called
interest income.
258.
A corporation is a type of business firm where the debt of the firm is considered its
owners' personal responsibility.
259.
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.
260.
According to the circular flow model of the market system, when resource-owners'
money income is rising, then the costs to business firms that employ their resources
must be falling.
261.
Having a high fixed salary is what motivates entrepreneurs to make prudent
decisions is dealing with business risk.
262.
Government bailouts of failing businesses, like banks during the recent economic
crisis, will tend to reduce the motivation among entrepreneurs to make prudent
decisions is dealing with business risk.
263.
College graduates who dislike business risk will mostly seek to be hired by firms
as labor, rather than starting their own firms as entrepreneurs.
264.
When somebody buys an insurance policy, that person is seeking to transfer risk
away from herself and pass it on to the insurance company.
