ECON ANSWERS
The major "success indicator" for business managers in command economies like the Soviet Union and China in the past was
the quantity or volume of production.
product quality and variety.
the amount of profits a producermakes.
morale of workers in a firm.
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: Economic Systems
A characteristic ofcentrally planned economiesis that
the price is relatively unimportant in allocating resources.
profits are the main measure of success of a firm.
entrepreneurship is quite prevalent and highly rewarded.
there are many incentives for innovationandhard work.
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
Which of the followingis true of an economythat operates entirelythrough central planning?
An individual‘s success in business is based on political savvy rather than economic profitability.
There is relative ease in matching resource allocation to consumerdemand by the central planners.
Central planners receive market information and coordinate economic activity throughtheprice mechanism.
The system adapts easily to technological change, because there is a healthyentrepreneurial spirit.
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: Economic Systems
In a command economylike the old SovietUnion, one is able to improve one's lot and get ahead in society largely through
entrepreneurship and risk-taking.
innovation and profits.
C. participating in the political hierarchy.
D. gettinghigh prices for one's productsand resources.
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: Economic Systems
According to economist Donald Boudreaux in the "Last Word" section of the chapter,what best explains why the market system is not a random,chaotic mess?
There is active cooperation among private propertyowners and government officials to correct the excessesof a market economy.
The roundabout methods of production allocate resources from consumers to producers in an orderly fashion.
Government planning limits the chaos, and the government regulates economic activityto create stability in the market.
D. Private property rights encourage mutual accommodationthatleads to an arrangement of resources that is productive.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 02-06 Explain how the marketsystem deals with risk.
Test Bank: II Topic:Five Fundamental Questions
In the circular flow model of the marketsystem, households’ major role is to
buy both products and resources.
sell both products and resources.
C. buy products and sell resources.
D. sell products and buy resources.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium Learning Objective: 02-05 Describe the mechanics of the circular flow model.
Test Bank: II Topic: The Circular Flow Model
In the circular flow model of the market system, business firms’major role is to
buy products and resources.
sell products and resources.
buy products and sell resources.
D. sell productsand buy resources.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 02-05 Describe the mechanics of the circular flow model.
Test Bank: II Topic: The CircularFlow Model
The circular flow model illustrates
the importance of having a central plan for the economy.
how capital and other resources are created.
how money is created by the banking system.
D. the interdependence of businesses and consumers.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 02-05 Describe the mechanics of the circular flow model.
Test Bank: II Topic: The Circular Flow Model
The simple circular flow model shows that workers and capitalowners offer their servicesto firms through the
product markets.
B. resource markets.
money markets.
financial markets.
AACSB: Knowledge ApplicationAccessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 02-05 Describethe mechanics of the circularflow model.
Test Bank: II Topic: The Circular Flow Model
In the circular flow model, households earn their incomes in the
resource markets.
product markets.
capitalist markets.
money markets.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 02-05 Describethe mechanics of the circularflow model.
Test Bank: II Topic: The CircularFlow Model
According to the circular flow model, product markets are where
households earn their money incomes.
households acquire economic resources from businesses.
businesses acquire their inputs from households.
D. businesses earn their revenues from households.
AACSB: Knowledge ApplicationAccessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 02-05 Describethe mechanics of the circularflow model.
Test Bank: II Topic: The Circular Flow Model
The money income of households consists of all the following, except
wages.
profits.
interest.
D. revenues.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 02-05 Describe the mechanics of the circular flow model.
Test Bank: II Topic: The Circular Flow Model
Which of the followingwould be primarily determined in the resourcemarkets?
the airfares charged by airlines for familyvacations
B. the wage rates for computerprogrammers and engineers
the number of home-Internet connections installed
the amount of money in circulation issued by the government
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 02-05 Describe the mechanics of the circular flow model.
Test Bank: II Topic: The CircularFlow Model
219.
