Question 1

Households and businesses are both suppliers in the product market.

Accepted Answer

In the product market, households are the demanders (buyers) of goods and services, while businesses are the suppliers (sellers).

Question 2

Government alters the distribution of income by market intervention, in which case it modifies the prices established by market forces.

Accepted Answer

Government intervention in markets can take various forms, including price controls, taxes and subsidies, minimum wage laws, social welfare programs, and regulations. These interventions aim to correct market failures, such as inequality, externalities, public goods provision, and monopolies, and to achieve social and economic objectives, such as equity, efficiency, stability, and growth. By changing the relative prices of goods and services, or the income and wealth of individuals and households, government policy can affect the allocation, production, consumption, and distribution of resources in the economy.

Question 3

Which of the following statements best describes a mixed economy?
A)In a mixed economy, society determines production and the allocation of goods and services only through the market system.
B)In a mixed economy, government policies determine the production and the allocation of goods and services, but each individual is free to pursue his or her own self-interest.
C)In a mixed economy, the government and private sectors interact in determining production and allocation of goods and services.
D)In a mixed economy, the role of individual self-interest is relatively unimportant because government makes most of the economic decisions.

Accepted Answer

In a mixed economy, both the government and private sectors play a role in determining production and allocation of goods and services. While the market system still plays a significant role, the government may also implement policies or regulations, such as taxes or subsidies, to influence economic activities. This allows for a balance between the efficiency of the market system and the equity concerns of government intervention.

Question 4

The economy of North Korea most closely approximates:
A)pure capitalism
B)a command economy
C)market socialism
D)authoritarian capitalism

Accepted Answer

North Korea has a command economy, where the government controls all aspects of the economy and dictates the production and distribution of goods and services. Private ownership of businesses is not allowed, and the government determines prices and wages.

Question 5

The economy of the former Soviet Union was best described as:
A)authoritarian capitalism.
B)mixed capitalism.
C)a command economy.
D)market socialism.

Accepted Answer

The former Soviet Union had a command economy, in which the state owned and controlled means of production and distribution of goods and services. Prices, production levels, and distribution were determined by central planning rather than market forces.

Question 6

Property rights do not encourage people to cooperate.

Accepted Answer

Property rights provide individuals with ownership and control over their possessions, which can facilitate cooperation and trade with others. By having secure property rights, individuals are incentivized to invest in and maintain their assets, which can benefit both themselves and society as a whole. Additionally, property rights can provide a clear framework for resolving disputes and enforcing contracts, which can further encourage cooperation.

Question 7

Money functions as a medium of exchange in permitting the ready comparison of the relative worth of heterogeneous products.

Accepted Answer

Money is used as a medium of exchange to facilitate transactions and enable comparisons of value between different goods and services. This is essential in a modern economy where there are many different products with varying degrees of value and quality.

Question 8

The guiding function of prices indicates that, at equilibrium prices, neither product surpluses nor shortages can occur.

Accepted Answer

The guiding function of prices ensures that at equilibrium, the quantity demanded of a product equals the quantity supplied, eliminating both surpluses and shortages.

Question 9

Consumer sovereignty means that legislation now protects the rights of consumers to dispose of their incomes as they see fit.

Accepted Answer

Consumer sovereignty refers to the concept where the consumer's preferences determine the production of goods and services, rather than the government or suppliers dictating what is available in the market. It does not specifically relate to legislation protecting the rights of consumers to dispose of their incomes.

Question 10

In a competitive market economy, firms and resource suppliers will seek to further their own self-interest, but at the same time, as if guided by an "invisible hand," they will promote the public interest.

Accepted Answer

This is one of the main tenets of Adam Smith's theory of capitalism, as outlined in his book "The Wealth of Nations." According to Smith, when businesses act in their own self-interest by trying to maximize profits, they will also inadvertently help to promote the overall good of society by creating jobs, providing needed goods and services, and driving innovation and efficiency.

Question 11

A division of labour enhances society's output by permitting people to take advantage of existing differences in their abilities and skills.

Accepted Answer

A division of labour allows individuals to specialize in certain tasks and utilize their unique skills, resulting in increased productivity and efficiency in society's output.

Question 12

The wants of consumers are expressed on the demand side of the product market.

Accepted Answer

The demand side of the product market represents the wants of consumers, so the statement is true.

