Question 1

Suppose a firm can produce 70 units of a product, Zenia, by combining labor, land, capital, and entrepreneurial ability, as in the four alternative techniques shown in the table below. Assume further that the firm can hire labor at $3 per unit, land at $3 per unit, capital at $6 per unit, and entrepreneurship at $9 per unit.  Refer to the provided table. If the price of labor declines from $3 to $2 per unit, then what is the least costly way of producing Zenias?
A) A
B) B
C) C
D) D

Accepted Answer

The answer of Suppose a firm can produce 70 units...

Question 2

In a market system, more resources will move toward an industry and expand its production if the industry has
A) positive revenues.
B) positive costs.
C) TC < TR.
D) TC > TR.

Accepted Answer

In a market system, resources will move toward an industry and expand its production if the industry's total revenue (TR) exceeds its total costs (TC), indicating profitability. This is represented by the condition TC < TR.

Question 3

Suppose a firm can produce 70 units of a product, Zenia, by combining labor, land, capital, and entrepreneurial ability, as in the four alternative techniques shown in the table below. Assume further that the firm can hire labor at $3 per unit, land at $3 per unit, capital at $6 per unit, and entrepreneurship at $9 per unit.  Refer to the provided table. Which technique is the most economically efficient way of producing Zenia?
A) A
B) B
C) C
D) D

Accepted Answer

The answer of Suppose a firm can produce 70 units...

Question 4

Economic efficiency is the primary guide in answering which of the fundamental questions in a market economy?
A) What will be produced?
B) How is the output to be produced?
C) How can the system accommodate change?
D) Who is to receive the output?

Accepted Answer

Economic efficiency primarily guides the question of "How is the output to be produced?" as it focuses on minimizing costs and maximizing productivity in the production process.

Question 5

The production technique that is most efficient is the one that produces a given amount of output
A) using the least amount of labor resources.
B) at the highest price per unit.
C) at the lowest cost per unit.
D) that yields the highest revenues.

Accepted Answer

The most efficient production technique is the one that produces at the lowest cost per unit. This means that the inputs (such as labor, capital, and materials) are being utilized in the most effective way possible to produce a given amount of output. Lower costs per unit mean that the producer can sell the output at a lower price, which can result in higher sales volumes and revenues. Option A is not necessarily the best choice as the least amount of labor resources may not always be the most efficient way to produce output, as it may compromise quality or time. Option B is also not the best choice as the highest price per unit may not always result in the highest revenues, especially if competitors are producing at a lower cost per unit.

Question 6

The distribution of income in a market system is a primary factor that resolves which of the following fundamental economic questions?
A) What will be produced?
B) How will the output be produced?
C) How will the system accommodate change?
D) Who will get the output?

Accepted Answer

The distribution of income determines who will receive the output or the goods and services produced in the market system.

Question 7

In a market system, the distribution of goods and services among consumers is largely determined by
A) the willingness and ability of consumers to pay the prices.
B) whoever needs the goods and services the most.
C) whoever has the closest connection to firms and the government.
D) a random factor that is almost impossible to predict.

Accepted Answer

In a market system, goods and services are distributed among consumers based on their willingness and ability to pay the prices set by the market. This means that those who are willing and able to pay higher prices will be able to obtain more goods and services than those who are not. This principle is one of the key features of a market economy.

Question 8

Suppose a firm can produce 70 units of a product, Zenia, by combining labor, land, capital, and entrepreneurial ability, as in the four alternative techniques shown in the table below. Assume further that the firm can hire labor at $3 per unit, land at $3 per unit, capital at $6 per unit, and entrepreneurship at $9 per unit.  Refer to the provided table, and suppose that the firm uses production technique D If each of the 70 units of Zenia that are produced sells for $1 apiece, then how much will be the total profits of the firm from 70 units of Zenia?
A) $70
B) $57
C) $13
D) $83

Accepted Answer

Using production technique D, the firm incurs a total cost of $387 [(30 x $3) + (30 x $3) + (5 x $6) + (5 x $9)]. Selling 70 units of Zenia for $70, the total revenue earned is only $70. Therefore, the total profit is calculated as:

Total profit = Total revenue - Total cost
Total profit = $70 - $387
Total profit = -$317

Since the total profit is negative, it means that the firm is making a loss and not a profit. Therefore, producing Zenia using production technique D is not economically feasible.

