ECON 201

183.

The following table illustrates alternative production techniques for producing 18 widgets that can be sold for $1 each fora total revenue of $18.

Resource

Price Per Unit of resource

Techniques

(# of Units of Each resource Required)

A

B

C

D

Labor

$2

3

2

1

2

Land

1

2

1

3

1

Capital

4

1

2

2

3

Entrepreneurship

3

1

2

1

1

Using technique A will result in an

economic loss of $2.

economic profit of $1.

economic profit of $2.

D. economic profit of $3.

AACSB: Knowledge Application

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 02-03 Explain how the market system answers the five fundamental questions of what to produce,how to produce,who obtains the output,how to adjusttochange, and how to promote progress.

Test Bank: II Topic: Five Fundamental Questions

184.

The following table illustrates alternative production techniques for producing 18 widgets that can be sold for $1 each for a total revenue of $18.

Resource

Price Per Unit of resource

Techniques

(# of Units of Each resource Required)

A

B

C

D

Labor

$2

3

2

1

2

Land

1

2

1

3

1

Capital

4

1

2

2

3

Entrepreneurship

3

1

2

1

1

If the price per unit of labor were to increase from $2 to $3, the most efficientproduction techniquewould then be

A.

B.

C. C.

D. D.

AACSB: Knowledge Application

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 02-03 Explain how the market system answers the five fundamental questions of what to produce,how to produce,who obtains the output,how to adjusttochange, and how to promote progress.

Test Bank: II Topic: Five Fundamental Questions

The following table illustrates alternative production techniques for producing 18 widgets that can be sold for $1 each fora total revenue of $18.

Resource

Price Per Unit of resource

Techniques

(# of Units of Each resource Required)

A

B

C

D

Labor

$2

3

2

1

2

Land

1

2

1

3

1

Capital

4

1

2

2

3

Entrepreneurship

3

1

2

1

1

If the price of labor increases from $2 to $3, then the results of using Technique C will change from an economic

loss of $2 to a loss of $1.

B. profit of $2 to a profit of $1.

profit of $1 to a profit of$2.

loss of $1 to a loss of $2.

AACSB: Knowledge Application

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 02-03 Explain how the market system answersthe five fundamental questions of what to produce,how to produce, who obtains the output, how to adjust to change, and how topromote progress.

Test Bank: II Topic:Five Fundamental Questions

In a market system, the distribution of goods and servicesamong consumers is largely determined by

the willingness and ability of consumersto pay the prices.

whoever needs the goods and services the most.

whoever has the closest connection to firms and the government.

a random factor that is almost impossible to predict.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 02-03 Explain how the market system answersthe five fundamental questions of what to produce,how to produce, who obtains the output, how to adjust to change, and how topromote progress.

Test Bank: II Topic: Five Fundamental Questions

"For whom is a given mix of goods and services to be produced? How, in other words, are the society'soutputs to be distributed among its members?" In a market economy, this question is resolvedprimarily in the

public sector through the mechanism of central planning.

business sector through the mechanism of advertising.

C. private sector through the earning and spending of income.

D. money market through borrowing and saving by households and businesses.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand

Difficulty: 02 Medium Learning Objective: 02-03 Explain how the market system answers the five fundamental questions of what to produce,how to produce,who obtains the output,how to adjusttochange, and how to promote progress.

Test Bank: II Topic:Five Fundamental Questions

The distribution of income in amarket system is a primaryfactor that resolveswhich of the followingfundamental economic questions?

What will be produced?

How will the output be produced?

How will the system accommodate change?

D. Who will get the output?

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 02-03 Explain how the market system answersthe five fundamental questions of what to produce,how to produce, who obtains the output, how to adjust to change, and how topromote progress.

Test Bank: II Topic: Five Fundamental Questions

In a market economy, the incomes of consumersdepend primarily upon

government policies in setting wages and interest rates.

B. the quantity and prices of resources that they possess.

the amount of savings that they have accumulated.

how closely connected they are to government and business leaders.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 02-03 Explain how the market system answers the five fundamental questions of what to produce,how to produce,who obtains the output,how to adjusttochange, and how to promote progress.

Test Bank: II Topic: Five Fundamental Questions

If economic profits in a particular industry increase, then we would expect

resources to be diverted away from that industry.

firms in that industryto produce less output.

C. firms to enter that industry, thus expanding it.

D. consumers to buy less from that industry.

AACSB: Knowledge ApplicationAccessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 02-04 Explain the operation of the invisible hand and why market economies usually do a betterjob than command economies at efficiently transforming economic resources into desirable output.

Test Bank: II Topic: The Invisible Hand

In a market system, resourceswill move away from an industry when

profits of firms in the industryare rising.

B. demand for the industry's product is decreasing.

the production of output in the industry is rising.

profits of firms in other industries are falling.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 02-04 Explain the operation of the invisible hand and why market economies usually do a betterjob than command economies at efficiently transforming economic resources into desirable output.

Test Bank: II Topic: The Invisible Hand

"Creative destruction" in a marketsystem is brought about by

entrepreneurship.

striking workers.

regulation by the government.

money-based trade.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand

Difficulty: 02 Medium Learning Objective: 02-04 Explain the operation of the invisible hand and why market economies usually do a betterjob than command economies at efficiently transforming economic resources into desirable output.

Test Bank: II Topic: The Invisible Hand

An increase in the demand for a productanda reduction in its costs of production would

decrease the profits of producers.

encourage firms to leave an industry.