Question 13

The command system is also known as:
A)the market system.
B)pure capitalism.
C)market socialism.
D)socialism or communism.

Accepted Answer

The answer of The command system is also known as:
A)the...

Question 14

In the simple circular flow model businesses are suppliers of final products.

Accepted Answer

In the simple circular flow model, businesses supply final products to households, who in turn supply factors of production (such as labor, land, and capital) to businesses.

Question 15

The "invisible hand" refers to the many indirect controls which the federal government imposes in a system of mixed capitalism.

Accepted Answer

The "invisible hand" is a term coined by economist Adam Smith to describe the self-regulating nature of the market economy, free from government intervention.

Question 16

Which would not be characteristic of a capitalist economy?
A)government ownership of the means of production
B)competition and unrestricted markets
C)reliance on the market system
D)free enterprise and choice

Accepted Answer

A capitalist economy is based on private ownership of the means of production and a market-driven system where prices are determined by supply and demand. Government ownership of the means of production would be more characteristic of a socialist or communist economy.

Question 17

In a capitalistic economy:
A)consumers can never be sovereign.
B)markets can never be competitive.
C)there is a reliance on the market system.
D)the government owns the means of production.

Accepted Answer

In a capitalistic economy, there is a reliance on the market system, where individuals and businesses make decisions based on their own self-interest. The government may regulate certain aspects of the economy to ensure fairness and competition, but ultimately, the market dictates production and consumption. This means that consumers have some level of sovereignty in the choices they make, and markets can be competitive as businesses strive to meet consumer demand. However, the government does not own the means of production, as that would be a characteristic of a socialist or communist economy.

Question 18

The term "laissez faire" suggests that:
A)land and other natural resources should be privately owned, but capital should be publicly owned.
B)land and other natural resources should be publicly owned, but capital equipment should be privately owned.
C)government should not interfere with the operation of the economy.
D)government action is necessary if the economy is to achieve full employment and full production.

Accepted Answer

The term "laissez faire" literally translates to "let do" or "let it be." In an economic context, it means that government should not interfere with the operation of the economy. This implies that businesses and individuals should be free to make their own economic decisions without government intervention. The other options do not accurately represent the meaning of laissez faire.

Question 19

Today, China's economy most closely approximates:
A)pure capitalism
B)a command economy
C)market socialism
D)authoritarian capitalism

Accepted Answer

China's economic system is a mix of socialism and market economy, commonly referred to as market socialism. While the government controls key industries and sets economic goals, there is also a significant private sector and market competition.

Question 20

The private ownership of property resources and use of prices to direct and coordinate economic activity is characteristic of:
A)a command system.
B)a market system.
C)communism.
D)socialism.

Accepted Answer

The market system is characterized by private ownership of property resources and the use of prices to direct and coordinate economic activity, as opposed to a command system where the government controls economic activity, communism where all property is owned collectively, or socialism where there is some government ownership and control of property resources.

Quiz 2: Part B: The Market System and the Circular Flow

Households and businesses are both suppliers in the product market.

Government alters the distribution of income by market intervention, in which case it modifies the prices established by market forces.

Which of the following statements best describes a mixed economy?

The economy of North Korea most closely approximates:

The economy of the former Soviet Union was best described as:

Property rights do not encourage people to cooperate.

Money functions as a medium of exchange in permitting the ready comparison of the relative worth of heterogeneous products.

The guiding function of prices indicates that, at equilibrium prices, neither product surpluses nor shortages can occur.

Consumer sovereignty means that legislation now protects the rights of consumers to dispose of their incomes as they see fit.

In a competitive market economy, firms and resource suppliers will seek to further their own self-interest, but at the same time, as if guided by an "invisible hand," they will promote the public interest.

A division of labour enhances society's output by permitting people to take advantage of existing differences in their abilities and skills.

The wants of consumers are expressed on the demand side of the product market.

The command system is also known as:

In the simple circular flow model businesses are suppliers of final products.

The "invisible hand" refers to the many indirect controls which the federal government imposes in a system of mixed capitalism.

Which would not be characteristic of a capitalist economy?

In a capitalistic economy:

The term "laissez faire" suggests that:

Today, China's economy most closely approximates:

The private ownership of property resources and use of prices to direct and coordinate economic activity is characteristic of: