Deck 3: Economic Institutions

Question 1

Which of the following is a characteristic of a market economy?

A) Private property
B) Government ownership of the means of production
C) Distribution according to need
D) Tradition determines the what, how, and for whom decisions

Answer 1

A

Question 2

The L3C (low profit limited liability company) type of corporation, sometimes called a benefit corporation, ignores profit considerations and instead pursues only social goals.

Answer 2

False

Question 3

Businesses produce goods and services and sell them to households and governments. The market where this interaction takes place is called the goods market.

Answer 3

True

Question 4

A market economy:

A) requires government to set prices.
B) allocates according to need.
C) distributes property rights.
D) relies on the invisible hand to coordinate supply and demand.

Question 5

The goal of socialist economies is to distribute what is produced according to the needs of individuals. Market economies tend to distribute what is produced according to ability and effort.

Question 6

In a market economy, society relies on the self-interest of individuals to determine what, how, and for whom to produce.

Question 7

Private property rights:

A) are essential elements of a market economy.
B) do not need to be enforced in market economies.
C) must be established before a socialist economy can function properly.
D) ensure an equitable distribution of income in market economies.

Question 8

In a market economy:

A) government owns the means of production so that it can produce what is in society's best interest.
B) businesses design their plans to maximize their profit and the market is relied upon to see that individual self-interest is consistent with society's interest.
C) workers are directed by government planning boards to produce what is in society's best interest.
D) government sets prices to make necessities affordable because it is in society's best interest to make necessities affordable.

Question 9

Governments establish the laws that regulate the interaction between businesses and households but do not serve as actors in the economy themselves.

Question 10

Which of the following is not a characteristic of pure capitalism?

A) Government ownership of means of production
B) Private ownership of land
C) Freedom of enterprise
D) Worker freedom

Question 11

When there are market externalities, the market allocation of resources will be optimal.

Question 12

Membership in the Group of Seven consists of both developed and developing countries.

Question 13

McDonald's Corporation lost a battle to keep a Singapore firm, Future Enterprises, from selling goods under the labels MacNoodles, MacTea, and MacChocolate. In this case, the court system in Singapore was defining:

A) globalization.
B) limited liability.
C) consumer sovereignty.
D) property rights.

Question 14

Feudalism and mercantilism relied on markets to solve the three main coordination problems.

Question 15

Markets coordinate economic activity through:

A) the price mechanism.
B) commanding individuals what to do.
C) asking individuals what to do.
D) the legal mechanism.

Question 16

Market economies are based on:

A) private property and individual good will toward others.
B) government planning and individual good will toward others.
C) government planning and individual self-interest.
D) private property and individual planning.

Question 17

For a market to exist:

A) private property rights must be allocated and defended by government.
B) government must guarantee equal treatment for all.
C) individuals must be concerned with the social good.
D) everyone must have identical wants and desires.

Question 18

Limited liability is a key advantage of partnerships and sole proprietorships over corporations.

Question 19

Private property rights are essential to market economies.

Question 20

Households supply factors of production to businesses and are paid by businesses for doing so. The market where this interaction takes place is called the factor market.

Question 21

Capitalism and socialism have not existed forever. Capitalism came into existence in the:

A) mid-1800s and socialism came into existence in the early 1900s.
B) early 1900s and socialism came into existence in the mid-1800s.
C) mid-1700s and socialism came into existence in the early 1900s.
D) early 1900s and socialism came into existence in the mid-1700s.

Question 22

In contrast to the capitalism of the early Industrial Revolution, both feudalism and mercantilism:

A) had stronger central government intervention in economic life.
B) expected tradition to answer the central coordination problems.
C) relied less on the invisible hand to coordinate economic decisions.
D) relied less on state intervention to promote economic growth.

Question 23

Which of the following is not one of the three principal components of a socialist economy?

A) Government ownership of the means of production
B) Workers directed by a government planning board as to where they will work and how much they will be paid
C) Entrepreneurs are encouraged by the profit motive, rather than government directive, to satisfy consumer wants in the most efficient manner possible
D) Distribution is according to need

Question 24

Most economies today are:

A) pure market economies.
B) differentiated primarily by the degree to which they depend on markets.
C) differentiated primarily by who owns the means of production.
D) socialist.

Question 25

In a feudalist society, in comparison with mercantilism:

A) merchants play a more important political role than serfs.
B) tradition plays a more important role than the government.
C) government plays a large role in determining the what, how, and for whom decisions.
D) markets make the central economic decisions.

Question 26

The Industrial Revolution was important to the history of economic systems because it:

A) changed the way people exchanged goods-from barter to using money as a medium of exchange.
B) concentrated wealth in the hands of a few noblemen who then controlled the land in their region, creating a feudal system.
C) increased the wealth of merchants and artisans and eventually led to a change in economic systems to mercantilism.
D) increased the power of capitalists and eventually led to a revolution instituting capitalism as the dominant economic system.

Question 27

In principle, socialism is:

A) less concerned about fairness than capitalism.
B) just as concerned about fairness as capitalism.
C) more concerned about fairness than capitalism.
D) not concerned about fairness at all.

Question 28

Capitalism:

A) is based on private property and the market.
B) does not have a rationing mechanism.
C) gives private property rights to government.
D) relies on market forces to establish initial property rights.

Question 29

Suppose that at the current price, waffle producers offer 5 million waffles for sale, but consumers want to buy 6 million. When the market coordinates the demand and supply for waffles, the price of waffles will:

A) rise.
B) fall.
C) stay the same.
D) be fixed by the government.

Question 30

In the mercantilist system:

A) markets, rather than political forces, make the central economic decisions.
B) serfs make the central economic decisions.
C) governments let the market decide what to produce.
D) governments distributed the rights to produce.

Question 31

Market and socialist economies can be contrasted in all the following ways except that:

A) under a market economy labor is allocated by individual choice based on wage levels; under traditional socialism it is allocated by a government planning board.
B) under a market economy government plays no role in the market; under socialism, government planning boards make most major economic decisions.
C) under a market economy the distribution of income is to each according to his ability, effort, and inheritance; under ideal socialism the distribution of income is to each according to his need.
D) under a market economy self-interest is the primary motive of economic activity; under socialism, individuals are supposed to act from considerations of the general good.

Question 32

In socialism:

A) economic forces do not operate.
B) individuals are encouraged to act for their own benefit.
C) government planning, rather than the market, is relied upon to coordinate economic activity.
D) distribution is determined by the individual's ability.

Question 33

Through most of the 20^th century in the former USSR:

A) people contributed what they could and took what they needed without a market.
B) the country was free of economic forces.
C) a type of socialism that departed from theory was implemented.
D) goods were distributed according to their need.

Question 34

In practice, distribution under socialism is primarily determined by:

A) individual altruism and cooperation.
B) the ability of each individual to produce.
C) central planners within the government.
D) market forces of supply and demand.

Question 35

A socialist economy in theory:

A) requires private ownership of property.
B) is coordinated by the invisible hand.
C) expects people to be altruistic.
D) expects people to be selfish.

Question 36

Socialism in theory is based on the principle that individuals should:

A) look out for their own interests and let the government look out for the public interest.
B) rely on the government to meet their needs.
C) cooperate with one another to meet their needs.
D) compete with one another to meet their needs.

Question 37

In the former USSR, state planners decided what was to be produced. They passed orders down to factories, allocating raw materials, workers, and other factors of production to them. This is an example of (a):

A) corporation.
B) command economy.
C) market economy.
D) government as a referee.

Question 38

Suppose that at the current price, consumers would like to purchase 10 million large-screen televisions and 15 million are available. When the market coordinates the demand and supply for large-screen televisions, the price of large-screen televisions will:

A) rise.
B) fall.
C) stay the same.
D) be fixed by the government.

Question 39

During the Industrial Revolution:

A) feudal lords lost their power to artisans.
B) mercantilists lost their power to capitalists.
C) artisans lost their power to mercantilists.
D) capitalists lost their power to mercantilists.

Question 40

In a socialist economic system:

A) markets are relied upon to decide what to produce, but government intervenes when necessary.
B) individuals tell government what to produce and the government decides how best to achieve that goal.
C) government planning boards decide what to produce, but rely on markets to achieve that goal.
D) government planning boards decide what to produce and then give individuals directives how to achieve those goals.