C. encourage firms to enter an industry.

D. cause a shortageof the product.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand

Difficulty: 02 Medium Learning Objective: 02-04 Explain the operation of the invisible hand and why market economies usually do a betterjob than command economies at efficiently transforming economic resources into desirable output.

Test Bank: II Topic: The Invisible Hand

In a market system, as one industryexpands while anothercontracts, resources will flow

away from the expanding industry towardthe contracting one.

B. across industries, driven by the changes in resourceprices paid by firms.

toward the industrywhere the product demand is declining.

because resource allocation will have to equalize between the two industries.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 02-04 Explain the operation of the invisible hand and why market economies usually do a betterjob than command economies at efficiently transforming economic resources into desirable output.

Test Bank: II Topic: The InvisibleHand

The market system communicates changes in market conditionsand elicits appropriate responses from businesses and resource suppliers through changes in prices. This is known asthe

guiding function of prices.

monetary function of prices.

circular flow of income.

market determination of prices.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 02-04 Explain the operation of the invisible hand and why market economies usually do a betterjob than command economies at efficiently transforming economic resources into desirable output.

Test Bank: II Topic: The Invisible Hand

The development of the digital video camera, which replaced film video cameras, is an example of

roundabout production.

derived demand.

C. creative destruction.

D. specialization.

AACSB: Knowledge ApplicationAccessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 02-04 Explainthe operationof the invisible hand and why market economiesusually do a better job than command economiesatefficiently transforming economic resourcesinto desirable output.

Test Bank: II Topic: The Invisible Hand

Which of the followingdoes not illustrate the idea of creativedestruction?

Digital downloads have shrunk the marketfor CDs and DVDs.

Online retail sales have increased, while brick-and-mortar sales have slowed down.

The opening of anew mall reduces the traffic in another mall.

D. A firm has to destroy some of the expiredproducts in its inventory.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 02-04 Explainthe operationof the invisible hand and why market economiesusually do a better job than command economiesatefficiently transforming economic resourcesinto desirable output.

Test Bank: II Topic: The Invisible Hand

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

consumer sovereignty.

B. the invisible hand.

derived demand.

creative destruction.

AACSB: Knowledge ApplicationAccessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 02-04 Explainthe operationof the invisible hand and why market economiesusually do a better job than command economiesatefficiently transforming economic resourcesinto desirable output.

Test Bank: II Topic: The Invisible Hand

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

Ample regulation of business by the government will maximizethe public's best interests.

The market system works best when resources are free to move from one use to another.

The problem of scarcity can best be overcome in a system of mixed capitalism.

D. Self-interest in a market system will automatically promote the public interest as well.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 02-04 Explain the operation of the invisible hand and why market economies usually do a betterjob than command economies at efficiently transforming economic resources into desirable output.

Test Bank: II Topic: The Invisible Hand

The highly influential book by Adam Smith, who broughtup the "invisible hand" notion,is titled

Freakonomics.

The Principles of Economics.

The Age of the Economist.

D. The Wealth of Nations.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 02-04 Explain the operation of the invisible hand and why market economies usually do a betterjob than command economies at efficiently transforming economic resources into desirable output.

Test Bank: II Topic: The InvisibleHand

The "invisible hand" concept refers to the

guiding function of prices in a market system.

implicit influence that the government has on the actions of firms.

regulatory structure that markets must operate in.

underlying money flows that promote the trading of goods and services.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 02-04 Explainthe operationof the invisible hand and why market economiesusually do a better job than command economiesatefficiently transforming economic resourcesinto desirable output.

Test Bank: II Topic: The Invisible Hand

Businesses seeking higher profits and resource suppliers seeking higher incomes lead to changes in theallocation of resources among different firms and end up with

consumers at the losing end.

B. output that society wants.

unnecessary conflict and turmoil.

a need for government action.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand

Difficulty: 02 Medium Learning Objective: 02-04 Explain the operation of the invisible hand and why market economies usually do a betterjob than command economies at efficiently transforming economic resources into desirable output.

Test Bank: II Topic: The Invisible Hand

The major virtues of the market system include all of the following, except

it promotes an efficient allocation of resources.

B. it leads to equality in the distribution of income.

it provides incentivesfor greater production and higher incomes.

it emphasizes the freedom to pursue self-interest.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 02-04 Explain the operation of the invisible hand and why market economies usually do a betterjob than command economies at efficiently transforming economic resources into desirable output.

Test Bank: II Topic: The InvisibleHand

The market economy is regarded as "efficient" in that

it achieves the lowest rate of unemployment.

it leads to the lowest level of poverty in the society.

C. it directs resources towardproducts that the societywants most.

D. it puts the best people in government positions.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 02-04 Explain the operation of the invisible hand and why market economies usually do a betterjob than command economies at efficiently transforming economic resources into desirable output.

Test Bank: II Topic: The Invisible Hand

One basic problem faced by central planners,but hardly present in a marketsystem, has to do with

determining the production goals or targets in a factory.

having limited resources and trying to match them with unlimited wants.

C. coordinating production in various industries so that bottlenecks do not develop.

D. providing financial resources for increasing the real flows of products in the economy.

AACSB: Knowledge ApplicationAccessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 02-04 Explainthe operationof the invisible hand and why market economiesusually do a better job than command economiesatefficiently transforming economic resourcesinto desirable output.

Test Bank: II Topic: EconomicSystems