Multiple Choice Questions

Economic profits in an industry suggest the industry:
  • allocates resources efficiently and allows economic freedom.
  • should be larger to better satisfy consumers' desire for the product.
  • it promotes specialization by overcoming the problems with barter.
  • are essential to the reallocation of resources from less desired goods to more desired goods.
If competitive industry Y is incurring substantial losses, output will:
  • reallocate resources from less desired to more desired uses.
  • Government ownership of the major industries
  • contract as resources move away from industry Y.
  • economic profits to be zero
Households and businesses are:
  • it promotes specialization by overcoming the problems with barter.
  • workers specialize in various production tasks
  • sellers in the resource and product markets respectively.
  • results in greater total output.
The coincidence-of-wants problem associated with barter refers to the fact that:
  • for exchange to occur each seller must have a product that some buyer wants.
  • "Through the profit potential that encourages development of new technology."
  • a decrease in the quantity of resources employed in industry X.
  • planners had to direct required inputs to each enterprise
Broadly defined, competition involves:
  • encourage owners to maintain or improve their property
  • independently acting buyers and sellers and freedom to enter or leave markets
  • should be larger to better satisfy consumers' desire for the product.
  • government should not interfere with the operation of the economy
The market system's answer to the fundamental question "How will the goods and services be produced?" is essentially:
  • "At least-cost production."
  • United States, Soviet Union
  • "Goods and services that are profitable."
  • "Those willing and able to pay for them."
Which of the following is a distinguishing feature of a command system
  • central planning
  • creative destruction
  • incentive problem
  • all of the above means
Examples of command economies are
  • Cuba and North Korea
  • consumer sovereignty
  • do all of the above
  • economic profits.
Which of the following is NOT an economic cost?
  • economic profits.
  • all of the above.
  • central planning
  • Government ownership of the major industries
The market system's answer to the fundamental question "What will be produced?" is essentially:
  • the quantities and prices of the resources that households supply.
  • "At least-cost production."
  • What goods and services will be produced?
  • "Goods and services that are profitable."
The term laissez-faire suggests that:
  • assuming competition, private and public interest will coincide.
  • sellers in the resource and product markets respectively.
  • government should not interfere with the operation of the economy
  • workers specialize in various production tasks
The invisible-hand concept suggests that:
  • it promotes specialization by overcoming the problems with barter.
  • workers, managers, and entrepreneurs could not personally gain by responding to shortages or surpluses or by introducing new and improved products.
  • enterprises resisted innovation in fear that their production targets would be raised.
  • when firms maximize their profits, society's output will also be maximized.
Economic Scarcity
  • households sell resources to firms
  • Cuba and North Korea
  • applies to all economies
  • all of the above.
Suppose that an individual sees a tremendous opportunity to produce and sell a new product, but dismisses the idea because there is no way to exploit this opportunity for personal gain. This situation best identifies the:
  • Government ownership of the major industries
  • Firms will enter the industry and output will rise
  • contract as resources move away from industry Y.
  • ncentive problem under communist central planning.
If a competitive industry is neither expanding nor contracting, we would expect:
  • all of the above means
  • planners had to direct required inputs to each enterprise
  • contract as resources move away from industry Y.
  • economic profits to be zero
An economic system
  • coordination problem under central planning
  • is a particular set of institutional arrangements and a coordinating mechanism used to respond to the economizing problem
  • are essential to the reallocation of resources from less desired goods to more desired goods.
  • market systems and command systems
The invisible hand refers to the:
  • workers specialize in various production tasks
  • assuming competition, private and public interest will coincide.
  • notion that, under competition, decisions motivated by self-interest promote the social interest.
  • government should not interfere with the operation of the economy
Which of the following is a fundamental characteristic of the market system?
  • economic profits.
  • central planning
  • Government ownership of the major industries
  • Property rights
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:
  • incentive problem
  • all of the above.
