Microeconomics Chapter 2 student quiz, prof. Biery

Which of the following is a distinguishing feature of a command system?

central planning

Which of the following is a distinguishing feature of laissez-faire capitalism?

minimal government intervention

Example of command economies are:

Cuba and Korea

Of the following countries, which one exhibits the characteristic of a market economy?

North Korea

The French term laissez-faire means?

let it be

An economic system

is a particular set of institutional arrangements and a coordinating mechanism used to respond to the economizing problem

The term laissez- faire suggest that:

Government should not interfere with the operation of the economy?

economic systems differ according to which two main characteristics?

Who owns the factors an the methods used to used to coordinate economic activity

Command systems also are known as

Communism

10. A fundamental difference between the command system and laissez-faire capitalism is that, in command systems:

The division of output is decided by central planning rather than by individuals operating freely through markets.

Which of the following is not a typical characteristic of a market system?

Government ownership of most property resources.

Which of the following is a fundamental characteristic of the market system

Property rights

Property rights are important because they

encourage cooperation by improving the chances of mutually agreeable transactions.

Private property:

encourages owners to maintain or improve their property so as to preserve or enhance value.

Copyrights and trademarks are examples of:

property rights

The regulatory mechanism of the market system is:

competition

Broadly defined, competition involves:

independently acting buyers and sellers and freedom to enter or leave markets

Competition means that:

independently acting buyers and sellers and freedom to enter or leave markets

The division of labor means that:

workers specialize in various production tasks.

Specialization in production is important primarily because it:

results in greater total output.

Specialization—the division of labor—enhances productivity and efficiency by:

1. allowing workers to take advantage of existing differences in their abilities and skills. 2. avoiding the time loss involved in shifting from one production task to another. 3. allowing workers to develop skills by working on one, or a limited number, of tasks. (all the answers)

Specialization in production is economically beneficial primarily because it:

Permits the production of a larger output with fixed amounts of resources.

Barter

entails the exchange of goods for goods.

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.

The use of money contributes to economic efficiency because:

it promotes specialization by overcoming the problems with barter.

The presence of market failures implies that:

there is an active role for government, even in a market system.

Which of the following characteristics is least unique to a market system?

The wide spread use of money

Which of the following is one of the Five Fundamental Questions?

What goods and services will be produced?

In a competitive industry Z is making substantial economic profit, output will:

Expand in industry Z as more resources will move to that industry

From society’s point of view, the economic function of profits and losses is to:

reallocate resources from less desired to more desired uses.

In a market economy a significant change in consumers’ desire for product X will:

1.alter the profits or losses received by suppliers of product X. 2. cause a reallocation of scarce resources. 3. cause some industries to expand and others to contract.

Economic profits in an industry suggest the industry:

should be larger to better satisfy consumers’ desire for the product.

Economic profits and losses:

are essential to the reallocation of resources from less desired to more desired goods

If consumer desire for product X increases, this will not happen:

a decrease in the quantity of resources employed in industry X.

An increase in consumer desire for strawberries is most likely to:

increase the number of strawberry pickers needed by farmers.

If competitive industry Y is incurring substantial losses, output will:

contract as resources move away from industry Y.

The economic function of profits and losses is to:

signal that resources should be reallocated.

If a competitive industry is neither expanding nor contracting, we would expect:

economic profits to be zero.

The competitive market system

encourages innovation because successful innovators are rewarded with economic profit

In a market economy, the distribution of output will be determined primarily by

The quantities and prices of the resources that households supply.

The most efficient combination of resources in producing a given output is the combination that:

minimize the cost per unit of output.

Firms are motivated to minimize production cost because:

competitive pressure in the market will drive out higher cost production

In a competitive market economy, firms select the least cost production technique because:

to do so will maximize the firms profits

The market system’s answer to the fundamental question, " What will be produced?"

Goods and services that are profitiable

The market system’s answer to the fundamental question," How will the goods and services be produced?"

In the way that minimizes the cost per unit of output

The market system’s answer to the fundamental question, " Who will get the goods and services ?"

Those willing and able to pay for them

The market system’s answer to the fundamental question, "How will the system accommodate change?"

Through the guiding function of prices and the incentive function of prifits

56. The market system’s answer to the fundamental question "How will the system promote progress?" is essentially:

Through the profit potential that encourages development of new technology."

57. The advent of DVDs has virtually demolished the market for videocassettes. This is an example of:

Creative destruction

"Consumer sovereignty" refers to the:

idea that the decisions of producers must ultimately conform to consumer demands.

The dollar vote of consumers ultimately determine the composition of output and the allocation of resources in a market economy. The statement best describes the concept or

consumer sovereignty

Which of the following is not one of the five fundamental questions?

