Question 1

In the factor market:
A) businesses borrow money capital from households.
B) businesses sell services to households.
C) households sell resources to businesses.
D) firms sell raw materials to households.

Accepted Answer

In the factor market, households sell resources (such as labor, land, and capital) to businesses. This allows businesses to produce goods and services, which they can then sell back to households in the product market. Option A is incorrect because businesses do borrow money from households, but that occurs in the financial market, not the factor market. Option B is incorrect because businesses do not sell services to households in the factor market, but rather in the product market. Option D is incorrect because firms do purchase raw materials in the factor market, but they do not sell them to households.

Question 2

-Refer to the circular flow model of the economy. In the diagram flow (1) represents:
A) wage, rent, interest, and profit income.
B) land, labour, capital, and entrepreneurial ability.
C) goods and services.
D) consumer expenditures.

Accepted Answer

The answer of 
-Refer to the circular flow model of...

Question 3

-Refer to the figure. If box A represents businesses and flow (7) represents goods and services, then:
A) box D is the product market and box B is the factor market.
B) box D is the product market and box B is households.
C) box B is the product market and box C is households.
D) box C is the product market and box B is the factor market.

Accepted Answer

The answer of 
-Refer to the figure. If box A...

Question 4

The simple circular flow model shows that:
A) households are on the demand side of both product and factor markets.
B) businesses are on the supply side of both product and factor markets.
C) households are on the supply side of the factor market and on the demand side of the product market.
D) businesses are on the demand side of the product market and on the supply side of the factor market.

Accepted Answer

The simple circular flow model shows that households (consumers) are on the supply side of the factor market by providing labor and other resources to businesses, and on the demand side of the product market by purchasing goods and services. On the other hand, businesses (producers) are on the supply side of the product market by producing and selling goods and services, and on the demand side of the factor market by purchasing resources such as labor and capital. Therefore, option C correctly summarizes the roles of households and businesses in the circular flow model.

Question 5

-Refer to the diagram. Arrows (1) and (2) represent:
A) goods and resources respectively.
B) money incomes and output respectively.
C) output and money incomes respectively.
D) resources and goods respectively.

Accepted Answer

The answer of 
-Refer to the diagram. Arrows (1) and...

Question 6

Households and businesses are:
A) both buyers in the factor market.
B) both suppliers in the product market.
C) suppliers in the factor and product markets respectively.
D) suppliers in the product and factor markets respectively.

Accepted Answer

Households supply factors of production such as labor, land, and capital in the factor market to businesses, while businesses supply goods and services in the product market to households. Therefore, households are suppliers in the factor market, while businesses are suppliers in the product market.

Question 7

While in market economies the profit depends on consumer demand, production production efficiency, and product quality, for command economies profit depends on:
A) production cost.
B) product differentiation.
C) product mix.
D) quantitative production target.

Accepted Answer

In command economies, the central planning authority sets quantitative production targets for goods and services, and profit is determined by meeting or exceeding these targets rather than by consumer demand or product quality.

Question 8

In the circular flow model:
A) households supply factors of production to firms.
B) households receive income through the factor market.
C) households spend income in the product market.
D) all of the above hold true.

Accepted Answer

In the circular flow model, households supply factors of production to firms, in exchange for income received through the factor market. This income is then spent by households in the product market, which creates revenue for firms. Therefore, all of the options (A, B, and C) hold true.

Question 9

-Refer to the circular flow model of the economy. In the diagram flow (4) represents:
A) wage, rent, interest, and profit income.
B) land, labour, capital, and entrepreneurial ability.
C) goods and services.
D) consumer expenditures.

Accepted Answer

The answer of 
-Refer to the circular flow model of...

Question 10

-Refer to the diagram. Arrows (3) and (4) represent:
A) goods and services respectively.
B) money incomes and consumer expenditures respectively.
C) resources and goods respectively.
D) consumer expenditures and money income respectively.

Accepted Answer

The answer of 
-Refer to the diagram. Arrows (3) and...

Question 11

-In terms of the circular flow diagram businesses obtain revenue through the _____ market and make expenditures in the _____ market.
A) product; financial
B) factor; product
C) product; factor
D) capital; product

Accepted Answer

In the circular flow diagram, businesses obtain revenue by selling their products in the product market and make expenditures by acquiring factors of production such as labor and capital in the factor market. Therefore, the correct choice is C, which states that businesses obtain revenue through the product market and make expenditures in the factor market.

Question 12

The coordination problem in command economies became more difficult as:
A) the number of industries expanded.
B) less quantitative targets were assigned to each industry.
C) planning techniques improved.
D) production cost decreased.