  • consumer sovereignty
  • creative destruction
In Class Abell was talking about some of the problems with the Command System, he went on to compare two countries...who were they?
  • consumer sovereignty
  • United States, Soviet Union
  • product; resource
  • "At least-cost production."
Enterprise managers and workers in the Soviet Union often resisted innovations in production methods because:
  • product quality was neglected.
  • production targets were often increased when innovation occurred.
  • permits the production of a larger output with fixed amounts of resources.
  • the quantities and prices of the resources that households supply.
The regulatory mechanism of the market system is:
  • competition
  • economic profits.
  • Property rights
  • government should not interfere with the operation of the economy
Two major virtues of the market system are that it:
  • assuming competition, private and public interest will coincide.
  • allocates resources efficiently and allows economic freedom.
  • should be larger to better satisfy consumers' desire for the product.
  • signal that resources should be reallocated
The market system's answer to the fundamental question "Who will get the goods and services?" is essentially:
  • "Those willing and able to pay for them."
  • to do so will maximize the firms profits
  • the quantities and prices of the resources that households supply.
  • can be obtained for the smallest money outlay
Specialization in production is important primarily because it:
  • Government ownership of the major industries
  • signal that resources should be reallocated
  • results in greater total output.
  • product quality was neglected.
In the circular flow model
  • What goods and services will be produced?
  • households sell resources to firms
  • workers specialize in various production tasks
  • government should not interfere with the operation of the economy
If consumer desire for product X increases, all of the following will occur except:
  • a decrease in the quantity of resources employed in industry X.
  • for exchange to occur each seller must have a product that some buyer wants.
  • planners had to direct required inputs to each enterprise
  • reallocate resources from less desired to more desired uses.
Which of the following is NOT a characteristic of the market system?
  • economic profits.
  • the desires of resource suppliers and producers to further their own self-interest will automatically further the public interest.
  • What goods and services will be produced?
  • Government ownership of the major industries
In a competitive market economy firms will select the least-cost production technique because:
  • "Those willing and able to pay for them."
  • do all of the above
  • to do so will maximize the firms profits
  • expand in industry Z, as more resources will move to that industry.
Suppose industry A is realizing substantial economic profit. Which of the following best describes what will happen in this competitive market?
  • encourage owners to maintain or improve their property
  • Firms will enter the industry and output will rise
  • production targets were often increased when innovation occurred.
  • for exchange to occur each seller must have a product that some buyer wants.
In a market economy the distribution of output will be determined primarily by:
  • "Through the guiding function of prices and the incentive function of profits"
  • a decrease in the quantity of resources employed in industry X.
  • the quantities and prices of the resources that households supply.
  • reallocate resources from less desired to more desired uses.
Copyrights and Trademarks are examples of:
  • sellers in the resource and product markets respectively.
  • Property Rights
  • applies to all economies
  • product; resource
When talking about the Cold War, there were two countries that were competing for the air-speed record, what was the name of the plane that actually won that battle?
  • Who owns the factors of production, and the methods used to coordinate economic activity
  • gives direction to the market system
  • SR-71
  • coordination problem under central planning
Innovation lagged in the centrally planned economies because:
  • the desires of resource suppliers and producers to further their own self-interest will automatically further the public interest.
  • it promotes specialization by overcoming the problems with barter.
  • enterprises resisted innovation in fear that their production targets would be raised.
  • when firms maximize their profits, society's output will also be maximized.
The market system:
  • "Goods and services that are profitable."
  • it promotes specialization by overcoming the problems with barter.
  • "Through the profit potential that encourages development of new technology."
  • effectively harnesses the incentives of workers and entrepreneurs.
The French term laissez-faire means
  • let it be
  • Property Rights
  • when firms maximize their profits, society's output will also be maximized.
  • idea that the decisions of producers and resource suppliers with respect to the kinds and amounts of good produced must be appropriate to consumer demands.
The division of labor means that:
  • when firms maximize their profits, society's output will also be maximized.