What price will be charged for goods and services

"Consumer sovereignty" means that:

buyers determine what will be produced based on their "dollar votes" for the goods and services offered by sellers.

Which of the following best describes the invisible-hand concept

The desires of resource suppliers and producers to further their own self-interest will automatically further the public interest

The invisible hand refers to the:

notion that, under competition, decisions motivated by self-interest promote the social interest.

The invisible hand concept suggests that

assuming competition, private and public interests will coincide.

Two major virtues of the market system are that it:

allocates resources efficiently and allows economic freedom.

The market system

effectively harnesses the incentives of workers and entrepreneurs.

According to the concept of the "invisible hand," if Susie opens and operates a profitable childcare center, then:

she has served society’s interests by providing a desired good or service.

The invisible hand promotes society’s interests because:

individuals pursuing their self-interest will try to produce goods and services that people in society want and are willing to purchase.

The coordination problem in the centrally planned economies refers to the idea that:

the planners had to direct inputs to each interprise

70. "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.

Because the outputs of many industries are the inputs to other industries, the failure of any single industry to fulfill the output quantities specified in the central plan caused a chain reaction of adverse repercussions on production." This quotation best identifies the: A. incentive problem under central planning.

coordination problem under central planning

The incentive problem under communist central planning refers to the idea that: A. planners had to direct required inputs to each enterprise.

workers, managers, and entrepreneurs could not personally gain by responding to shortages or . surpluses or by introducing new and improved products.

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:

incentive problem under communist central planning.

Innovation lagged in the centrally planned economies because:

enterprises resisted innovation in fear that their production targets would be raised.

The fact that the major indicator of enterprise success in the Soviet Union and pre-reform China was the quantity of output implied that:

product quality was neglected.

Enterprise managers and workers in the Soviet Union often resisted innovations in production methods because:

production targets were often increased when innovation occurred.

If products were in short or surplus supply in the Soviet Union:

producers would not react because no price or profit signals occurred.

In what type of business do the owners bear no personal financial responsibility for the company’s debts and obligations?

Cooperation

The simple circular flow model shows that:

households are on the selling side of the resource market and on the buying side of the product market.

The two basic markets shown by the simple circular flow model are:

product and resources

The resource market

households sells resources to business

In the simple circular flow model

business are sellers of final products

In terms of the circular flow diagram, households make expenditures in the ___?__ market and receive income through the _?___ market.

Product and resources

In terms of the circular flow diagram, businesses obtain revenue through the _____ market and make expenditures in the _____ market.

Product and resources

Households and businesses are:

sellers in the resource and product markets respectively.

Which of the following best illustrates the circular flow model in action?

All of these answers illustrate the workings of the circular flow model.

Risk is a problem

in both market system and command systems

Which of the following statements is true about risk management in market systems versus command systems?

Market systems manage risk better because entrepreneurs taking risks bear the costs of poor . decisions, where in command systems government decision makers don’t bear those costs.

Risk management is command economies

Tends to be done poorly because decision makers are insulates from the risk of making a poor decision

In a market system

a firm’s employee and suppliers are largely shielded from risk

In a market system, employees and suppliers;

are usually shielded from risk, but at the cost not sharing in the profit of the firm

A market system tends to restrict business risk to owners and investors. This results in which of the following benefits?

Firms are better able to attract inputs, as these inputs do not have to share the risk

A market system tends to restrict business risk to owners and investors. This results in which of the following benefits?

Firms focus attention on prudent risk management, as it is profitable to manage risk

(Consider This) In 1975, McDonald’s introduced its Egg McMuffin breakfast sandwich, which remains popular and profitable today. This longevity illustrates the idea of:

consumer sovereignty

.(Consider This) In 2000, McDonald’s introduced its McSalad Shaker, which failed to catch on with the public and was subsequently dropped from the menu. This failure illustrates the idea of: A. consumer sovereignty.

consumer sovereignty

(Consider This) Since World War II:

South Korea’s market economy has significantly outperformed North Korea’s command economy.

(Consider This) North Korea’s command economy:

is one of the few remaining command economies.

.(Consider This) Which of the following statements about insurance and risk is true?

Insurance transfers risk from those with a low tolerance for risk to those with a higher tolerance for risk

(Consider This) Martha’s Milkshake Company buys earthquake insurance from the Stable Ground

Martha’s has a lower tolerance for earthquake risk than Stable Ground.

(Last Word) According to economist Donald Bordeaux, the world’s tens of billions of individual resources get arranged productively:

because private property encourages people to consider the alternative uses of their resources and select those that provide the most rewards

(Last Word) According to economist Donald Bordeaux:

private property eliminates the possibility that resource arrangements will be random.