Question 1

Which of the following does not illustrate the idea of creative destruction?

Accepted Answer

A)   Digital downloads have shrunk the market for CDs and DVDs
B)   Online retail sales have increased, while brick-&-mortar sales have slowed down
C)   The opening of a new mall reduces the traffic in another mall
D)   A firm has to destroy some of the expired products in its inventoryE) B) and D)
F) All of the above

Question 2

In a market system, a consumer's willingness to pay-but not his ability to pay-is based on his income.

Accepted Answer

A) True 
 B)False  False

Question 3

One essential trade-off involving business risk which the market system provides is reflected in which of the following?

Accepted Answer

A)   Access to the firm's profits and gains are open only to those who take on the business risk of the firm
B)   Those who receive guaranteed payments from the firm are also guaranteed a share of the firm's profits
C)   Those who make bad decisions regarding risk will suffer losses; those who decide wisely will gain profits
D)   Those who bear the business risk of the firm are guaranteed to always gain profitsE) B) and C)
F) None of the above

Question 4

Which of the following is not a reason why specialization and trade are beneficial to society?

Accepted Answer

A)   The total output of economic goods may be increased even without any increase in resources
B)   Scarce resources are utilized more efficiently by exploiting differences among them
C)   Specialization fosters learning by doing, thus lowering the unit-costs of products
D)   Firms and workers become less dependent on others for producing goods and servicesE) B) and D)
F) A) and C)

Question 5

Capitalism gets its name from the fact that capital resources are mostly:

Accepted Answer

A)   Owned by the state or government
B)   Given the highest priority in the economy's income distribution
C)   Treated as private property
D)   In the form of money and financial resourcesE) A) and B)
F) A) and C)

Question 6

All of the following statements describe a market economy except:

Accepted Answer

A)   Government prescribes the market prices for goods and services
B)   Prices provide important signals to buyers and sellers
C)   The allocation of resources is determined by their prices
D)   The actions of buyers and sellers establish a product's priceE) A) and B)
F) A) and C)

Question 7

The market economy is regarded as "efficient" in that:

Accepted Answer

A)   It achieves the lowest rate of unemployment
B)   It leads to the lowest level of poverty in the society
C)   It directs resources towards products that the society wants most
D)   It puts the best people in government positionsE) C) and D)
F) B) and D)

Question 8

If people tried to produce as much of what they need on their own, then this would lead to a more efficient use of the economy's resources.

Accepted Answer

A) True 
 B)False

Question 9

In the circular flow diagram, households get their ability to pay for their consumption expenditures from the:

Accepted Answer

A)   Revenues they receive for their products
B)   Costs they incur for resources
C)   Incomes they earn for their resources
D)   Goods and services they get in the product marketsE) All of the above
F) B) and D)

Question 10

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.

Accepted Answer

A) True 
 B)False

Question 11

Consumer sovereignty and "dollar votes" guide the market system in dealing with which fundamental economic question?

Accepted Answer

A)   Which output will be produced?
B)   How is the output to be produced?
C)   How can the system accommodate change?
D)   Who is to receive the output?E) A) and D)
F) B) and C) A

Question 12

A market system is characterized by the private ownership of resources and the use of prices to coordinate economic activity.

Accepted Answer

A) True 
 B)False

Question 13

In a market system, resources will move away from an industry when:

Accepted Answer

A)   Profits of firms in the industry are rising
B)   Demand for the industry's product is decreasing
C)   The production of output in the industry is rising
D)   Profits of firms in other industries are fallingE) C) and D)
F) None of the above

Question 14

Private ownership and property rights in a market system have the following implications, except:

Accepted Answer

A)   Individuals are free to take on the financial risks involved in a business
B)   Trades that take place in the economy are mutually-agreeable transactions among individuals
C)   Economic agents are allowed to act in their own self-interest
D)   Large firms are allowed to coerce other firms and individualsE) All of the above
F) A) and B)

Question 15

The government may not implement policies intended to redistribute income in which of the following economic systems?

Accepted Answer

A)   Laissez-faire capitalism
B)   Command system
C)   Mixed economy
D)   Market systemE) B) and C)
F) C) and D)

Question 16

Being a "jack-of-all-trades" implies reducing the reliance on the division of labor.

Accepted Answer

A) True 
 B)False

Question 17

Why might a company use barter rather than money to make a trade?

Accepted Answer

A)   Barter trade is generally more efficient than money-based trade
B)   Barter can enable two firms to trade when their cash flows are limited
C)   Money requires a coincidence of wants, barter is more direct
D)   Money is efficient only for large transactions, so barter is preferred for smaller transactionsE) A) and C)
F) A) and B)

Question 18

"Creative destruction" in a market system is brought about by:

Accepted Answer

A)   Entrepreneurship
B)   Striking workers
C)   Regulation by the government
D)   Money-based tradeE) B) and D)
F) All of the above

Question 19

Which of the following statements about the right to private ownership is false?

Accepted Answer

A)   It enables individuals to obtain, use, and dispose of land and capital resources as they see fit
B)   It encourages investment and innovation, and thus fosters economic growth
C)   It extends to intangibles such as pieces of music and computer programs
D)   It weakens the incentive to maintain the property that one already ownsE) A) and B)
F) A) and C)

Question 20

Selfishness and self-interest are identical concepts.

Accepted Answer

A) True 
 B)False  False

Exam 2: The Market System and the Circular Flow

Which of the following does not illustrate the idea of creative destruction?

Correct AnswerverifiedShow Answer

In a market system, a consumer's willingness to pay-but not his ability to pay-is based on his income.

Correct AnswerverifiedFalse

One essential trade-off involving business risk which the market system provides is reflected in which of the following?

Correct AnswerverifiedShow Answer

Which of the following is not a reason why specialization and trade are beneficial to society?

Correct AnswerverifiedShow Answer

Capitalism gets its name from the fact that capital resources are mostly:

Correct AnswerverifiedShow Answer

All of the following statements describe a market economy except:

Correct AnswerverifiedShow Answer

The market economy is regarded as "efficient" in that:

Correct AnswerverifiedShow Answer

If people tried to produce as much of what they need on their own, then this would lead to a more efficient use of the economy's resources.

Correct AnswerverifiedShow Answer

In the circular flow diagram, households get their ability to pay for their consumption expenditures from the:

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

Consumer sovereignty and "dollar votes" guide the market system in dealing with which fundamental economic question?

Correct AnswerverifiedA

A market system is characterized by the private ownership of resources and the use of prices to coordinate economic activity.

Correct AnswerverifiedShow Answer

In a market system, resources will move away from an industry when:

Correct AnswerverifiedShow Answer

Private ownership and property rights in a market system have the following implications, except:

Correct AnswerverifiedShow Answer

The government may not implement policies intended to redistribute income in which of the following economic systems?

Correct AnswerverifiedShow Answer

Being a "jack-of-all-trades" implies reducing the reliance on the division of labor.

Correct AnswerverifiedShow Answer

Why might a company use barter rather than money to make a trade?

Correct AnswerverifiedShow Answer

"Creative destruction" in a market system is brought about by:

Correct AnswerverifiedShow Answer

Which of the following statements about the right to private ownership is false?

Correct AnswerverifiedShow Answer

Selfishness and self-interest are identical concepts.

Correct AnswerverifiedFalse

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