Refer to the provided figure.If box A represents households, B the product market, and C businesses, and if flow (3) represents revenues, then flow (1) would represent
costs.
money income.
C. consumption expenditures.
D. resources.
AACSB: Knowledge Application
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 02-05 Describe the mechanics of the circular flow model.
Test Bank: II Topic: The CircularFlow Model
220.
Refer to the provided figure. If box A represents households, D the resource market, and C businesses, then flow (8)would represent , while flow (7) would represent _.
goods and services; consumption expenditures
consumption expenditures; goods and services
resources; money income
D. money income; resources
AACSB: Knowledge Application
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 02-05 Describethe mechanics of the circularflow model.
Test Bank: II Topic: The CircularFlow Model
221.
Refer to the provided figure. If box A represents households, B the productmarket, and C businesses, then flow (2) and flow (4) would represent
A. the flow of labor and other resources.
B. the flow of goods and services.
business spending revenues
money incomes and consumer spending.
AACSB: Knowledge Application
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 02-05 Describe the mechanics of the circular flow model.
Test Bank: II Topic: The Circular Flow Model
Which of the following is not a major categoryofbusiness structure?
sole proprietorship
partnership
C. public agency
D. corporation
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 02-05 Describe the mechanics of the circular flow model.
Test Bank: II Topic: The Circular Flow Model
In the circular flow diagram,households get their ability to pay for theirconsumption expenditures from the
revenues they receive for their products.
costs they incur for resources.
C. incomes they earn for their resources.
D. goods and services they get in the productmarkets.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium Learning Objective: 02-05 Describe the mechanics of the circular flow model.
Test Bank: II Topic: The CircularFlow Model
In the circular flow diagram, firms get their ability to pay for the costs of production from the
revenues they receive for their products.
resources they acquire in the resourcemarkets.
incomes they earn for their resources.
goods and services they get in the product markets.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium Learning Objective: 02-05 Describe the mechanics of the circular flow model.
Test Bank: II Topic: The Circular Flow Model
In a market system, the task of assessingand managing the business risk of a firm is taken on by the firm's
labor.
capital suppliers.
C. entrepreneurs.
D. customers.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 02-06 Explain how the market system deals with risk.
Test Bank: II Topic: How the MarketSystem Deals with Risk
Which of the following guides sensibledecisions regarding the management of business risk in a market system?
the profit and loss system
the "invisible hand"
taxes and subsidies
consumer sovereignty
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 02-06 Explain how the market system deals with risk.
Test Bank: II Topic: How the Market System Deals with Risk
In a market system, a firm's employees are typically shielded from business risk by
profit-sharing agreements.
B. wage contracts.
the Social Security program.
paid vacation leaves.
AACSB: Knowledge ApplicationAccessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 02-06 Explain how the marketsystem deals with risk.
Test Bank: II Topic: How the Market System Deals with Risk
One essential trade-off involving business risk in a market system is reflected in which of the following statements?
Access to the firm's profits and gains are open only to those who take on the business risk of the firm.
Those who receive guaranteed payments from the firm are also guaranteed a share ofthe firm's profits.
Those who make bad decisions regarding risk will suffer losses; those who decide wisely will gainprofits.
Those who bear the business risk of the firm are guaranteed to always gain profits.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 02-06 Explain how the marketsystem deals with risk.
Test Bank: II Topic: How the Market System Deals withRisk
In a market system,which of the following is a major benefit of making the firm's owners and investors exclusivelyshoulder the business risk?
Those who deeply dislike businessrisk will not have anything to do with the business.
B. This allows firms to more easily attract labor and other suppliersof inputs.
This reduces the business risk in the economy.
It makes it easier for the governmenttomonitor and manage the business risk.
AACSB: Knowledge ApplicationAccessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 02-06 Explain how the marketsystem deals with risk.