Question 41

Governments do all of the following except:

A) oversee the interaction of households and businesses in the goods and factor markets.
B) demand labor services from households in the factor market.
C) demand goods and services from businesses in the goods market.
D) supply labor services to businesses in the factor market.

Question 42

Businesses do all of the following except:

A) pay taxes to the government.
B) demand labor services from households in the factor market.
C) demand goods and services from households in the goods market.
D) supply goods and services to the government in the goods market.

Question 43

If a firm's total revenue is $10,000 and its total costs are $9,000, then its profits are:

A) −$1,000.
B) $1,000.
C) $10,000.
D) $19,000.

Question 44

In the goods market:

A) households supply factors of production to businesses and are paid by businesses for doing so.
B) households supply goods to businesses and are paid by businesses for doing so.
C) businesses produce goods and services and sells them to households and government.
D) government produces goods and services and supplies them to households and businesses.

Question 45

The market where businesses sell goods and services to households and the government is called the:

A) goods market.
B) factor market.
C) capital market.
D) money market.

Question 46

Entrepreneurship is defined as the ability to:

A) organize and get something done.
B) raise investment capital.
C) earn above-average profits.
D) minimize production costs.

Question 47

Households are on the:

A) supply side of factor markets and the demand side of goods markets.
B) demand side of factor markets and the supply side of goods markets.
C) supply side of both factor markets and goods markets.
D) demand side of both factor markets and goods markets.

Question 48

In the factor market:

A) households supply factors of production to business and are paid by business for doing so.
B) households supply factors of production to business and are paid by government for doing so.
C) business produces goods and services and sells them to households and government.
D) government produces goods and services and supplies them to households and business.

Question 49

A company such as Microsoft or Pepsi Co. is a legal hassle to organize, difficult to monitor, and possibly could double tax income. It is an example of a:

A) consumer.
B) sole proprietorship.
C) partnership.
D) corporation.

Question 50

A firm's profits equal $100 if

A) its total revenue is $100.
B) the sum of its total revenue and its total cost is $100.
C) the difference between its total revenue and its total cost is $100.
D) its total cost is $100.

Question 51

Which two systems require the least amount of government intervention?

A) Mercantilism and capitalism
B) Feudalism and socialism
C) Capitalism and feudalism
D) Mercantilism and socialism

Question 52

Households do all of the following except:

A) receive income that is redistributed by the government.
B) demand labor services from businesses in the factor market.
C) demand goods and services from businesses in the goods market.
D) supply labor services to the government in the factor market.

Question 53

Business decisions about what and how much to produce are based on what:

A) maximizes market share.
B) consumers demand.
C) the government wants.
D) maximizes profits.

Question 54

Businesses fail because:

A) they follow the principle of consumer sovereignty too closely.
B) the invisible hand determines that they are not producing something that is socially valuable.
C) they earn excessive profits.
D) entrepreneurship is present.

Question 55

Profit is:

A) the same as cost.
B) the same as revenue.
C) what is left over from total revenue after all of the appropriate costs have been subtracted.
D) what is left over from total cost after all of the appropriate revenues have been subtracted.

Question 56

Relative to corporations, sole proprietorships are:

A) more numerous and smaller in size.
B) less numerous and smaller in size.
C) more numerous and larger in size.
D) less numerous and larger in size.

Question 57

Government is on the:

A) supply side of factor markets and the demand side of goods markets.
B) demand side of factor markets and the supply side of goods markets.
C) supply side of both factor markets and goods markets.
D) demand side of both factor markets and goods markets.

Question 58

A defining difference in what makes a firm a sole proprietorship, partnerships, or a corporation is the:

A) size of each type of business.
B) number of each type of business.
C) nature of ownership and accountability for each type of business.
D) profitability of each type of business.

Question 59

Businesses are on the:

A) supply side of factor markets and the demand side of goods markets.
B) demand side of factor markets and the supply side of goods markets.
C) supply side of both factor markets and goods markets.
D) demand side of both factor markets and goods markets.

Question 60

With a sole proprietorship:

A) all of one's assets are at risk of loss.
B) shares are valued by the marketplace.
C) responsibility is shared.
D) income is taxed twice.

Question 61

Certificates of ownership of a company are called:

A) financial liabilities.
B) limited liabilities.
C) profits.
D) stocks.

