Question 1

Adam Smith's invisible hand refers to

Accepted Answer

Adam Smith's invisible hand refers to the idea that individuals acting in their own self-interest in a competitive market will unintentionally promote the well-being of society as a whole by efficiently allocating resources and producing goods and services in demand. This concept illustrates the power of markets to regulate themselves without the need for government intervention.

Question 2

In economics, the term 'free market' refers to a market where products are traded but not sold.

Accepted Answer

In economics, the term 'free market' refers to a market where prices are determined by supply and demand, with little or no government intervention. Products in a free market are traded and sold.

Question 3

Entrepreneurs bring together the factors of production to produce goods and services.

Accepted Answer

Entrepreneurs are responsible for organizing and coordinating the factors of production (land, labor, capital) to create products and services that meet market demands.

Question 4

Each person goes about her daily business seeking to maximise her own self interests. In doing so, she contributes to the welfare of society at large. This is the idea underlying Adam Smith's 'invisible hand.'

Accepted Answer

This statement accurately reflects the concept of the "invisible hand" as described by Adam Smith in his book "The Wealth of Nations." The idea is that individual self-interest, when combined with free market competition, leads to a more efficient and prosperous economy that benefits society as a whole.

Question 5

If a brewery wants to raise funds to purchase a new fermenting vat, it does so in the

Accepted Answer

The answer of If a brewery wants to raise funds...

Question 6

Which of the following is a factor of production?

Accepted Answer

The security guard is a factor of production because they provide a service for the bank's production process.

The other choices are not factors of production. A necklace and Google stock are goods and securities, respectively, while casino chips are a form of currency used for gambling.

Question 7

The payment received by suppliers of entrepreneurial skills is called interest.

Accepted Answer

The payment received by suppliers of entrepreneurial skills is called profit, not interest. Interest is the payment received by suppliers of capital.

Question 8

Crude oil is not an example of a factor of production, but when crude oil is processed into petrol, it is a factor of production.

Accepted Answer

Crude oil is not a factor of production, as it is a natural resource or a raw material. However, once it is refined and processed into petrol, it becomes a factor of production as it is used to produce other goods and services.

Question 9

An example of a factor of production is

Accepted Answer

A vintner is a person who is hired to work on the vineyard, thus making them a factor of production. A bottle of wine (A) is a finished good, not a factor of production. A loan (C) is a financial resource and not a factor of production, and exported wine (D) is the finished product, not a factor of production.

Question 10

When you purchase a new set of spurs you do so in the

Accepted Answer

The purchase of a set of spurs is a transaction in the product market, which involves the exchange of finished goods and services between buyers and sellers. The other options, such as resource market, input market, and factor market, refer to markets that involve the exchange of factors of production, such as labor, capital, and natural resources.

Question 11

An Inquiry into the Nature and Causes of the Wealth of Nations, published in 1776, was written by

Accepted Answer

Adam Smith wrote An Inquiry into the Nature and Causes of the Wealth of Nations.

Question 12

A bed of oysters is not an example of a factor of production but the shucked oysters used to make oyster stew is a factor of production.

Accepted Answer

A bed of oysters can be considered a natural resource, which is a factor of production. Shucked oysters, on the other hand, are a produced input and can be considered a factor of production.

Question 13

Stricter laws and regulations to protect intellectual property rights

Accepted Answer

Stricter laws and regulations to protect intellectual property rights will create a more successful market system as it encourages innovation, increases investment in research and development, and promotes fair competition. It ultimately benefits all businesses, whether they are small or large, by providing them with equal opportunities to protect their creative works and enjoy the financial gains of their labor.

Question 14

In a free market there are significant restrictions on how a good or service can be produced or sold.

Accepted Answer

In a free market, there are no government-imposed restrictions on how a good or service can be produced or sold. However, there may still be market-driven restrictions, such as consumer preferences or competition from other producers.

Question 15

The payment received by suppliers of entrepreneurial skills is called wages.

Accepted Answer

The payment received by suppliers of entrepreneurial skills is called profits or income, not wages.

Question 16

Adam Smith's behavioural assumption about humans was that people

Accepted Answer

Adam Smith's behavioural assumption about humans was that they usually act in a rational, self-interested way. Smith believed that individuals act in a way that maximizes their own self-interest, and that through the pursuit of self-interest, individuals unintentionally promote the well-being of society as a whole. This is known as the "invisible hand" concept. Smith did not view humans as consistently greedy or irrational.

Question 17

All of the following are critical functions of the government in facilitating the operation of a market economy except

Accepted Answer

Ensuring an equal distribution of income to all citizens is not a critical function of the government in facilitating the operation of a market economy. Market economies rely on the principles of supply and demand to determine prices and allocate resources, which means that income distribution is not necessarily equal. The government's role is to protect private property, enforce property rights, and enforce contracts to ensure that the market operates efficiently and fairly.

Question 18

In a free market there are virtually no restrictions or, at best, few restrictions on how factors of production can be employed.

Accepted Answer

In a free market, the government intervention is minimal, which means the factors of production can be employed with few or no restrictions.

Question 19

All of the following countries come close to the free market benchmark except

Accepted Answer

North Korea is a highly centralized economy with limited economic freedom and government control over most aspects of the economy, therefore it doesn't come close to the free market benchmark. Canada, Germany, and Singapore have relatively high levels of economic freedom and come close to the free market benchmark.

Question 20

Which of the following statements about an entrepreneur is false?

Accepted Answer

An entrepreneur does not sell their entrepreneurial services in the output market, but rather creates and sells products or services in the output market. The other statements correctly describe the role of an entrepreneur.

Quiz 2: Choices and Trade - Offs in the Market