Accepted Answer

As the number of industries expanded, the central planner had to coordinate an increasing number of inputs, outputs, and resource allocations. This made it more difficult to plan and coordinate production efficiently, leading to more inefficiencies and shortages in the economy.

Question 13

-Refer to the circular flow model of the economy. In the diagram flow (2) represents:
A) wage, rent, interest, and profit income.
B) land, labour, capital, and entrepreneurial ability.
C) goods and services.
D) consumer expenditures.

Accepted Answer

The answer of 
-Refer to the circular flow model of...

Question 14

-Refer to the figure. If box B represents the factor market and flow (3) represents money income, then:
A) box A is the product market and box C is households.
B) box C is the product market and box A is households.
C) box D is the product market and box C is households.
D) box C is the product market and box D is households.

Accepted Answer

The answer of 
-Refer to the figure. If box B...

Question 15

-Refer to the circular flow model of the economy. In the diagram flow (3) represents:
A) wage, rent, interest, and profit income.
B) land, labour, capital, and entrepreneurial ability.
C) goods and services.
D) consumer expenditures.

Accepted Answer

The answer of 
-Refer to the circular flow model of...

Question 16

The two basic markets shown by the simple circular flow model are:
A) capital goods and consumer goods.
B) free and controlled.
C) product and factor.
D) household and business.

Accepted Answer

The answer of The two basic markets shown by the...

Question 17

The idea that firms and resource suppliers in seeking to further their own self-interests in a competitive market economy also simultaneously promotes the public or social interest is a description of:
A) the guiding function of prices.
B) capital accumulation.
C) the "invisible hand."
D) "dollar votes."

Accepted Answer

This idea is commonly referred to as the "invisible hand," which is a term coined by economist Adam Smith in his book "The Wealth of Nations." The invisible hand refers to the ways in which the pursuit of self-interest by firms and individuals in a competitive market can lead to benefits for society as a whole, such as increased productivity and economic growth. This is because firms that produce goods and services that people want will be rewarded with profits, while those that cannot meet consumer demand will eventually fail. As a result, resources are allocated efficiently in a competitive market, leading to greater prosperity for all.

Question 18

In the simple circular flow model:
A) households are demanders of factors of production.
B) businesses are suppliers of final products.
C) households are suppliers of final products.
D) there are real flows of goods, services, and factors, but not money flows.

Accepted Answer

The answer of In the simple circular flow model:
A) households...

Question 19

As opposed to the market system, in command economies:
A) the reward for innovation is extensive.
B) the reward for innovation does not exist.
C) meeting the production targets are extremely important.
D) the profit motives are extremely high.

Accepted Answer

In command economies, the government has full control over the production and distribution of goods and services, so there is no competition or market-driven incentive for innovation. The government sets production targets, and meeting these targets is important for the economy to function efficiently. Profit motives are not the primary driver in command economies.

Question 20

In terms of the circular flow diagram households make expenditures in the _____ market and receive income through the _____ market.
A) product; financial
B) factor; product
C) product; factor
D) capital; product

Accepted Answer

In the circular flow diagram, households are the owners of factors of production such as labor, land, and capital. Therefore, they receive income through the factor market. On the other hand, households spend their income on goods and services produced by firms in the product market, making expenditures in this market. Hence, choice C is the correct answer.

Quiz 2: The Market System and the Circular Flow

In the factor market:

-Refer to the circular flow model of the economy. In the diagram flow (1) represents:

-Refer to the figure. If box A represents businesses and flow (7) represents goods and services, then:

The simple circular flow model shows that:

-Refer to the diagram. Arrows (1) and (2) represent:

Households and businesses are:

While in market economies the profit depends on consumer demand, production production efficiency, and product quality, for command economies profit depends on:

In the circular flow model:

-Refer to the circular flow model of the economy. In the diagram flow (4) represents:

-Refer to the diagram. Arrows (3) and (4) represent:

-In terms of the circular flow diagram businesses obtain revenue through the _ market and make expenditures in the _ market.

The coordination problem in command economies became more difficult as:

-Refer to the circular flow model of the economy. In the diagram flow (2) represents:

-Refer to the figure. If box B represents the factor market and flow (3) represents money income, then:

-Refer to the circular flow model of the economy. In the diagram flow (3) represents:

The two basic markets shown by the simple circular flow model are:

The idea that firms and resource suppliers in seeking to further their own self-interests in a competitive market economy also simultaneously promotes the public or social interest is a description of:

In the simple circular flow model:

As opposed to the market system, in command economies:

In terms of the circular flow diagram households make expenditures in the _ market and receive income through the _ market.