Question 1

A welding machine is an example of a factor of production if it is being used to produce automobiles.

Accepted Answer

A welding machine is a capital or physical factor of production that is used in manufacturing processes to produce goods such as automobiles.

Question 2

How does Adam Smith's idea of the "invisible hand" apply to the various parts, made by many different manufacturers in many different countries, that are used by Apple to produce an iPad?

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Question 3

Why are music, television, and movie companies concerned about their products being posted to Internet websites such as YouTube?

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Question 4

Adam Smith, the father of modern economics, wrote in his book, An Inquiry into the Nature and Causes of the Wealth of Nations, "It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner but from their regard to their own interest." Explain what he meant by that statement and how such behavior promotes the wealth of a nation.

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Question 5

List the four broad categories of factors of production.

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Question 6

What is an entrepreneur?

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Question 7

What is a circular flow diagram and what does it demonstrate?

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Question 8

In a simple circular flow diagram, who supplies factors of production in markets and who buys these factors of production? Who supplies goods and services in markets and who buys these goods and services?

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Question 9

In the circular flow model, households supply 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, not the product market. The product market is where goods and services produced by businesses are sold to households.

Question 10

A stand of redwood trees is not an example of a factor of production, but the harvested and processed redwood is a factor of production.

Accepted Answer

A stand of redwood trees can be considered a natural resource, which is not classified as a factor of production. However, once the trees are harvested and processed into lumber, the resulting product becomes a factor of production.

Question 11

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

Accepted Answer

The payment received by suppliers of entrepreneurial skills is typically referred to as profit, not rent. Rent is the payment made for the use of land or other properties.

Question 12

Identify whether each of the following transactions will take place in the factor market or in the product market:
a. Shondra buys a Harley-Davidson Softail motorcycle.
b. Aimee works 20 hours a week at a grocery store.
c. Gustavo sells a warehouse to a produce delivery company.
d. Ocean Spray increases employment at its Middleboro, Massachusetts plant.

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Question 13

The idea underlying Adam Smith's "invisible hand" is that people tend to behave in ways that go unnoticed in society.

Accepted Answer

The idea underlying Adam Smith's "invisible hand" is that individual self-interests and actions in economic markets can unintentionally promote the general welfare and benefit of society as a whole. It is not about people behaving in ways that go unnoticed, but rather how market forces can shape outcomes without direct intervention from a central authority.

Question 14

What is the difference between product markets and factor markets?

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Question 15

Identify whether each of the following transactions will take place in the factor market or in the product market.:
a. Graciela buys a Tesla Motors Model X.
b. Lashan works 60 hours a week at a law firm.
c. Tito sells his family's farmland to a housing developer.
d. Tesla Motors increases employment at its Fremont, California plant.

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Question 16

What is meant by the term "free market"?

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Question 17

Define the term "property rights." Explain why the lack of well defined and enforceable property rights is detrimental to the smooth functioning of a market system.

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Question 18

How do firms and households interact in markets?

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