Test Bank: II Topic: How the Market System Deals with Risk
Insurance companies facilitate the transfer of risk from
those who have a low-risk tolerance to those with high risk-tolerance.
those who have a high-risktolerance to those with low risk-tolerance.
the insurance companies' owners to the insurance policyholders.
insurance policyholders to the government.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 02-06 Explain how the market system deals with risk.
Test Bank: II Topic: How the Market System Deals with Risk
True / False Questions
A market system is characterized by the private ownershipof resources and the use of prices to coordinate economic activity.
TRUE
AACSB: Analytical Thinking Accessibility: Keyboard Navigation
Blooms: Analyze Difficulty: 03 Hard
Learning Objective: 02-01 Differentiate between laissez-faire capitalism, the command system, and the marketsystem.
Test Bank: II Topic: EconomicSystems
Most market economies, such as the U.S. and the U.K., allow governmentpolicies and actions aimed at promotingeconomic growthand stability.
TRUE
AACSB: Analytical ThinkingAccessibility: Keyboard Navigation
Blooms: Analyze Difficulty: 03 Hard
Learning Objective: 02-01 Differentiate between laissez-faire capitalism, the command system, and the market system.
Test Bank: II Topic: Economic Systems
In a command economy, the head of each household makes the fundamental economic choices such as what to produce and how to produce output.
FA LSE
AACSB: Analytical ThinkingAccessibility: Keyboard Navigation
Blooms: Analyze Difficulty: 03 Hard
Learning Objective: 02-01 Differentiate between laissez-faire capitalism, the command system, and the marketsystem.
Test Bank: II Topic: EconomicSystems
The economy of the United States in the past can best be describedas laissez-faire capitalism.
FA LSE
AACSB: Analytical Thinking Accessibility: Keyboard Navigation
Blooms: Analyze Difficulty: 03 Hard
Learning Objective: 02-01 Differentiate between laissez-faire capitalism, the command system, and the market system.
Test Bank: II Topic: EconomicSystems
Property rights give to some people the right to coerce others into giving up their property.
FA LSE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 02-02 List the main characteristics of the market system.
Test Bank: II Topic: Characteristics of the Market System
Property rights give the government the right to own, use, and dispose of resources in an economy.
FA LSE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 01 Easy Learning Objective: 02-02 List the main characteristics of the market system.
Test Bank: II Topic: Characteristics of the Market System
Selfishness and self-interest are identical concepts in economics.
FA LSE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 01 Easy LearningObjective: 02-02 List the main characteristics of the market system.
Test Bank: II Topic: Characteristics of the Market System
An important aspect of the market system is that producers and consumers alwayshave to consider the public interest in making production and consumption decisions.
FA LSE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 01 Easy LearningObjective: 02-02 List the main characteristics of the market system.
Test Bank: II Topic: Characteristics of the Market System
If people tried to produce most of what they need on theirown, then thiswould lead to a more efficient use of the economy's resources.
FA LSE
AACSB: Knowledge ApplicationAccessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 02-02 List the main characteristics of the market system.
Test Bank: II Topic: Characteristics of the Market System
Being a "jack-of-all-trades"implies reducing the relianceon the divisionof labor.
TRUE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 01 Easy LearningObjective: 02-02 List the main characteristics of the market system.
Test Bank: II Topic: Characteristics of the Market System
Even with the use of money, exchange and trade cannotoccur if there is no coincidence of wants.
FA LSE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 02-02 List the main characteristics of the market system.
Test Bank: II Topic: Characteristics of the Market System
One of the most importanteconomic resources is money.
FA LSE
AACSB: Knowledge ApplicationAccessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 02-02 List the main characteristics of the market system.
Test Bank: II Topic: Characteristics of the Market System
In a market system, the distribution of goods and services largelydepends on the distribution of income and people’spreferences.
TRUE
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
The fundamental economic question regarding the distribution of output in theeconomy is equivalent to the questionofwho will producethe output.