Question 62

A partnership is a business:

A) with two or more owners, with each owner liable for every other owner's actions.
B) that has only one owner.
C) legally treated as a person and owned by stockholders who are not liable for the actions of the corporate "person."
D) in which each owner is liable only to the extent of his or her own investment.

Question 63

Which of the following is a disadvantage of setting up a business as a corporation?

A) Limited personal liability
B) Greater ability to get funds
C) Limited control by owners
D) Risk of personal assets not invested in the firm

Question 64

A company that explicitly takes on a social mission in addition to profit-seeking is considered a:

A) social welfare organization.
B) benefit corporation or L3C (low profit limited liability company).
C) nonprofit organization.
D) social partnership.

Question 65

One advantage of a partnership over a corporation is:

A) greater accountability.
B) limited liability.
C) increased ability to get funds.
D) the ability to share the work and risks of business.

Question 66

Which of the following statements is correct?

A) Stockholders are legally liable for all the debt of a corporation.
B) A corporation is a business that is legally owned by its employees.
C) Corporations are legal entities that, in law, are treated as persons.
D) Most large companies and many small companies in the United States are not corporations.

Question 67

One advantage of a sole proprietorship over a corporation is:

A) limited liability.
B) the ability to share work and risks.
C) ease of formation.
D) greater ability to obtain funds.

Question 68

One advantage of a partnership over a sole proprietorship is:

A) greater accountability.
B) limited liability.
C) ease of formation.
D) the ability to share the work and risks of business.

Question 69

A business is likely a sole proprietorship if:

A) it has two or more owners, with each owner liable for every other owner's actions.
B) it has only one owner who has unlimited liability.
C) it is legally treated as a person and owned by stockholders who are liable for the actions of the corporate "person."
D) multiple owners are liable only to the extent of their own investment.

Question 70

One advantage of a corporation over a sole proprietorship is:

A) greater accountability.
B) avoidance of double taxation.
C) ease of formation.
D) greater ability to obtain funds.

Question 71

The largest source of household income in the United States is:

A) stock dividends.
B) wages and salaries.
C) interest earnings.
D) rental income.

Question 72

One advantage of a sole proprietorship over a partnership is:

A) direct control by the owner.
B) limited liability.
C) the ability to share the work and risks of business.
D) greater ease of obtaining financing.

Question 73

Which group has ultimate control over the U.S. economy?

A) Business
B) Households
C) Multinationals
D) Government

Question 74

A business is most likely to be characterized as a corporation if:

A) it has two or more owners, with each owner liable for every other owner's actions.
B) it has only one owner.
C) it is legally treated as a person and owned by stockholders who are liable for the actions of the corporate "person" regardless of their investment.
D) each owner is liable only to the extent of his or her own investment.

Question 75

The difference between an L3C (low profit limited liability company) and other types of businesses is that:

A) L3Cs are chartered by the government and all profits are retained by the government.
B) L3Cs do not pursue profit, but instead seek social goals.
C) L3Cs explicitly take on a social mission as well as profit-seeking.
D) L3Cs cannot accept government funding of any kind.

Question 76

In the United States, the government regulates business in its role as a "referee." Which of the following is not among the laws regulating the interaction between households and businesses?

A) Businesses must follow certain rules about workplace safety, minimum wages, and overtime rules.
B) Businesses cannot meet with other businesses to agree on prices they will charge.
C) In some businesses, in some states, employees must join a union in order to work at certain jobs.
D) Businesses are required to produce certain goods, called public goods, for the government.

Question 77

From the Great Depression in the 1930s until the tax reforms of the 1980s, the United States government integrated a number of what might best be called ________ institutions into the economy.

A) socialist
B) capitalist
C) entrepreneurial
D) profit-seeking

Question 78

The ability to organize and meet an objective, such as meeting regulatory and financial requirements to start and run a business, is known as:

A) business sovereignty.
B) consumer sovereignty.
C) democratic capitalism.
D) entrepreneurship.

Question 79

In principle, households ultimately control:

A) businesses.
B) the government.
C) both businesses and the government.
D) neither businesses nor the government.

Question 80

Which of the following statements is correct?

A) Neither stocks nor bonds are financial assets.
B) Stocks are financial assets but bonds are not.
C) Bonds are financial assets but stocks are not.
D) Both stocks and bonds are financial assets.