  • workers specialize in various production tasks
  • government should not interfere with the operation of the economy
  • notion that, under competition, decisions motivated by self-interest promote the social interest.
Well-defined property rights:
  • households sell resources to firms
  • encourage owners to maintain or improve their property
  • there are independently-acting buyers and sellers in each market
  • effectively harnesses the incentives of workers and entrepreneurs.
Consumer sovereignty refers to the
  • idea that the decisions of producers and resource suppliers with respect to the kinds and amounts of good produced must be appropriate to consumer demands.
  • independently acting buyers and sellers and freedom to enter or leave markets
  • signal that resources should be reallocated
  • are essential to the reallocation of resources from less desired goods to more desired goods.
The competitive market system:
  • notion that, under competition, decisions motivated by self-interest promote the social interest.
  • government should not interfere with the operation of the economy
  • encourages innovation because successful innovators are rewarded with economic profits
  • there are independently-acting buyers and sellers in each market
"Under central planning, some group has to decide how to get the necessary inputs produced in the right amounts and delivered to the right places at the right time. This is a nearly impossible task without markets and profits." This quotation best identifies the:
  • coordination problem under central planning
  • is a particular set of institutional arrangements and a coordinating mechanism used to respond to the economizing problem
  • "Goods and services that are profitable."
  • coordination problem under Central planning.
From society's point of view the economic function of profits and losses is to:
  • reallocate resources from less desired to more desired uses.
  • contract as resources move away from industry Y.
  • increase the number of strawberry pickers needed by farmers
  • the quantities and prices of the resources that households supply.
In a market economy a significant change in consumers' desire for product X will:
  • all of the above.
  • creative destruction
  • do all of the above
  • to do so will maximize the firms profits
If competitive industry Z is making substantial economic profit, output will:
  • encourages innovation because successful innovators are rewarded with economic profits
  • the quantities and prices of the resources that households supply.
  • a decrease in the quantity of resources employed in industry X.
  • expand in industry Z, as more resources will move to that industry.
The failure of Soviet central planning was reflected in:
  • let it be
  • allocates resources efficiently and allows economic freedom.
  • all of the above.
  • creative destruction
The advent of DVDs threatens to eventually demolish the market for videocassettes. This is an example of:
  • incentive problem
  • Cuba and North Korea
  • creative destruction
  • consumer sovereignty
An increase in consumer desire for strawberries is most likely to:
  • Government ownership of the major industries
  • allocates resources efficiently and allows economic freedom.
  • increase the number of strawberry pickers needed by farmers
  • a decrease in the quantity of resources employed in industry X.
In a competitive economy prices:
  • do all of the above
  • to do so will maximize the firms profits
  • contract as resources move away from industry Y.
  • expand in industry Z, as more resources will move to that industry.
The market system's answer to the fundamental question "how will the system accommodate change?" is essentially:
  • "At least-cost production."
  • "Through the profit potential that encourages development of new technology."
  • "Through the guiding function of prices and the incentive function of profits"
  • the quantities and prices of the resources that households supply.
In terms of circular flow diagram, businesses obtain revenue through the____market and make expenditures in the____market.
  • producers would not react because no price or profit signals occurred.
  • economic profits to be zero
  • product; resource
  • United States, Soviet Union
The pursuit of self-interest:
  • gives direction to the market system
  • workers specialize in various production tasks
  • wide-spread ownership of capital
  • households sell resources to firms
In 1996 McDonald's introduced its Arch Deluxe hamburger, which failed to catch on with the public and was subsequently dropped from the menu. This failure illustrates the idea of:
  • Cuba and North Korea
  • do all of the above
  • creative destruction
  • consumer sovereignty
The fact that the major indicator of enterprise success in the Soviet Union and pre-reform China was the quantity of output implied that:
  • "Those willing and able to pay for them."
  • product quality was neglected.
  • product; resource
  • "At least-cost production."
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Multiple Choice Questions
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