Chapter 2 3 The freedom of people to decide where they want to work and live, and what they want to buy or sell are basic capitalist rights under

168. (p. 32-34; Making Ethical Decisions box) In the boxed material “Making Ethical Decisions,” the results of Hurricane

Katrina were discussed. Adam Smith would suggest that the reason that businesses like Wal-Mart helped the

disaster victims was:

D. it was a way to decrease Wal-Mart’s productivity.

Nickels – Chapter 02 #168

169. (p. 32) According to the invisible hand concept, the best way for the government to encourage the creation of

jobs and the production of the products most wanted by consumers would be to:

A. take over the operation of all firms in major industries, such as telecommunications, transportation, and

energy, and operate these firms as nonprofit organizations.

170. (p. 35) _________ is the popular name for a free-market economy in which business people make most of the

decisions about what products to produce, how many workers to hire, and what prices to charge for goods and

services.

D. Marginalism

D. markets operate to carry out the decisions made by central planners.

D. based on the saying, “from each according to ability, to each according to need.”

173. (p. 35) In capitalism, most decisions about what goods and services to produce are made by:

D. majority rule, with everyone receiving an equal vote.

174. (p. 36) Which of the following is a basic right under capitalism?

A. freedom of collusion.

175. (p. 36) The freedom of people to decide where they want to work and live, and what they want to buy or sell

are basic capitalist rights under:

176. (p. 35) The freedom of people to buy, sell, and use land, buildings, machinery, and inventions are basic

capitalist rights under:

D. freedom of competition.

177. (p. 36) A free market is one in which decisions about what to produce and in what quantities are made by:

A. the government

178. (p. 36) In a free market __________ tells producers how much to produce.

A. the market curve

179. (p. 37) The quantity of a good or service that manufacturers or owners are willing to sell at different prices

during a specific time period is known as the:

D. utility of that product.

180. (p. 37-38, figure 2.1) A typical supply curve shows that an increase in the price of a good will cause the quantity

supplied to:

D. fluctuate randomly around its equilibrium value.

181. (p. 37-38, figure 2.1) A typical supply curve shows a relationship between the:

A. amount of labor a firm hires and the amount of output it can produce.

182. (p. 37) A(n) _____________ curve shows the relationship between the price of a good and the quantity of

that good people are willing and able to buy in a given time period.

D. Laffer

183. (p. 37-38, figure 2.2) A typical demand curve shows that:

A. as people earn more income, they buy more of a good.

184. (p. 37-38, figure 2.2) When the supply curve and demand curve for a particular good are on a single graph, the

point at which the two curves intersect identifies the:

185. (p. 38, figure 2.3) When prices are free to adjust over time, the market price of a good tends to:

D. have no specific relationship to the equilibrium price.

186. (p. 38) If a shortage exists for a good in a free-market economy, the:

D. government must establish a rationing system to make sure that the good is fairly distributed.

187. (p. 39) __________ is the market situation in which there are many sellers in a market and no seller is large

enough to dictate the price of a product.

A. Oligopoly

188. (p. 39) __________ is characterized by a large number of firms selling products that appear to be identical.

A. Oligopoly

189. (p. 39) ___________ exists when a large number of firms produce goods that are similar but are perceived by

buyers as being different.

A. Perfect competition

190. (p. 40) __________ exists when the entire supply of a good is controlled by a single seller.

A. Perfect competition

191. (p. 39) An oligopoly is a market that is characterized by:

A. one firm that totally dominates the supply of the product.

192. (p. 34) Which of the following statements about capitalism is the most accurate?

A. In capitalist economies, most resources are owned by the government.

193. (p. 36) One benefit of the rights and freedoms of capitalism is that:

A. people feel safe and don’t take any risks in business.

194. (p. 38) When the market price of a good is below the equilibrium price:

D. the government will regulate the price of the good to ensure equilibrium is attained.

195. (p. 38) When the market price of a good is above its equilibrium value:

A. a shortage will exist in the market.

196. (p. 39) The markets for laundry detergents, soft drinks, and automobiles all are dominated by just a few

sellers. Economists would classify these markets as examples of:

A. monopolistic competition.

197. (p. 39) In most large cities there are a large number of bakeries. These bakeries produce similar, but not

identical, products. Some bakeries claim to have the best cheesecakes in town, while others brag about their

cookies or specialty breads. The bakery market in a large city is an example of:

D. a monopoly.

198. (p. 40) The presence of competition in free markets:

D. is undesirable, because one big firm can usually produce goods more efficiently than a large number of small

firms.

D. the government dictates the number of competitors there are in each industry.

200. (p. 40) One of the greatest concerns associated with capitalism is that:

D. producers are unlikely to supply the goods and services that consumers value the most.

201. (p. 35–36) business and building. Patrick is able to maintain ownership of these items under the right to:

A. eminent domain.

202. (p. 39; Dealing with Change box) The boxed “Dealing with Change” material in Chapter 2 gives an example of the lag

between changes in supply and/or demand using professional baseball as an example industry. Which of the

following statements is supported by the information in this example?

