Question 1

A fundamental difference between the command system and laissez-faire capitalism is that, in command systems,
A) the division of output is decided by central planning rather than by individuals operating freely through markets.
B) all economic decisions are made by the government, whereas there is no government in laissez-faire capitalism.
C) scarcity does not exist, whereas it does in laissez-faire capitalism.
D) money is not used, whereas it is in laissez-faire capitalism.

Accepted Answer

In command systems, the division of output is decided by central planning rather than by individuals operating freely through markets. This is a fundamental difference from laissez-faire capitalism, in which individuals operating freely through markets determine the division of output.

Question 2

The main mechanism that regulates the market system is
A) self-interest.
B) private property.
C) competition.
D) freedom of enterprise and choice.

Accepted Answer

While all of these factors play a role in regulating the market system, competition is often considered the primary mechanism. Competition encourages businesses to offer better products and services at lower prices in order to attract customers, which ultimately benefits consumers by providing them with more choices and better value. Self-interest, private property, and freedom of enterprise and choice all contribute to the functioning of the market system, but they are more like supporting factors rather than the primary regulatory mechanism.

Question 3

Property rights are important because they
A) ensure an equal distribution of income.
B) encourage cooperation by improving the chances of mutually agreeable transactions.
C) guarantee that any exchange will make all parties better off than prior to the exchange.
D) allow the government to control how resources are allocated.

Accepted Answer

Property rights encourage cooperation by providing the basis for mutually agreeable transactions between individuals. This leads to a more efficient allocation of resources and wealth, which benefits all parties involved. A, C, and D are incorrect because property rights do not necessarily ensure an equal distribution of income or guarantee that all parties will be better off than before, nor do they give the government control over resource allocation.

Question 4

The division of labor means that
A) labor markets are geographically segmented.
B) unskilled workers outnumber skilled workers.
C) workers specialize in various production tasks.
D) each worker performs a large number of tasks.

Accepted Answer

The division of labor refers to the specialization of workers in specific production tasks. This allows for greater efficiency and productivity within a business or industry as individuals can become experts at their assigned task. Therefore, choice C is the correct answer. A, B, and D are incorrect because they do not accurately describe the concept of division of labor.

Question 5

Examples of command economies are
A) the United States and Japan.
B) Sweden and Norway.
C) Mexico and Brazil.
D) Cuba and North Korea.

Accepted Answer

Command economies are also known as centrally planned economies, where the government controls all aspects of the economy. Cuba and North Korea are examples of countries with command economies, where the government owns and controls all industries and businesses, and decides what goods and services are produced and at what price. The United States, Japan, Sweden, Norway, Mexico, and Brazil all have elements of a mixed economy, where both the government and private sector play a role in economic decision-making.

Question 6

Competition means that
A) sellers can manipulate market price by causing product scarcities.
B) there are independently acting buyers and sellers in each market.
C) a product can be purchased at a number of different prices.
D) there is more than one seller in a market.

Accepted Answer

Competition in a market implies the presence of independently acting buyers and sellers, which prevents any single entity from controlling prices or market conditions.

Question 7

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 should be privately owned.
C) government should not interfere with the operation of the economy.
D) government action is absolutely necessary if the economy is to achieve full employment and full production.

Accepted Answer

The term "laissez-faire" refers to an economic system in which the government does not interfere with the operation of the economy. Therefore, choice C is the correct answer.

Question 8

An economic system
A) requires a grouping of private markets linked to one another.
B) is a particular set of institutional arrangements and a coordinating mechanism used to respond to the economizing problem.
C) requires some sort of centralized authority (such as government) to coordinate economic activity.
D) is a plan or scheme that allows a ﬁrm to make money at some other ﬁrm's expense.

Accepted Answer

An economic system is a particular set of institutional arrangements and a coordinating mechanism used to respond to the economizing problem. It involves how resources are allocated and goods and services are produced and distributed within a society. Examples of economic systems include capitalism, socialism, and mixed economies. Private markets and government intervention can both be components of an economic system, but they are not the defining characteristic. D is incorrect as it describes a predatory business practice, not an economic system.

Question 9

Command systems are also known as
A) market systems.
B) pure capitalism.
C) laissez-faire capitalism.
D) communism.

Accepted Answer

Command systems are synonymous with communism, where the government owns and controls all resources and makes all economic decisions, including what goods and services to produce and distribute, and at what price.

Question 10

Which of the following is a fundamental characteristic of the market system?
A) property rights
B) central planning by government
C) unselﬁsh behavior
D) government-set wages and prices

Accepted Answer

Property rights are a fundamental characteristic of the market system as they allow individuals and businesses to own and control resources and make decisions regarding their use. Choice B is incorrect as central planning by government is a characteristic of a command economy, not a market system. Choice C is incorrect as the market system assumes that individuals act in their own self-interest. Choice D is incorrect as government-set wages and prices would interfere with the free market and limit the ability of individuals and businesses to make decisions based on supply and demand.

Question 11

Of the following countries, which one best exhibits the characteristics of a market economy?
A) Canada
B) Cuba
C) North Korea
D) Belarus

Accepted Answer

Canada has a mixed-market economy with private enterprise and government intervention with both businesses and the workforce. It has a diversified economy that includes both natural resources and service industries, and the government policies ensure fair competition and consumer protection. Cuba, North Korea, and Belarus, on the other hand, have command economies where the government controls all aspects of their economies, including production, consumption, and prices.

