Question 1

A public good is

Accepted Answer

A public good is something that can be consumed by multiple individuals without diminishing its availability or quality, such as national defense, clean air, or street lighting. This is different from private goods, which can only be consumed by the purchaser, and from government-provided goods, which may be non-excludable but are still provided by a specific entity (the government). Choice A is incorrect because a good deed done without payment may or may not be a public good, depending on whether it is available to others or not. Choice B is incorrect because while the government may provide public goods, not all goods provided by the government are public goods. Choice D is incorrect because a good that is good for the country but not private individuals could be either a public good or a merit good.

Question 2

Statement I. The circular flow model traces the flow of money, resources, and goods and services through the economy. Statement II. Most household income is spent on investment or capital goods.

Accepted Answer

Statement I is true as the circular flow model does trace the flow of money, resources, and goods and services through the economy. However, statement II is false as most household income is actually spent on consumption goods rather than investment or capital goods.

Question 3

Under the old Soviet version of communism in the U.S.S.R., the questions of 'What?', 'How?', and 'For whom?' were answered by

Accepted Answer

Under the Soviet version of communism, the government followed a centrally planned economy, which means that the government planning committee decided what to produce, how to produce it, and for whom. This system relied on five-year plans and a command economy, where the government controlled all aspects of the economy.

Question 4

Who said, "Property is the exploitation of the weak by the strong. Communism is the exploitation of the strong by the weak"?

Accepted Answer

This quote is attributed to Pierre-Joseph Proudhon, a French philosopher and socialist. He believed in a system of mutualism, which advocated for workers to collectively own and manage the means of production, rather than being exploited by capitalists who own the property. However, he also criticized communism as creating a different form of exploitation where those who are strong and capable are forced to work for the benefit of those who are weak and lazy.

Question 5

Adam Smith

Accepted Answer

All of the statements about Adam Smith are true.

Question 6

Which statement most closely reflects the viewpoint of Karl Marx?

Accepted Answer

Marx's theory emphasizes the role of capital in the dynamics of societal control, arguing that the class which controls the means of production (capital) also controls the society. This viewpoint is encapsulated in choice A, reflecting Marx's focus on the economic base of society as the determinant of social relations and structures.

Question 7

Statement I. In the United States, the economic role of the government is played almost entirely at the federal level. Statement II. The outcomes of each of the three basic economic questions are affected by government actions.

Accepted Answer

Statement I is false because the economic role of the government in the United States is not played almost entirely at the federal level; state and local governments also play significant roles in the economy through regulations, taxation, and spending. Statement II is true as government actions, through policies, regulations, and fiscal measures, indeed influence how resources are allocated, what goods and services are produced, and who receives them.

Question 8

Statement I. If the owner of an office park plants shade trees on the grounds, she is not only providing private benefits, but external benefits as well. Statement II. The federal government does virtually nothing to discourage companies from incurring external costs.

Accepted Answer

Statement I is true because shade trees provide private benefits such as shade and aesthetics to the office park owner, but they also provide external benefits such as air pollution reduction and carbon sequestration to the surrounding community. Statement II is false because the federal government does have regulations and policies in place to discourage companies from incurring external costs, such as environmental regulations and taxes on pollution.

Question 9

Capital is _______________

Accepted Answer

All of the statements accurately describe capital. Capital is a crucial element in every economic system as it is needed to produce goods and services. It is also the key to a society's standard of living as it allows for the development of technology, infrastructure, and education. Capital is the result of savings as individuals and businesses save their money to invest in future production.

Question 10

Communist theory calls for each of the following except

Accepted Answer

The communist theory does not support the free operation of the forces of demand and supply, but instead advocates for a planned economy where resources are allocated based on societal needs rather than market demand.

Question 11

In a capitalist country most resources are owned by

Accepted Answer

The answer of In a capitalist country most resources are...

Question 12

In theory, ___________ advocates the abolition of private property.

Accepted Answer

In theory, communism advocates the abolition of private property and the means of production being owned by the community as a whole. Capitalism, on the other hand, emphasizes private ownership and the pursuit of individual profit. Socialism falls somewhere in between, advocating for a mix of private and public ownership. Fascism does not necessarily have a clear stance on private property, but instead emphasizes authoritarian control and nationalism.

Question 13

Statement I. Under fascism, the government owns the means of production. Statement II. Nearly one-third of the world's countries may be described as fascist.

Accepted Answer

Statement I is false, as fascism is characterized by a strong central government that exercises control over the economy through policies, but does not necessarily own the means of production. Statement II is also false, as the number of countries that may be described as fascist is a matter of debate, but is generally considered to be significantly lower than one-third of the world's countries.

Question 14

Each of the following is a characteristic of socialism, except

Accepted Answer

Socialism allows for some private ownership of the means of production, but usually with government regulation and oversight.

Question 15

Which one of the following is a public good?

Accepted Answer

A local police department is a public good because its benefits are available to everyone in the community regardless of whether they directly contribute to its funding.

Question 16

The price mechanism deals _____ with the issue of an equitable income distribution and ____ with the issue of efficiency.

Accepted Answer

The price mechanism works well in promoting efficiency by allocating resources to the most value-producing uses. However, it does not address the issue of equitable income distribution, and in fact, it may exacerbate income inequality. Therefore, the correct answer is that the price mechanism deals poorly with the issue of an equitable income distribution and well with the issue of efficiency.

Question 17

Statement I. We have market failure when our resources are not allocated efficiently. Statement II. An oil refinery incurs both private and social (or external) costs.

Accepted Answer

Statement I is a valid definition of market failure, while statement II is a commonly observed example of the externalities that can lead to market failure. The private costs incurred by an oil refinery are often less than the true social costs of its activity, which can include pollution, health risks, and other negative impacts on the environment and society. This creates a situation where the market is not properly accounting for all the costs and benefits of the refinery's output, leading to inefficient resource allocation.

Question 18

As an economy modernizes and its standard of living rises, the proportion of transactions conducted with barter

Accepted Answer

As an economy modernizes and its standard of living rises, it becomes easier to conduct transactions with the use of money rather than barter. Therefore, the proportion of transactions conducted with barter is likely to fall.

Question 19

The circular flow model shows the relationships between

Accepted Answer

The circular flow model shows the flow of resources and money between households and business firms. Households provide factors of production (land, labor, capital, and entrepreneurship) to businesses, who pay them income in the form of wages, rent, interest, and profits. In turn, households use this income to purchase goods and services from businesses. This flow of resources and income between households and businesses makes up the majority of economic activity in a market economy. Government can also be included in the model, but it mainly acts as a regulator and redistributor of income, rather than a major player in the circular flow.

Question 20

Statement I. The circular flow model oversimplifies the exchanges in our economy. Statement II. Most of the money received by households in the form of wages, rent, interest, and profits flows back to business firms in the form of consumer expenditures.

Accepted Answer

While the circular flow model may oversimplify certain aspects of the economy, such as the role of government or international trade, it still accurately represents the basic exchanges that occur between households and businesses. Statement II is also true, as consumer expenditures make up a significant portion of the revenue for business firms. Therefore, both statements are true.

Quiz 3: The Mixed Economy