D. The team owners can charge less for tickets when the team begins losing.

203. (p. 38) The market price of apples is currently rising. In a free-market economy, the most likely explanation

of this price change is that:

D. the equilibrium price is lower than the market price.

204. (p. 39) Bigbux is a major producer of whatsits, but it faces competition in the whatsit market from three other

major producers. Together, Bigbux and its three large rivals control almost the entire supply of whatsits. The

type of market Bigbux is in is called:

D. quasi-monopoly.

205. (p. 39) In its advertisements, PaPa John’s Pizza tells potential customers that its pizzas are made with fresher

and better ingredients than competitors’ pizzas. The goal of this strategy is to achieve:

D. a perfectly competitive market.

206. (p. 40) Which of the following statements most accurately identifies a serious limitation of the free-market

economic system?

A. Free-market economies offer little opportunity for the poor to work their way out of poverty.

207. (p. 41) Under socialism:

A. the basic goal is to make sure that those that create wealth are allowed to keep that wealth.

208. (p. 41) A major benefit of socialism is assumed to be its:

A. ability to stimulate rapid economic growth.

209. (p. 41) A key assumption of socialism is that:

D. tax rates should be kept as low as possible in order to give consumers the maximum possible purchasing

power.

210. (p. 41) The reason why many socialist countries have experienced brain drain is that:

A. socialism encourages a very unequal distribution of income.

211. (p. 42) Communism is an economic system in which:

A. the government and private citizens own equal shares of the economic resources.

212. (p. 42) __________ intrudes the most into people’s lives.

A. Capitalism

213. (p. 42) In recent years, countries with communist economic systems have:

A. enjoyed a period of great prosperity.

214. (p. 42) The economic and political system in which the government owns almost all the major factors of

production is called:

D. socialism.

215. (p. 41) In the nation of Equalia, many businesses are privately owned, but the government owns some of the

basic businesses and has developed many social programs designed to promote social equality. The economy of

D. communism.

216. (p. 41) Jorge Martinez is a hard working entrepreneur who operated a successful business in his home

country of Margintina for many years. Recently, however, he immigrated to the United States and applied for

U.S. citizenship. “In Margintina, tax rates were very high,” Jorge complained. “The government used the taxes I

paid to finance all sorts of social programs to help the less fortunate. While this is a noble goal, it has really

undermined the profit incentive of individuals such as me. I really feel that these high taxes have stifled

economic growth.” Jorge’s comments illustrate the reason many socialist countries are experiencing a(n):

A. antitrust problem.

217. (p. 41) Which of the following people would tend to favor a socialist economy?

A. John wants to live in a country with low marginal tax rates.

218. (p. 42) Which of the following people would tend to favor a communist economy?

A. John wants to live in a country with low marginal tax rates.

219. (p. 42) One of the most significant problems faced by communist economies is:

A. a great inequality in the distribution of wealth and income.

220. (p. 42) Which of the following statements provides the most accurate comparison of socialism and

communism?

D. Communism believes that the government should always strive to balance its budget, while socialism

accepts deficit spending as the price of achieving true equality.

221. (p. 43) Today, the economic systems of most nations could most accurately be classified as:

A. pure capitalism.

222. (p. 43) Both socialism and communism are variations of:

D. plutocratic systems.

223. (p. 44) A major trend in the world today is that:

D. governments in countries with capitalist economies are paying less attention to environmental concerns and

issues involving social equality.

224. (p. 43) A command system is characterized by:

D. freedom of choice and freedom of competition.

225. (p. 45, figure 2.4) The social and economic goals of __________ include private ownership of land and

D. a mixed economy

226. (p. 45, figure 2.4) Under the __________ system there is very little incentive to work hard or to produce quality

goods or services.

A. capitalist

227. (p. 45, figure 2.4) Under the __________ system the number of choices in the market is directly related to

government involvement in markets.

A. capitalist

228. (p. 45, figure 2.4) There are some restrictions on freedoms of assembly and speech under a ____________

system.

A. capitalist

229. (p. 44; Reaching Beyond Our Borders box) According to the “Reaching Beyond Our Borders” box in Chapter 2, growth

in many U. S. companies has slowed in recent years. One solution to the problem of slow growth is:

A. for the government to increase taxes on business.

230. (p. 43–44) The government of Ruritania has implemented many programs that promote equality, but has

become concerned about the very slow rate of growth that has plagued the national economy for many years. In

order to address this problem, the government is likely to:

D. avoid the use of fiscal policies and reduce the supply of money in circulation.

231. (p. 43–44) In an effort to promote rapid growth, the government of Goldinia has kept taxes low, done little to

regulate business activities, and implemented only modest social programs. The government is now facing

political pressure to do more to clean up the environment and to reduce the inequalities of income and wealth.

Which of the following statements is most accurate? Goldinia’s government is currently taking:

A. a purely capitalist approach to achieve its economic goals, and is likely to continue doing so in the future.

232. (p. 43–44) Peter Principal is the prime minister of the nation of Urbania. Peter has called for Urbania’s

legislature to enact new legislation designed to shift his economy away from socialism toward a more

capitalistic system. Peter has acknowledged that such a radical change will entail some hardships, and that some

citizens will be unhappy with the changes in the economy. The most likely source of unhappiness associated

with a move toward capitalism is:

A. less wealth will be created.

233. (p. 49–50) Although it has been considered a capitalist economy in the past, for the past several years the

economy of the nation of Suburbania has become more socialist in its characteristics. Which of the following

trends is most likely to be associated with Suburbania’s movement toward socialism?

A. lower tax rates.

234. (p. 43; Spotlight on Small Business box) According to the material in the “Spotlight on Small Business” box concerning

D. Actually, people don’t want to move away from the farm.