Question 12

Copyrights and trademarks are examples of
A) capital goods.
B) human capital.
C) property rights.
D) public goods.

Accepted Answer

Copyrights and trademarks are legal rights that protect intellectual property, such as artistic creations and brand names. These legal protections are examples of property rights, which are fundamental to enabling individuals and businesses to benefit from the fruits of their labor and creativity.

Question 13

Which of the following is a distinguishing feature of a command system?
A) private ownership of all capital
B) central planning
C) heavy reliance on markets
D) widespread dispersion of economic power

Accepted Answer

Central planning is a distinguishing feature of a command system. In a command system, the government controls the allocation of resources and makes decisions on what goods and services will be produced. This is in contrast to a market system, where resources are allocated through the decentralized decisions made by individuals and businesses in the marketplace. Private ownership of capital and the dispersion of economic power are not distinguishing features of a command system, as these can also be present in a market system. Heavy reliance on markets is not a feature of a command system, but rather the opposite.

Question 14

Broadly deﬁned, competition involves
A) private property and freedom of expression.
B) independently acting buyers and sellers and freedom to enter or leave markets.
C) increasing opportunity costs and diminishing marginal utility.
D) capital goods and division of labor.

Accepted Answer

Competition involves independently acting buyers and sellers who are free to enter or leave markets. This is because competition is essentially the process of market forces driving prices towards equilibrium, which can only occur when there is freedom of entry and exit to the market. While private property and freedom of expression may be important aspects of a free market system, they are not necessary conditions for competition. Likewise, increasing opportunity costs and diminishing marginal utility are economic concepts, but not specific to competition. The same can be said for capital goods and division of labor.

Question 15

Private property
A) discourages cooperation because people don't want to part with what they own.
B) discourages innovation, as people are often afraid to risk losing their own property.
C) encourages owners to maintain or improve their property to preserve or enhance value.
D) does everything indicated by the other answers.

Accepted Answer

Private property encourages owners to maintain or improve their property to preserve or enhance value. While options A and B may be true in certain circumstances, they do not reflect the overall benefits of private property ownership. Option D is not a valid choice as it is too broad and generic.

Question 16

Freedom of enterprise
A) is a characteristic that is common to most economic systems.
B) in a market system means that entrepreneurs can obtain and use economic resources without any legal restraint.
C) allows businesses, within broad limits, to choose what goods to produce.
D) refers primarily to the right of consumers to purchase what they want.

Accepted Answer

Freedom of enterprise in a market system allows businesses to choose what goods to produce within broad legal limits, ensuring they can operate and compete freely.

Question 17

Economic systems differ according to which two main characteristics?
A) who owns the factors of production and the methods used to coordinate economic activity
B) the technology used in production and the quantity and quality of natural resources
C) how goods are produced and who gets them
D) the political system in place and the degree of scarcity facing the economy

Accepted Answer

Economic systems differ primarily based on who owns the factors of production (land, labor, capital) and the methods used to coordinate economic activity (market, command, traditional, mixed). Choice B is incorrect as technology and natural resources are external factors that affect economic systems but are not defining characteristics of the system itself. Choice C is incorrect as it only covers part of the equation - how goods are produced - but not the other key characteristic of who gets them. Choice D is incorrect as while the political system and scarcity can affect economic systems, they are not defining characteristics of the system itself.

Question 18

Which of the following is not a typical characteristic of a market system?
A) private property
B) freedom of enterprise
C) government ownership of most property resources
D) competition in product and resource markets

Accepted Answer

Government ownership of most property resources is not a typical characteristic of a market system. A market system is based on the principles of private property, freedom of enterprise, and competition in product and resource markets. The role of the government in a market system is limited to providing a legal framework for market transactions, protecting property rights, and enforcing contracts.

Question 19

Which of the following is a distinguishing feature of laissez-faire capitalism?
A) public ownership of all capital
B) central planning
C) minimal government intervention
D) a circular ﬂow of goods, resources, and money

Accepted Answer

Laissez-faire capitalism is marked by minimal government intervention in the economy. This means that the government does not regulate or control business activities, except to ensure the protection of property rights and other basic rules of the market. This approach contrasts with central planning, where a government agency dictates the production and distribution of goods and services. Thus, choice (C) is the distinguishing feature of laissez-faire capitalism.

Question 20

The French term "laissez-faire" means
A) "there is no free lunch."
B) "let it be."
C) "circular ﬂow."
D) "public ownership."

Accepted Answer

The term "laissez-faire" comes from French and translates to "let it be" or "leave it alone." It is a philosophy that embraces minimal government intervention in economic affairs, advocating instead for free markets and individual initiative.

Quiz 2: The Market System and the Circular Flow

A fundamental difference between the command system and laissez-faire capitalism is that, in command systems,

The main mechanism that regulates the market system is

Property rights are important because they

The division of labor means that

Examples of command economies are

Competition means that

The term "laissez-faire" suggests that

An economic system

Command systems are also known as

Which of the following is a fundamental characteristic of the market system?

Of the following countries, which one best exhibits the characteristics of a market economy?

Copyrights and trademarks are examples of

Which of the following is a distinguishing feature of a command system?

Broadly deﬁned, competition involves

Private property

Freedom of enterprise

Economic systems differ according to which two main characteristics?

Which of the following is not a typical characteristic of a market system?

Which of the following is a distinguishing feature of laissez-faire capitalism?

The French term "laissez-faire" means