ECON EXAM ANSWERS
On the basis of the information, and assuming trade occurs between the three states, we can expect
A. Washington to exchange apples with Texas and receive money in return.
Washington to exchange apples with Michiganandreceive money in return.
Texas to exchange lettuce with Michiganand receive autos in return.
Texas to trade lettuce directly for Washington apples.
AACSB: Knowledge Application
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 02-02 List the main characteristics of the market system.
Test Bank: I Topic: Characteristics of the Market System
26.
Given the information, and assuming trade occurs between the three states, we can expect
that there is no means by which Michigan can obtain lettuce while specializing in the production of autos.
that money will not be needed to accomplish the desired exchanges.
C. money to flow counter-clockwise from Michigan to Texas to Washington.
D. money to flow clockwise from Michigan to Washington to Texas.
AACSB: Knowledge Application
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 02-02 List the main characteristics of the market system.
Test Bank: I Topic: Characteristics of the Market System
Barter
is the major means of exchange in centrally planned economies.
accounts for over 30 percentof the dollar volume of all exchange in the U.S. economy.
C. entails the exchange of goods for goods.
D. is used to circumventthe problem of a lack of coincidence of wants among potentialbuyers and sellers.
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Blooms: Remember
Difficulty: 01 Easy LearningObjective: 02-02 List the main characteristics of the market system.
Test Bank: I Topic: Characteristics of the Market System
The "coincidence of wants" problem associated with barter refers to the factthat
for exchange to occur, each seller must have a productthat some buyerwants.
money must be used as a medium of exchange ortrade will never occur.
specialization is restricted by the size or scope of a market.
buyers in resource markets and sellers in productmarkets can never engage in exchange.
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Blooms: Remember
Difficulty: 01 Easy LearningObjective: 02-02 List the main characteristics of the market system.
Test Bank: I Topic: Characteristics of the Market System
The use of money contributes to economic efficiency because
governmental direction of the productionanddistribution of output can beavoided by using money.
roundabout production could not occur without the availability of money.
it is necessaryfor the creationof capital goods.
D. it promotes specialization by overcoming the problems with barter.
AACSB: Knowledge ApplicationAccessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 02-02 List the main characteristics of the market system.
Test Bank: I Topic: Characteristics of the Market System
The presence of market failures implies that
money is not an effective tool for exchangein a market system.
B. there is an active role for government, even in a market system.
individuals and firms should strive to be self-sufficient rather than specialize.
command systems are superiorto market systems in the allocation of resources.
AACSB: Knowledge ApplicationAccessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 02-02 List the main characteristics of the market system.
Test Bank: I Topic: Characteristics of the Market System
Which of the following characteristics is least unique to a market system?
private ownership of property resources
competition among buyers and sellerspursuing monetary returns
C. the widespread use of money
D. freedom of enterprise and choice
AACSB: Knowledge ApplicationAccessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 02-02 List the main characteristics of the market system.
Test Bank: I Topic: Characteristics of the Market System
Which of the following is one of theFive Fundamental Questions?
Which products will be in scarce supply and which in excess supply?
Who should appoint the head of the central bank?
How much should society save?
D. What goods and services will be produced?
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: I Topic: Five Fundamental Questions
If competitive industry Zis making substantial economic profit, output will
fall in industry Z and firms will likely leave the market.
fall in all industries exceptindustry Z.
C. expand in industry Z, as more resources will move to that industry.
D. expand in industry Z, but no new firms will enter the market.
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 adjust to change, and how to promote progress. Learning Objective: 02-04 Explain the operation of the invisiblehand and why market economies usually do a better job than commandeconomies at efficiently transforming economic resources into desirable output.
Test Bank: I
Topic: Five Fundamental Questions Topic: The Invisible Hand
From society's point of view, the economic function of profits and losses is to
promote the equal distribution of real assets and wealth.
achieve full employment and price level stability.
contribute to a more equal distribution of income.
D. reallocate resourcesfrom less-desired to more-desired uses.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium Learning Objective: 02-03 Explain how the market system answersthe five fundamental questions ofwhat to produce, how to produce, who obtains the output,how to adjust to change, and how to promote progress. LearningObjective: 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: ITopic: Five Fundamental Questions Topic: The Invisible Hand
In a market economy,a significant change in consumers' desire for productX will
alter the profits or lossesreceived by suppliersof product X.
cause a reallocation of scarce resources.
cause some industries to expand and others to contract.
D. do all of the things mentionedin the other answers.
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 obtainsthe output, how to adjust to change, and how to promote progress. Learning Objective: 02-04 Explain the operation of the invisiblehand and why market economies usually do a better job than commandeconomies at efficiently transforming economic resources into desirable output.
