Question 1

The most important consequence of property rights is that

Accepted Answer

A)  they facilitate exchange.
B)  allow for freedom of choice.
C)  they encourage people to cooperate by helping to ensure that only mutually agreeable economic transactions take place.
D)  they allow for a division of labour.E) A) and B)
F) B) and C)

Question 2

"The 'dollar votes' of consumers ultimately determine the composition of output and the allocation of resources in a market economy." This statement best describes the concept of:

Accepted Answer

A)  derived demand.
B)  external costs and benefits.
C)  consumer sovereignty.
D)  the invisible hand.E) A) and B)
F) None of the above

Question 3

Refer to the diagram.Arrows (1)  and (2)  represent:

Accepted Answer

A)  goods and resources respectively.
B)  money incomes and output respectively.
C)  output and money incomes respectively.
D)  resources and goods respectively.E) A) and B)
F) A) and C)

Question 4

_____ helps avoid the problems posed by the lack of double coincidence of wants.

Accepted Answer

A)  Barter
B)  Trade
C)  Money
D)  Freedom of choiceE) A) and D)
F) B) and C)

Question 5

The idea that the desires of resource suppliers and producers to further their own self-interest will automatically further the public interest is known as:

Accepted Answer

A)  consumer sovereignty.
B)  the invisible hand.
C)  derived demand.
D)  profit maximization.E) B) and C)
F) A) and D)

Question 6

Which of the following best describes the "invisible hand" concept?

Accepted Answer

A)  The desires of resource suppliers and producers to further their own self-interest will automatically further the public interest.
B)  The non substitutability of resources gives rise to a conflict between private and public interests and the need for government intervention.
C)  Mixed capitalism is the best system for overcoming the scarce resources-unlimited wants problem.
D)  Central direction by the government will improve resource allocation in a capitalistic economy.E) B) and C)
F) A) and D)

Question 7

Competition is more likely to exist when:

Accepted Answer

A)  there is free entry into and exit out of industries.
B)  there is a single supplier of all goods and services.
C)  the government purchases most goods and services.
D)  products are produced by a few large firms.E) All of the above
F) B) and D)

Question 8

The term consumer sovereignty means that:

Accepted Answer

A)  consumers are controlled by the actions of the marketplace.
B)  what is produced is ultimately determined by what consumers buy.
C)  there are no limits on what consumers may buy under capitalism.
D)  businesses produce with consumer satisfaction as their primary goal.E) None of the above
F) A) and B)

Question 9

Which statement is correct?

Accepted Answer

A)  In a market system, buyers and sellers must be in face-to-face contact with each other.
B)  Prices affect the distribution of goods in a market system but not the allocation of resources.
C)  In a market system, prices serve to ration goods and services to consumers.
D)  The operation of a market system has little, if any, effect on the distribution of income in the economy.E) All of the above
F) None of the above

Question 10

In market economies, profit primarily depends on consumer demand, production efficiency, and product quality.In contrast, in command economies, profit depends on:

Accepted Answer

A)  production cost.
B)  product quality.
C)  product mix.
D)  quantitative production targets.E) B) and D)
F) None of the above

Question 11

Labour, land, and capital are examples of:

Accepted Answer

A)  factors of production.
B)  revenue for businesses.
C)  goods and services for consumers.
D)  consumption for consumers.E) A) and C)
F) A) and D)

Question 12

The residual claimant(s)  is(are) :

Accepted Answer

A)  the employees.
B)  the creditors.
C)  the owners.
D)  the government.E) B) and C)
F) A) and D)

Question 13

Consumer sovereignty means that legislation now protects the rights of consumers to dispose of their incomes as they see fit.

Accepted Answer

A) True 
 B)False

Question 14

Property rights do not encourage people to cooperate.

Accepted Answer

A) True 
 B)False

Question 15

Suppose industry A is realizing substantial economic profits.Which of the following best describes the adjustment process which would bring about a new equilibrium?

Accepted Answer

A)  Firms will leave the industry, output will fall, and product price will rise.
B)  Firms will enter the industry, output will rise, and product price will rise.
C)  Firms will leave the industry, output will rise, and product price will fall.
D)  Firms will enter the industry, output will rise, and product price will fall.E) A) and B)
F) A) and C)

Question 16

Assume the demand for product Y increases and the subsequent market system responses result in the production of more Y.This illustrates:

Accepted Answer

A)  that the concept of derived demand is inapplicable.
B)  that consumer sovereignty is inoperative in this economy.
C)  the scarcity function of prices.
D)  the directing or guiding function of prices.E) A) and B)
F) A) and C)

Question 17

The answer to "Who will get the output?" is based on:

Accepted Answer

A)  ability to pay.
B)  willingness to pay.
C)  the ability and willingness of consumers to pay for the output.
D)  a first-come, first-served basis.E) None of the above
F) A) and D)

Question 18

Which condition will encourage competition?

Accepted Answer

A)  government licensing requirements in order to enter an industry
B)  a small number of buyers and sellers in a market
C)  the freedom of sellers and buyers to enter or exit an industry
D)  the government serving as the only supplier of goods to consumersE) B) and C)
F) A) and D)

Question 19

The guiding function of prices indicates that, at equilibrium prices, neither product surpluses nor shortages can occur.

Accepted Answer

A) True 
 B)False

Question 20

The "invisible hand" refers to the many indirect controls which the federal government imposes in a system of mixed capitalism.

Accepted Answer

A) True 
 B)False

Exam 2: Part B: The Market System and the Circular Flow

Assume the demand for product Y increases and the subsequent market system responses result in the production of more Y.This illustrates:

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Labour, land, and capital are examples of:

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The idea that the desires of resource suppliers and producers to further their own self-interest will automatically further the public interest is known as:

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The term consumer sovereignty means that:

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The residual claimant(s) is(are) :

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The "invisible hand" refers to the many indirect controls which the federal government imposes in a system of mixed capitalism.

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The answer to "Who will get the output?" is based on:

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Property rights do not encourage people to cooperate.

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Which statement is correct?

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The guiding function of prices indicates that, at equilibrium prices, neither product surpluses nor shortages can occur.

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Which condition will encourage competition?

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The most important consequence of property rights is that

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Refer to the diagram.Arrows (1) and (2) represent:

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Suppose industry A is realizing substantial economic profits.Which of the following best describes the adjustment process which would bring about a new equilibrium?

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Competition is more likely to exist when:

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"The 'dollar votes' of consumers ultimately determine the composition of output and the allocation of resources in a market economy." This statement best describes the concept of:

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_____ helps avoid the problems posed by the lack of double coincidence of wants.

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Consumer sovereignty means that legislation now protects the rights of consumers to dispose of their incomes as they see fit.

Correct AnswerverifiedShow Answer

In market economies, profit primarily depends on consumer demand, production efficiency, and product quality.In contrast, in command economies, profit depends on:

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Which of the following best describes the "invisible hand" concept?

Correct AnswerverifiedShow Answer

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