Question 1

Each person goes about her daily business seeking to maximize 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 describes the concept of the "invisible hand" in Adam Smith's economic theory of the self-regulating market.

Question 2

Article Summary
Since 2008, the United States has been involved in trade negotiations over the Trans-Pacific Partnership (TPP), a free trade agreement with 11 other countries on both sides of the Pacific Ocean. One area of the negotiations involves patents and intellectual property rights in the pharmaceutical industry. A number of developing countries have ignored international agreements concerning patents and intellectual property rights as a way to benefit their domestic pharmaceutical industries, to the detriment of those companies which have spent considerable time and money developing new medicines. For every 5,000 to 10,000 experimental drugs contemplated, only one will typically gain FDA approval, and this occurs only after up to 15 years of research at an average cost of more than $1 billion. Also, 30 percent of the U.S. workforce is either directly or indirectly employed in the pharmaceutical industry, so protection of these intellectual property rights is very important for the U.S. economy.
Source: Doug Schoen, "Intellectual Property Rights Matter," Forbes, September 24, 2013.
-Refer to the Article Summary. If these developing countries continue to ignore the international agreements which protect intellectual property rights, all of the following would most likely occur except
A) pharmaceutical companies would decrease investment in the development of more experimental drugs.
B) pharmaceutical companies would consider expanding operations to these developing countries.
C) fewer patents would be issued to pharmaceutical companies.
D) fewer dollars would be spent on the development of new medicines.

Accepted Answer

The article does not suggest that pharmaceutical companies would consider expanding operations to these developing countries if they continue to ignore international agreements on intellectual property rights. In fact, the opposite is implied, as pharmaceutical companies would have less incentive to invest in developing new drugs if they are not able to protect their intellectual property rights. A, C, and D are all likely outcomes if the international agreements are ignored.

Question 3

Which of the following is a factor of production?
A) an acre of forested land
B) a U.S. Treasury bond
C) 20 shares of Ford stock
D) $25,000 in cash

Accepted Answer

An acre of forested land is a natural resource that can be used in production. B, C, and D are financial assets and do not directly contribute to production.

Question 4

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

Accepted Answer

Crude oil is a natural resource and therefore not a factor of production. However, when it is processed into gasoline, it becomes a component of the production process and can be considered a factor of production.

Question 5

Because the copyright on the L. Frank Baum book The Wonderful Wizard of Oz expired many years ago, the actual written words from the book are in the public domain, which means
A) any publisher can now can claim copyright of Baum's words.
B) only the first publisher to reissue the book can claim copyright of Baum's words.
C) no publisher can claim copyright of Baum's words, but the book can be reissued by any publisher.
D) no publisher can claim copyright of Baum's words because the book can never be reissued.

Accepted Answer

When a work falls into the public domain, it means that the copyright has expired, and the work is free for anyone to use or republish without needing permission from the original copyright holder. However, this does not mean that a new publisher can claim copyright on the original author's words. The actual written words from the book are in the public domain, so any publisher can reissue the book without needing permission, but they cannot claim copyright on Baum's words.

Question 6

In the circular flow model, households demand resources such as labor services in the product market.

Accepted Answer

In the circular flow model, households supply resources such as labor services in the factor market, and they demand goods and services in the product market.

Question 7

In economics, the term "free market" refers to a market where no sales tax is imposed on products sold.

Accepted Answer

In economics, the term "free market" refers to a market where there is little or no government intervention, and prices are determined based on supply and demand. It does not necessarily mean that there is no sales tax.

Question 8

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

Accepted Answer

The payment received by suppliers of entrepreneurial skills is called profit. Interest is the payment received by suppliers of capital.

Question 9

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, factors of production are typically able to move freely and be used in any way that is deemed profitable by individuals or businesses, with few restrictions or regulations.

Question 10

In the circular flow model, households demand resources such as labor services in the factor market.

Accepted Answer

The answer of In the circular flow model, households demand...

Question 11

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

Both the bed of oysters and the shucked oysters are examples of natural resources, which is one of the four factors of production (the others being labor, capital, and entrepreneurship). Therefore, the statement is incorrect.

Question 12

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

Accepted Answer

Entrepreneurs are known for their ability to identify opportunities in the market and bring together the factors of production such as land, labor, capital, and entrepreneurship to produce goods and services. Therefore, the statement is true.

Question 13

In a free market there are virtually no restrictions, or at best few restrictions, on how a good or service can be produced or sold.

Accepted Answer

In a free market, the government imposes minimal regulations and restrictions on businesses and consumers. Therefore, businesses are free to produce and sell goods and services with minimal interference from the government.

Question 14

Which of the following is an example of spending on goods and services in the circular flow model?
A) Micah purchases a new wrench for his auto repair business.
B) Chester buys a first-class ticket from Atlanta to London for his long-awaited vacation.
C) Toby buys a new lawn mower to use in his lawn care business.
D) Lily purchases a new massage table for use in her therapy center.

Accepted Answer

The answer of Which of the following is an example...

Question 15

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

Accepted Answer

Profit is the payment received by suppliers of entrepreneurial skills, as it is the difference between the revenue earned and the cost of inputs used in production.

Question 16

In the desire to have a celebrity's image protected to prevent it from being used in ways he would not approve, a celebrity's estate
A) will probably not be successful, since there are no laws regulating this kind of use in the United States.
B) will have to be granted a patent declaring the celebrity's image a new product, and this will give the estate protection for 7 years.
C) can rely on U.S. laws that protect intellectual property rights to prevent the unauthorized use of his image.
D) will most likely be more successful in developing countries than in high-income countries, since property regulations are better enforced in developing countries.

Accepted Answer

U.S. laws do provide some protection for the unauthorized use of a celebrity's image, under the umbrella of intellectual property rights. While there may not be specific laws regulating this kind of use, celebrities and their estates have been successful in using copyright and trademark laws to protect their images. This has been seen in cases such as Rihanna suing Topshop for using her image on their clothing without her permission, and Marilyn Monroe's estate suing a company for using her image on a line of watches without proper licensing. Patent law does not apply to images or likeness of individuals, so option B is incorrect. Option D is not accurate, as property regulations are generally better enforced in high-income countries.

Question 17

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 buyers and sellers engage in trade with limited government intervention, but products are indeed sold for a price.

Question 18

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

Accepted Answer

The defining characteristic of a free market is minimal government intervention and regulation, allowing for maximum flexibility in how goods and services are produced and sold.

Question 19

In the circular flow model, households supply resources such as labor services in the factor market.

Accepted Answer

In the circular flow model, households supply resources such as labor services, land, and capital in the factor market in exchange for income. This income is used to buy goods and services in the product market.

Question 20

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

Accepted Answer

The payment received by suppliers of entrepreneurial skills is called profits, not wages. Wages are usually paid to employees for their labor services.

Quiz 2: Trade-Offs, Comparative Advantage, and the Market System