Test Bank: I Topic: Five Fundamental Questions Topic: The Invisible Hand
Economic profits in an industry suggest the industry
can earn more profitsby increasing productprice.
B. should be larger to better satisfy consumers' desire for the product.
has excess production capacity.
is the size that consumers want it to be.
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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: ITopic: Five Fundamental Questions
Economic profits and losses
are both considered by economists to be a part of production costs.
B. are essentialto the reallocation of resources from less desired to more desired goods.
have no influence on the compositionofdomestic output.
equalize the distribution of income in the long run.
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 obtainsthe output, how to adjust to change, and how to promote progress. Learning Objective: 02-04 Explain the operation of the invisiblehand and why market economies usually do a better job than commandeconomies at efficiently transforming economic resources into desirable output.
Test Bank: ITopic: Five Fundamental Questions Topic: The Invisible Hand
If consumer desire for product X increases, all of the followingwill occur except
an increase in the profitsof industry X.
an increase in the quantity of resourcesemployed by industryX.
an increase in the output of industryX.
D. a decrease in the quantity of resources employedin industry X.
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.
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: ITopic: Five Fundamental Questions Topic: The Invisible Hand
An increase in consumerdesire for strawberries is most likely to
increase the number of strawberry pickers needed by farmers.
reduce the supply of strawberries.
reduce the number of people willing to pick strawberries.
reduce the need for strawberry pickers.
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 obtainsthe output, how to adjust to change, and how to promote progress. Learning Objective: 02-04 Explain the operation of the invisiblehand and why market economies usually do a better job than commandeconomies at efficiently transforming economic resources into desirable output.
Test Bank: ITopic: Five Fundamental Questions Topic: The Invisible Hand
If competitive industry Y is incurringsubstantial losses, output will
expand as resources move toward industryY.
contract as resources move toward industry Y.
C. contract as resources move away from industry Y.
D. expand as resources move away from industry Y.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium Learning Objective: 02-03 Explain how the market system answersthe five fundamental questions ofwhat to produce, how to produce, who obtains the output,how to adjust to change, and how to promote progress. LearningObjective: 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: ITopic: Five Fundamental Questions Topic: The Invisible Hand
The economic function of profits and losses is to
bring about a more equal distribution of income.
B. signal that resources should be reallocated.
eliminate small firms and reduce competition.
tell government which industries need to be subsidized.
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.
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: ITopic: Five Fundamental Questions Topic: The Invisible Hand
If a competitive industry isneither expanding nor contracting,we would expect
total revenue to be zero.
B. economic profits to be zero.
total opportunity cost to be zero.
more resources to flow to that industry.
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: ITopic: Five Fundamental Questions
The competitive market system
encourages innovation because government provides tax breaks and subsidiesto those who developnew products or new productive techniques.
discourages innovation because it is difficult to acquireadditional capital in the form of new machinery and equipment.
discourages innovation because firms want to get all the profitspossible from existingmachinery and equipment.
D. encourages innovation because successful innovators are rewarded with economic profits.
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: I Topic: Five Fundamental Questions
In a market economy,the distribution of output willbe determined primarily by
consumer needs and preferences.
B. the quantities and prices of the resourcesthat households supply.
government regulations that provide a minimumincome for all.
a socialconsensus as to which distribution of income is most equitable.
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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: I Topic: Five Fundamental Questions
The most efficient combination of resources in producing a given output is the combination that
comes closest to using the same quantities of land, labor, capital, and entrepreneurialability.
B. minimizes the cost per unit of output.
uses the smallest total quantity of all resources.
conserves most on the use of labor.
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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: I Topic: Five Fundamental Questions
Firms are motivated to minimizeproduction costs because
it is the most environmentally friendly way to produce goods.
least-cost production techniques use the smallest total quantity of resources.
C. competitive pressures in the marketwill drive out higher-cost producers.
D. the government provides tax credits and subsidies to low-costproducers.
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: ITopic: Five Fundamental Questions
47.
Answer the question using the following data, which show all available techniques for producing 20 units of a particular commodity
Resource
Resource prices
Possible production Techniques
#1
#2
#3
#4
#5
Land
$4
2
4
2
4
4
Labor
3
1
2
4
1
3
Capital
3
5
2
3
1
2
Entrepreneurial Ability
2
3
1
1
4
1
In view of the indicatedresource prices, the economically most efficientproduction technique(s) is (are) technique(s)
A. 1.
B. 2 and 4.
3.
1 and 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: ITopic: Five Fundamental Questions
48.