The best choice would be to either use production technique A or B, as they both result in a positive total profit.

Question 9

The following table illustrates alternative production techniques for producing 18 widgets that can be sold for $1 each for a total revenue of $18. If the price of labor increases from $2 to $3, then the results of using Technique C will change from an economic
A) loss of $2 to a loss of $1.
B) profit of $2 to a profit of $1.
C) profit of $1 to a profit of $2.
D) loss of $1 to a loss of $2.

Accepted Answer

According to the table, Technique B generates the highest profit ($2) with a total cost of production of $16. The revenue generated from selling 18 widgets at $1 each is $18. Therefore, the profit would be $2.
If the price of labor increases from $2 to $3, the cost of production for Technique B would increase to $22 (from $16) and the profit would decrease to $18 - $22 = -$4. Thus, Technique B would not be the best choice in this scenario.
Technique A and Technique C both generate a profit of $1. With a price increase for labor, Technique A will result in a loss of $1 since the cost of production will increase to $19. Technique C, however, will still generate a profit of $1 even with a price increase in labor. Therefore, Technique C is the best choice since it has the lowest cost of production ($17) and will still generate a profit of $1 even with a price increase in labor.

Question 10

In a market system, if firms in an industry persistently earn total revenues that are less than total costs, then that industry will
A) have some firms go out of business.
B) attract more resources toward it.
C) experience entry of new firms.
D) get government protection from failure.

Accepted Answer

In a market system, if firms in an industry consistently earn total revenues that are less than total costs, it indicates that the industry is not profitable. As a result, some firms will likely go out of business due to their inability to cover costs and sustain operations. This is a natural market adjustment to eliminate inefficiencies and reallocate resources to more profitable areas.

Question 11

If the total costs of producing 1,500 units of output is $15,000 and this output sold to consumers for a total of $16,500, then the firm would earn profits of
A) $31,500.
B) $16,500.
C) $1,500.
D) $15,000.

Accepted Answer

Profits = Total revenue - Total cost
Total revenue = Price per unit x Quantity sold = $16,500
Price per unit = Total revenue / Quantity sold = $16,500 / 1,500 = $11
Total cost = $15,000
Therefore, Profits = $16,500 - $15,000 = $1,500. 
Thus, the correct answer is C.

Question 12

McDonald's introduced the Big Mac in 1968, and it turned out to be a hit. However, the Arch Deluxe, introduced in 1996, was not. The success or failure of a product in the market system is determined by
A) capitalism and entrepreneurship.
B) specialization and exchange.
C) consumer sovereignty and dollar votes.
D) capital goods and roundabout production.

Accepted Answer

The success or failure of a product in the market system is determined by consumer sovereignty and dollar votes, meaning that consumers ultimately decide which products are successful by voting with their dollars. The Arch Deluxe failed because it did not appeal to consumer preferences and tastes. Capitalism and entrepreneurship, specialization and exchange, and capital goods and roundabout production are all important features of the market system, but they do not directly determine the success or failure of individual products.

Question 13

The following table illustrates alternative production techniques for producing 18 widgets that can be sold for $1 each for a total revenue of $18.  Using technique A will result in an
A) economic loss of $2.
B) economic profit of $1.
C) economic profit of $2.
D) economic profit of $3.

Accepted Answer

The answer of The following table illustrates alternative production techniques...

Question 14

In a market economy, the incomes of consumers depend primarily upon
A) government policies in setting wages and interest rates.
B) the quantity and prices of resources that they possess.
C) the amount of savings that they have accumulated.
D) how closely connected they are to government and business leaders.

Accepted Answer

In a market economy, consumer incomes primarily depend on the quantity and prices of resources they possess. This includes factors like their education, skills, natural resources, and other assets that they bring to the market. The market itself sets the prices for these resources, and consumers are paid accordingly based on the supply and demand for their specific skill sets or resources.