FA LSE
AACSB: Knowledge ApplicationAccessibility: 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 concept of consumer sovereignty refers to the situationwhere consumers have the right to vote for the board of directorsof large corporations.
FA LSE
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 analyzing a market system, economists often assume that firms will choose the production techniques that will give them the maximum revenues.
FA LSE
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
Economic efficiency entails producing a certain output with theminimum number of units of inputs.
FA LSE
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 choice of the most efficient production technique is not affected by how much buyers want to buy the product.
TRUE
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
Even if prices are fixed and competition is restricted by the government, the invisiblehand will still work in the economy and lead to economicefficiency.
FA LSE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium Learning Objective: 02-04 Explain the operation of the invisible hand and why marketeconomies 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,a consumer's abilityto pay—but not necessarily his willingness to pay—is largelybased on his income.
TRUE
AACSB: Knowledge ApplicationAccessibility: 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
In a competitive market economy, firms and resource suppliers seeking to further their own self-interest will end up,as though guidedby an invisible hand, promotingthe public interest.
TRUE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium Learning Objective: 02-04 Explain the operation of the invisible hand and why marketeconomies usually do a betterjob than command economies at efficiently transforming economic resources into desirable output.
Test Bank: II Topic: The Invisible Hand
The problems of central planning become less complex as an economy grows in size over time.
FA LSE
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
Profits are the primary"success indicator" for firms in a centrallyplanned economy.
FA LSE
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
Quantitative measures of managerial success, such as production targets or quotas, are highly foolproof and are thus ideal to use in raising economic efficiency.
FA LSE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium Learning Objective: 02-04 Explain the operation of the invisible hand and why marketeconomies usually do a betterjob than command economies at efficiently transforming economic resources into desirable output.
Test Bank: II
In the circular flow model, households act as buyers in the resource markets.
FA LSE
AACSB: Knowledge ApplicationAccessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 02-05 Describe the mechanics of the circular flow model.
Test Bank: II Topic: The Circular Flow Model
In a market system,entrepreneurs start businesses in order to earn a highsalary.
FA LSE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 02-05 Describethe mechanics of the circularflow model.
Test Bank: II Topic: The Circular Flow Model
In a market system, the income earnedby owners of natural resources is called interest income.
FA LSE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 02-05 Describethe mechanics of the circularflow model.
Test Bank: II Topic: The CircularFlow Model
A corporation is a type of business firm where the debt of the firm is considered its owners' personal responsibility.
FA LSE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium Learning Objective: 02-05 Describe the mechanics of the circular flow model.
Test Bank: II Topic: The CircularFlow Model
According to the circular flow model ofthe market system, firmsget their ability to pay for their costs of production from the revenuesthat they receivefor their products.
TRUE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium Learning Objective: 02-05 Describe the mechanics of the circular flow model.
Test Bank: II Topic: The CircularFlow Model
According to the circular flow model ofthe market system, when resource-owners' money income is rising,then the costs to business firms that employ their resources must be falling.
FA LSE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium Learning Objective: 02-05 Describe the mechanics of the circular flow model.
Test Bank: II Topic: The CircularFlow Model
Having a high fixed salary is what motivates entrepreneurs to make prudent decisions is dealing with business risk.
FA LSE
Government bailouts of failingbusinesses, like banks during the recent economic crisis, will tend to reduce the motivation among entrepreneurs to make prudent decisions is dealing with business risk.
TRUE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium Learning Objective: 02-06 Explain how the market system deals with risk.
Test Bank: II Topic: How the Market System Deals with Risk
College graduates who dislike business risk will mostly seek to be hired by firms as labor, rather than startingtheir own firms as entrepreneurs.
TRUE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 02-06 Explain how the market system deals with risk.
Test Bank: II Topic: How the Market System Deals with Risk
When somebody buys an insurance policy, that personis seeking to transfer risk away from herself and pass iton to the insurancecompany.
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