Answer:the question using the following data, which show all availabletechniques for producing20units of a particular commodity
Resource
Resource prices
Possible production Techniques
#1
#2
#3
#4
#5
Land
$4
2
4
2
4
4
Labor
3
1
2
4
1
3
Capital
3
5
2
3
1
2
Entrepreneurial Ability
2
3
1
1
4
1
Assuming that the firm is motivatedby self-interest and that the 20 units that can be produced with each techniquecan be sold for $2 per unit, the firm will
A. realize an economic profit of $10.
realize an economic profit of $4.
not earn any economic profit.
shut down rather than incur a loss by producing.
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: I Topic: Five Fundamental Questions
49.
Answer the question using the following data, which show all availabletechniques for producing20units of a particular commodity
Resource
Resource prices
Possible production Techniques
#1
#2
#3
#4
#5
Land
$4
2
4
2
4
4
Labor
3
1
2
4
1
3
Capital
3
5
2
3
1
2
Entrepreneurial Ability
2
3
1
1
4
1
If a new production technique is developed that enables a firm to produce20 units of output with 3 units of land, 3 of labor, 1 of capital, and 2 of entrepreneurial ability, this technique would
A. not be adopted because,although it reducesproduction costs, it does not increase profit.
B. be adopted because it would lower production costs and increase economic profit.
not be adopted becauseit entails higher production costs than other availabletechniques.
be adopted, even though economic profits would be reduced slightly.
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: ITopic: Five Fundamental Questions
50.
Answer the question on the basis of the following information: Suppose 30 units of product A can be producedby employing just labor and capital in the four ways shown below. Assume the prices of labor and capital are $2 and $3, respectively.
Production Techniques:
I
II
III
IV
Labor
4
3
2
5
Capital
2
3
5
1
Which technique is economically most efficient in producingA?
I
II
III
D. IV
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: I Topic: Five Fundamental Questions
51.
Answer the question on the basis of the following information: Suppose 30 units of product A can be producedby employing just labor and capital in the four ways shown below.Assume the prices of labor and capital are $2 and $3, respectively.
Production Techniques:
I
II
III
IV
Labor
4
3
2
5
Capital
2
3
5
1
If the price of productA is $0.50,the firm will realize
A. an economic profit of$4.
B. an economic profit of $2.
an economic profit of $6.
a loss of $3.
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: ITopic: Five Fundamental Questions
In a competitive market economy,firms select the least-cost production technique because
such choices will result in fullemployment of availableresources.
B. to do so will maximize the firms' profits.
this will prevent new firmsfrom entering the industry.
"dollar voting" by consumers mandates such a choice.
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: I Topic: Five Fundamental Questions
The market system's answer to the fundamental question "What will be produced?" is essentially
"Goods and services that are profitable."
"Low-cost goods and services."
"Goods and services that can be produced usinglarge amounts of capital."
"Goods and services that possess lasting value."
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: ITopic: Five Fundamental Questions
The market system's answer to the fundamental question "How will the goods and services be produced?" is essentially
"With as much machineryas possible."
"Using the latest technology."
"By exploiting labor."
D. "In ways that minimize the cost per unit of output."
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: I Topic: Five Fundamental Questions
The market system's answer to the fundamentalquestion "Who will get the goods and services?" is essentially
"Those most willing and able to pay for them."
"Those who physically produced them."
"Those who most need them."
"Those who get utility from them."
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: ITopic: Five Fundamental Questions
The market system's answer to the fundamental question "How will the system accommodate change?" is essentially
"Through government leadership and direction."
B. "Through the guiding function of prices and the incentive function of profits."
"Through training and retraining programs."
"Through trial and error."
AACSB: Knowledge ApplicationAccessibility: 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: I Topic: Five Fundamental Questions
The market system's answer to the fundamental question "How will the system promote progress?" is essentially
"Through government-funded research programs."
"Through redistribution of income to promote greater equality."
"Through training and retraining programs."
D. "Through the profit potential that encourages development of new technology."
AACSB: Knowledge ApplicationAccessibility: 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: I Topic: Five Fundamental Questions
The advent of Netflix movie streaming and Redbox kiosks renting DVD and Blu-raymovies have virtually demolished the market for video rentalsfrom brick and mortar stores such as Blockbuster. This is an example of
creative destruction.
derived demand.
capital accumulation.
the difference between normal and economicprofits.
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: ITopic: Five Fundamental Questions
"Consumer sovereignty" refers to the
fact that resource prices are higher than product prices in capitalistic economies.
idea thatthepursuit of self-interest is in the public interest.
C. idea that the decisionsof producers must ultimatelyconform to consumer demands.
D. fact that afederal agency exists to protect consumers from harmful and defectiveproducts.
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: I Topic: Five Fundamental Questions
The dollar votes of consumersultimately determine the composition of output and the allocation of resources in a market economy.This statement best describes the conceptof