Question 15

"For whom is a given mix of goods and services to be produced? How, in other words, are the society's outputs to be distributed among its members?" In a market economy, this question is resolved primarily in the
A) public sector through the mechanism of central planning.
B) 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.

Accepted Answer

In a market economy, the distribution of goods and services is primarily determined by the earning and spending of income in the private sector. The individuals and businesses that earn more income have more purchasing power, which allows them to acquire a larger share of the society's outputs.

Question 16

In a market system, resources will move away from an industry when
A) profits of firms in the industry are rising.
B) demand for the industry's product is decreasing.
C) the production of output in the industry is rising.
D) profits of firms in other industries are falling.

Accepted Answer

In a market system, resources will move away from an industry when demand for the industry's product is decreasing. If there is less demand for the product, the firms will not be able to sell as much, leading to lower profits. As a result, resources such as labor and capital will move to other industries that offer higher returns.

Question 17

In a market system, which of the following will eliminate high-cost producers and allow only the low-cost producers to survive?
A) competition
B) money
C) a sovereign government
D) specialization

Accepted Answer

In a market system, competition allows for firms to compete with each other, which often leads to a decrease in prices and an increase in efficiency. High-cost producers are unable to keep up with low-cost producers, and therefore are eliminated from the market. This process of elimination ensures that only the most efficient and low-cost producers survive. Money, a sovereign government, and specialization may have an impact on the market system, but they do not directly eliminate high-cost producers.

Question 18

"Creative destruction" in a market system is brought about by
A) entrepreneurship.
B) striking workers.
C) regulation by the government.
D) money-based trade.

Accepted Answer

Creative destruction is a term coined by economist Joseph Schumpeter to describe the process by which new innovations and technologies disrupt and eventually replace existing industries and methods of production. This is driven by the actions of entrepreneurs who introduce these innovations into the market, leading to the destruction of old industries but also the creation of new ones. Striking workers, government regulation, and money-based trade do not necessarily contribute to this process.

Question 19

If economic profits in a particular industry increase, then we would expect
A) resources to be diverted away from that industry.
B) firms in that industry to produce less output.
C) firms to enter that industry, thus expanding it.
D) consumers to buy less from that industry.

Accepted Answer

If economic profits in a particular industry increase, it indicates that firms are earning higher returns than the normal level. This attracts new firms to enter the industry, hoping to make similar profits, which expands the industry.

Question 20

Payments that a firm makes to obtain needed resources comprise its
A) costs.
B) profits.
C) capital.
D) revenues.

Accepted Answer

Costs refer to the expenses incurred by the firm to acquire resources necessary for its operations, such as materials, labor, and rent. Profits are the excess revenue earned by the firm after deducting all its expenses. Capital refers to the financial resources available to the firm, such as equity and debt. Revenues are the income generated by the firm from selling its products or services. Thus, payments made to acquire resources are best described as costs.

Quiz 2: The Market System and the Circular Flow

In a market system, more resources will move toward an industry and expand its production if the industry has

Economic efficiency is the primary guide in answering which of the fundamental questions in a market economy?

The production technique that is most efficient is the one that produces a given amount of output

The distribution of income in a market system is a primary factor that resolves which of the following fundamental economic questions?

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

The following table illustrates alternative production techniques for producing 18 widgets that can be sold for $1 each for a total revenue of $18. If the price of labor increases from $2 to $3, then the results of using Technique C will change from an economic

In a market system, if firms in an industry persistently earn total revenues that are less than total costs, then that industry will

If the total costs of producing 1,500 units of output is $15,000 and this output sold to consumers for a total of $16,500, then the firm would earn profits of

McDonald's introduced the Big Mac in 1968, and it turned out to be a hit. However, the Arch Deluxe, introduced in 1996, was not. The success or failure of a product in the market system is determined by

The following table illustrates alternative production techniques for producing 18 widgets that can be sold for $1 each for a total revenue of $18. Using technique A will result in an

In a market economy, the incomes of consumers depend primarily upon

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

In a market system, resources will move away from an industry when

In a market system, which of the following will eliminate high-cost producers and allow only the low-cost producers to survive?

"Creative destruction" in a market system is brought about by

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

Payments that a firm makes to obtain needed resources comprise its