Principles of Macroeconomics, 9E - TB1 (Case/Fair/Oster)

Principles of Macroeconomics, 9e - TB1 (Case/Fair/Oster) Chapter 2

1 The Economic Problem: Scarcity and Choice

2 Scar city, Cho ice, and Op port unit y Cos t

4 M h ul o ti i pl c e e C

5 The process by which resources are transformed into useful forms is A)

6 capitalization. B)

7 consumption. C)

8 production. D)

9 allocation. Answer:

10 C Diff: 2 Topic:

11 Scarcity, Choice, and Opportunity Cost Skill:

12 Definition

13 Outputs in the production process are A)

14 pollution. B)

15 money. C)

16 good and services of value to households. D)

17 resources. Answer:

18 C Diff: 2 Topic:

20 Definition

21 Which of the following is NOT a resource as the term is used by economists? A)

22 land B)

23 labor C)

24 buildings D)

25 money Answer:

26 D Diff: 1 Topic:

28 Fact

29 Which of the following would an economist classify as capital? A)

30 a $50 bill B)

31 a corporate bond C)

32 a post office employee D)

33 a guitar used by a musician Answer:

34 D Diff: 2 Topic:

36 Conceptual AACSB:

37 Reflective Thinking

39 Capital, as economists use the term, A)

40 is the money the firm spends to hire resources. B)

41 is money the firm raises from selling stock. C)

42 refers to the process by which resources are transformed into useful forms. D)

43 refers to have already been produced that are in turn used to produce other goods and services. things that Answer:

44 D Diff: 3 Topic:

48 The concept of opportunity cost is based on the principle of A)

49 need. B)

50 consumption. C)

51 scarcity. D)

52 profit. Answer:

53 C Diff: 2 Topic:

55 Conceptual

56 The concept of trade-offs would become irrelevant if A)

57 we were dealing with a very simple, one-person economy. B)

58 poverty was eliminated. C)

59 scarcity was eliminated. D)

60 capital was eliminated. Answer:

61 C Diff: 2 Topic:

65 Suppose deciding whether to spend your tax rebate check on a new iPod player or a new digital camera. you are You are dealing with the concept of A)

66 diminishing marginal returns. B)

67 comparative advantage. C)

68 opportunity costs. D)

69 the fallacy of composition. Answer:

70 C Diff: 2 Topic:

75 Accordin g to the theory of comparative advantage, specialization and free trade will benefit A)

76 only that that has both an absolute advantage and a comparative advantage in the production of all trading party goods. B)

77 all trading parties, even when some are absolutely more efficient producers than others. C)

78 only that trading party that has an absolute advantage in the production of all goods. D)

79 only that trading party that has a comparative advantage in the production of all goods. Answer:

80 B Diff: 3 Topic:

Refer to the information provided in Table 2.1 below to answer the following questions.

Table 2.1 Krystal Mark Writing Poems 8 12 Writing TV Commercials 2 4 10)

84 Refer to Table 2.1. For Krystal, the opportunity cost of writing one TV commercial is A)

85 1/4 of a poem. B)

86 2 poems. C)

87 4 poems. D)

88 6 poems. Answer:

89 C Diff: 2 Topic:

91 Analytic AACSB:

92 Analytic Skills

93 Refer to Table 2.1. For Mark, the opportunity cost of writing one TV commercial is A)

94 1/3 of a poem. B)

95 2 poems. C)

96 3 poems. D)

97 8 poems. Answer:

98 C Diff: 2 Topic:

100 Analytic AACSB:

101 Analytic Skills

102 12)

103 Refer to Table 2.1. Which of the following statements is TRUE? A)

104 Krystal has a comparative advantage in both writing TV commercials and writing poems. B)

105 Mark has a comparative advantage in both writing TV commercials and writing poems. C)

106 Krystal has a advantage in writing TV commercials and Mark has a comparative advantage in writing comparative poems. D)

107 Mark has a advantage in writing TV commercials and Krystal has a comparative advantage in writing comparative poems. Answer:

108 D Diff: 2 Topic:

110 Analytic AACSB:

111 Analytic Skills

112 Refer to Table 2.1. To maximize total production, A)

113 Krystal should specialize in writing TV commercials and Mark should specialize in writing poems. B)

114 Mark should specialize in writing TV commercials and Krystal should specialize in writing poems. C)

115 Krystal and Mark should both split their time between writing poems and writing TV commercials. D)

116 Krystal should write poems and write TV commercials, but Mark should only write poems. Answer:

117 B Diff: 2 Topic:

119 Analytic AACSB:

120 Analytic Skills

121 Refer to For Mark, the opportunity cost of writing six TV commercials is ______poems made. Table 2.1. A)

122 2 B)

123 18 C)

124 24 D)

125 an indeterminate number of Answer:

128 Analytic AACSB:

129 Analytic Skills

130 Refer to Table 2.1. For Krystal, the opportunity cost of writing four TV commercials is ______poems. A)

131 2 B)

132 8 C)

133 16 D)

134 32 Answer:

135 C Diff: 2 Topic:

137 Analytic AACSB:

138 Analytic Skills

139 Accordin theory of comparative advantage, ______raise(s) productivity by lowering opportunity costs. g to the A)

140 trade and specialization B)

141 investment in capital goods C)

142 economic growth D)

143 exchange and consumption Answer:

144 A Diff: 2 Topic:

148 When two people trade A)

149 both of them expect to be made worse off by the exchange. B)

150 they are trying to help out each other. C)

151 they know one of them will get the better of the other. D)

152 they both expect to be made better off by the exchange. Answer:

157 Someone has a comparative advantage in producing a good if they can produce that good A)

158 in greater quantities. B)

159 at a lower opportunity cost. C)

160 using more capital and less labor. D)

161 without sunk costs. Answer:

166 If someone has a comparative advantage in growing pineapples, A)

167 they can grow pineapples at a lower opportunity cost than other pineapple growers. B)

168 they also have an absolute advantage in growing pineapples. C)

169 they can grow more pineapples using the same resources than other pineapple growers. D)

170 pineapples are the only product they can grow. Answer:

175 20)

176 Which of the following does NOT constitute an act of "investment" as economists use the term? A)

177 The city council authorizes the construction of a new fire station. B)

178 A retiree buys 50 shares of stock at $10 a share and then sells the stock at a profit for $20 a share. C)

179 An accountant attends a seminar on changes in the federal tax code. D)

180 A department store increases its inventory of football jerseys before the Super Bowl. Answer:

185 In economics, investment always refers to A)

186 the act of buying stocks or bonds. B)

187 the creation of capital. C)

188 increasing the quantity of labor. D)

189 an increase in per capita output. Answer:

192 Definition

193 The process of using resources to produce new capital is A)

194 research and development. B)

195 investment. C)

196 consumption. D)

197 economic growth. Answer:

200 Definition

201 An example of forgoing present benefits in order to receive future benefits is A)

202 production. B)

203 saving. C)

204 consumption. D)

205 growth. Answer:

208 Definition

209 Because resources are scarce, the opportunity cost of investment in capital is A)

210 zero. B)

211 forgone future consumption. C)

212 forgone present consumption. D)

213 infinite. Answer:

218 An example of an investment is A)

219 the purchase of a share of Google stock. B)

220 the purchase of an Exxon Mobil bond. C)

221 the purchase of a Hewlett Packard laser printer for use by a business. D)

222 all of the above. Answer:

227 The opportunity cost of investment in capital is forgone present consumption because A)

228 capital takes a long time to produce. B)

229 capital increases the productivity of labor. C)

230 resources are scarce. D)

231 capital is an intangible good. Answer:

236 If the unemployment rate increases from 10% to 14%, the economy will A)

237 move closer to a point on the ppf. B)

238 move away from the ppf toward the origin. C)

239 remain on the ppf. D)

240 remain on the origin. Answer:

245 Periods of less than full employment correspond to A)

246 points outside the ppf. B)

247 points underneath the ppf. C)

248 points on the ppf. D)

249 either points inside or outside the ppf. Answer:

254 Refer to the information provided in Figure 2.1 below to answer the questions that follow.

Figure 2.1

255 Refer to Figure 2.1. Macroland is currently operating at Point A. The best explanation for this is that A)

256 the economy has very poor technology. B)

257 the economy's resources are being used inefficiently. C)

258 the economy has very few resources. D)

259 the economy operates as an efficient market. Answer:

264 Refer to Figure 21. Macroland's production possibility frontier is bowed out from the origin due to A)

265 decreasing opportunity costs. B)

266 trade. C)

267 unemploymen t. D)

268 specialized resources. Answer:

273 Refer to Figure 2.1. The shape of Macroland's production possibility frontier shows A)

274 increasing opportunity costs. B)

275 constant opportunity costs. C)

276 decreasing opportunity costs. D)

277 random opportunity costs. Answer:

282 32)

283 The production possibility frontier is used to illustrate the concept of A)

284 the laissez- faire economy. B)

285 opportunity costs. C)

286 equilibrium. D)

287 aggregate demand. Answer:

290 Fact

Refer to the information provided in Figure 2.2 below to answer the questions that follow.

Figure 2.2

291 Refer to Figure 2.2. Point B represents a situation of A)

292 full employment but production inefficiency. B)

293 less than full employment but production efficiency. C)

294 both full resource employment and production efficiency. D)

295 less than full employment and production inefficiency. Answer:

300 Refer to Figure 2.2. Microland is currently operating at Point B. You correctly deduce that A)

301 in Microland all resources are fully employed and there are no production inefficiencies. B)

302 Microland has achieved a position of inefficiency. C)

303 Microland has recently experienced some type of technological breakthrough. D)

304 Microland has overcome the problem of scarcity. Answer:

307 Analytic AACSB:

308 Analytic Skills

309 35)

310 The production possibility frontier is a graph that shows A)

311 all the of goods and services that are consumed over time if all of society's resources are used combinations efficiently. B)

312 the amount of goods and services consumed at various average price levels. C)

313 the rate at which an economy's output will grow over time if all resources are used efficiently. D)

314 all the of goods and services that can be produced if all of society's resources are used efficiently. combinations Answer:

317 Definition

318 Producti on inefficiency occurs A)

319 only when an economy produces underneath its production possibility frontier. B)

320 only when an economy produces at the wrong point on the production possibility frontier. C)

321 either when produces underneath the production possibility frontier or when the economy is an economy producing the wrong combination of goods on the production possibility frontier. D)

322 only when the economy produces outside the production possibility frontier. Answer:

327 An that is producing on the production possibility frontier at some point other than the output of economy efficient allocation is A)

328 efficient, as it is on the production possibility frontier. B)

329 inefficient, as the combination of goods and services produced is not what people want. C)

330 efficient, as the economy is producing goods at the lowest possible cost. D)

331 inefficient, as combination of goods could be produced at a lower cost if more efficient technology were that employed. Answer:

336 If resources are combined efficiently in production, then the society A)

337 is producing at the most-desirable point on the production possibility frontier. B)

338 is producing the production possibility frontier but not necessarily at the most-desirable point. at a point on C)

339 is producing at a point outside the production possibility frontier. D)

340 is experiencing economic growth. Answer:

345 39)

346 Suppose produces hybrid engines and solar panels in perfectly competitive industries. The economy is an currently operating at a point on its ppf. If a single firm gains control over the production of economy solar panels, which of the following is most likely to happen? A)

347 The economy will move to a less-desirable point on the ppf. B)

348 The economy's ppf will shift inward. C)

349 The economy will now be able to produce at a point outside its ppf. D)

350 The economy's ppf will shift outward, but the maximum number of solar panels will remain the same. Answer:

353 Analytic AACSB:

354 Analytic Skills

355 The value of the slope of a society's production possibility frontier is called its A)

356 marginal rate of substitution. B)

357 inflation rate. C)

358 unemploymen t rate. D)

359 marginal rate of transformation. Answer:

362 Definition

363 The marginal rate of transformation is the A)

364 slope of the production possibility frontier. B)

365 dollar value of the best forgone alternative. C)

366 process of using resources to produce new capital. D)

367 transformatio n of resources into a form that is useful to people. Answer:

370 Definition

Figure 2.3

372 Refer to Assume that in this society the marginal rate of transformation of sailboats for surfboards is Figure constant and equal to -10. A graph of this society's production possibility frontier will be 2.3. represented by A)

373 A. B)

374 B. C)

375 C. D)

376 D. Answer:

381 Refer to 2.3. Assume that in this society the opportunity cost of sailboats in terms of surfboards is Figure increasing. A graph of this society's production possibility frontier will be represented by A)

382 A. B)

383 B. C)

384 C. D)

385 D. Answer:

390 44)

391 Refer to 2.3. The law of ______opportunity costs is best depicted by the production possibilities Figure frontier in panel A. A)

392 increasing B)

393 constant C)

394 decreasing D)

395 zero Answer:

400 A society two goods: donuts and beer. The society's production possibility frontier is negatively sloped can and "bowed outward" from the origin. As this society moves down its production possibility produce frontier, producing more and more units of donuts, the opportunity cost of producing beer A)

401 decreases. B)

402 remains constant. C)

403 increases. D)

404 could decrease or increase depending on the technology. Answer:

Figure 2.4

409 Accordin g to Figure 2.4, the point where only motorcycles are produced is A)

410 A. B)

411 B. C)

412 C. D)

413 E. Answer:

416 Analytic AACSB:

417 Analytic Skills

418 47)

419 Accordin g to Figure 2.4, the optimal point for the economy is A)

420 A. B)

421 B. C)

422 F. D)

423 indeterminate from the information given. Answer:

426 Analytic AACSB:

427 Analytic Skills

428 Accordin g to Figure 2.4, which point cannot be produced with the current state of technology? A)

429 A B)

430 B C)

431 C D)

432 F Answer:

435 Analytic AACSB:

436 Analytic Skills

437 Accordin g to Figure 2.4, the point where only hybrid cars are produced is A)

438 A. B)

439 B. C)

440 C. D)

441 D. Answer:

444 Analytic AACSB:

445 Analytic Skills

446 Accordin g to Figure 2.4, a decrease in unemployment may be represented by the movement from A)

447 B to A. B)

448 B to D. C)

449 C to D. D)

450 A to C. Answer:

453 Analytic AACSB:

454 Analytic Skills

455 51)

456 Accordin Figure 2.4, as the economy moves from Point A to Point E, the opportunity cost of motorcycles, g to measured in terms of hybrid cars, A)

457 decreases. B)

458 increases. C)

459 remains constant. D)

460 initially increases, then decreases. Answer:

463 Analytic AACSB:

464 Analytic Skills

465 Accordin Figure 2.4, as the economy moves from Point E to Point A, the opportunity cost of hybrid cars, g to measured in terms of motorcycles, A)

466 increases. B)

467 decreases. C)

468 remains constant. D)

469 initially increases, then decreases. Answer:

472 Analytic AACSB:

473 Analytic Skills

474 Refer to Figure 2.4. The economy moves from Point A to Point D. This could be explained by A)

475 a reduction in unemployment. B)

476 an improvement in technology. C)

477 an increase in economic growth. D)

478 a change in society's preferences for motorcycles versus hybrid cars. Answer:

481 Analytic AACSB:

482 Analytic Skills

Figure 2.5

484 Refer to 2.5. The economy is currently at Point A. The opportunity cost of moving from Point A to Point Figure B is the A)

485 90 LCD televisions that must be forgone to produce 20 additional plasma televisions. B)

486 30 LCD televisions that must be forgone to produce 60 additional plasma televisions. C)

487 120 LCD televisions that must be forgone to produce 40 additional plasma televisions. D)

488 30 LCD televisions that must be forgone to produce 20 additional plasma televisions. Answer:

491 Analytic AACSB:

492 Analytic Skills

493 Refer to Figure 2.5. The marginal rate of transformation in moving from Point A to Point B is A)

494 -2/3. B)

495 -1.5. C)

496 -3. D)

497 -30. Answer:

500 Analytic AACSB:

501 Analytic Skills

502 Refer to 2.5. For this economy to move from Point B to Point C so that an additional 20 plasma Figure televisions could be produced, production of LCD televisions would have to be reduced by A)

503 exactly 30. B)

504 fewer than 30. C)

505 more than 30. D)

506 exactly 60. Answer:

509 Analytic AACSB:

510 Analytic Skills

511 57)

512 Refer to Figure 2.5. The best point for society would be A)

513 Point C, as at there are approximately equal amounts of LCD and plasma televisions being produced. this point B)

514 either Point B the total amount being produced at either of these points is approximately the same. or Point C, as C)

515 at any of the labeled points, as all of the points represent an efficient allocation of resources. D)

516 indeterminate from this information, as we don't have any information about the society's desires. Answer:

519 Analytic AACSB:

520 Analytic Skills

521 If the ity costs of producing a good increase as more of that good is produced, the economy's opportun production possibility frontier will be A)

522 negatively sloped and "bowed inward" toward the origin. B)

523 negatively sloped and "bowed outward" from the origin. C)

524 a negatively sloped straight line. D)

525 a positively sloped straight line. Answer:

530 As you down the production possibility frontier, the absolute value of the marginal rate of move transformation A)

531 increases. B)

532 decreases. C)

533 initially increases, then decreases. D)

534 initially decreases, then increases. Answer:

539 60)

540 As more good, such as television sets, is produced, the opportunity costs of producing it increases. This of a most likely occurs because A)

541 as more of a good is produced the inputs used to produce that good will increase in price. B)

542 consumers would be willing to pay higher prices for the good as more of the good is produced. C)

543 resources are well suited to producing all goods and as more of a good is produced it is necessary to not equally use resources less well suited to the production of that good. D)

544 as more of a produced the quality of that good declines and therefore the costs of production increase. good is Answer:

549 Economi c growth may occur when A)

550 a society acquires new resources. B)

551 a society learns to produce more using existing resources. C)

552 the society begins to produce the combination of goods society wants most. D)

553 both A and B Answer:

Figure 2.6

558 Refer to Figure 2.6. Economic growth is represented by a A)

559 shift from ppf2 to ppf1. B)

560 shift from ppf1 to ppf2. C)

561 movement along ppf1. D)

562 movement along ppf2 Answer:

565 Analytic AACSB:

566 Analytic Skills

567 Refer to Figure 2.6. An improvement in technology may be represented by a A)

569 shift from ppf1 to ppf2. C)

571 movement along ppf1. Answer:

574 Analytic AACSB:

575 Analytic Skills

576 Refer to 2.6. Which of the following will shift an economy's production possibility frontier from ppf1 to Figure ppf2? A)

577 a decrease in unemployment B)

578 an increase in production efficiency C)

579 a change in consumer's tastes D)

580 an increase in the economy's capital stock Answer:

583 Analytic AACSB:

584 Analytic Skills

585 Refer to 2.6. Which of the following will NOT cause the production possibility frontier to shift from ppf1 Figure to ppf2? A)

586 the discovery of previously unknown oil fields B)

587 an improvement in technology C)

588 an increase in the stock of capital D)

589 a decrease in the unemployment rate Answer:

592 Analytic AACSB:

593 Analytic Skills

594 Refer to 2.6. Which of the following is most likely to shift the production possibility frontier from ppf1 to Figure ppf2? A)

595 a change in consumer tastes B)

596 the purchase of stocks on the New York Stock Exchange C)

597 moving resources from capital to consumer goods D)

598 an increase in the general educational level of the population Answer:

601 Analytic AACSB:

602 Analytic Skills

603 67)

604 Refer to Figure 2.6. If the economy is at ppf1, a change in consumer preferences would be shown by a A)

606 movement along ppf1. C)

608 shift from ppf1 to ppf2. Answer:

611 Analytic AACSB:

612 Analytic Skills

613 During the Iraq War many of Iraq's oil refineries were destroyed. This would best be represented by a A)

614 movement down Iraq's production possibility frontier. B)

615 movement off Iraq's production possibility frontier to some point inside the frontier. C)

616 shift of Iraq's production possibility frontier toward the origin. D)

617 movement up Iraq's production possibility frontier. Answer:

620 Analytic AACSB:

621 Analytic Skills

622 For an economy to produce at a point beyond its current ppf, the economy must A)

623 waste less. B)

624 be more efficient. C)

625 reduce inputs. D)

626 increase its resource base. Answer:

631 In terms production possibility frontier, an increase in productivity attributable to new technology of the would best be shown by A)

632 a movement along the frontier. B)

633 the production possibility frontier shifting outward, away from the origin. C)

634 a movement from a point inside the frontier to a point on it. D)

635 a movement toward the origin. Answer:

640 71)

641 An improvement in technology will cause the A)

642 production possibility frontier to shift outward. B)

643 production possibility frontier to shift inward. C)

644 economy to move down the production possibility frontier. D)

645 economy to move closer to its production possibility frontier. Answer:

650 Consider countries, Japan and Malaysia. Japan devotes a smaller portion of its production to capital. All two other things equal which of the following statements is most likely true? A)

651 Japan is a poorer country than Malaysia. B)

652 Japan will move up its production possibility curve faster than Malaysia. C)

653 Malaysia is inside its production possibility frontier, whereas Japan is producing at a point on its producing production possibility frontier. D)

654 Malaysia's production possibility frontier will shift up and out farther and faster than Japan's. Answer:

659 The gap between rich and poor countries A)

660 has decreased over time because poor countries can more easily devote resources to capital production. B)

661 has increased because poor countries find it difficult to devote resources to capital production. over time C)

662 has remained constant over time because technological advances can be easily shared among nations. D)

663 has remained time because the rate of capital production has remained constant in rich and poor constant over nations. Answer:

666 Fact

667 An capital goods and consumer goods. This economy is operating at a point on its production economy possibility frontier associated with a small amount of capital goods and a large amount of produces consumer goods. This is most likely to be a A)

668 "poor" country nation has difficulty devoting many resources to the production of capital goods. because such a B)

669 "rich" country because such a nation can afford to sacrifice. C)

670 country with a free market. D)

671 country with a command economy. Answer:

676 The economic problem can best be stated as A)

677 How can the improve technology so as to shift the production possibility frontier up and to the right? economy B)

678 Given scarce how exactly do societies go about deciding what to produce, how to produce it, and for resources, whom to produce? C)

679 Given the fact economy is inefficient, how much and what type of government intervention should be that the used to improve the efficiency of the economy? D)

680 What is the best rate of economic growth for a society? Answer:

683 Definition

684 Related Economics in Practice on p. 28: Which one of the following occurs when an individual enters the to the paid work force? A)

685 The cost of time for housework increases, because time spent on housework could be spent on opportunity money-earning activities. B)

686 The cost of time for housework increases, because money earned at a job can allow individuals opportunity to pay someone to do household chores that the individuals used to do themselves. C)

687 The cost of time for housework decreases, because increased earning power makes opportunity individuals less likely to do their own housework. D)

688 The for housework decreases, because as more people enter the work force, businesses have opportunity greater incentives to develop innovations that make housework more efficient. cost of time Answer:

690 Scarcity, Choice, and Opportunity Cost: Economics in Practice Skill:

691 Analytic AACSB:

692 Analytic Skills

693 Related Economics in Practice on p. 28: How did the introduction of the microwave in 1960 affect the to the market for frozen food? A)

694 It encouraged people to leave the work force by making cooking easier and less time-consuming. B)

695 It reduced the cost of eating frozen food by decreasing the amount of time required to prepare frozen opportunity meals. C)

696 It increased the financial cost of alternative methods of food preparation, such as conventional ovens. D)

697 It made frozen appealing by increasing the variety of meals that could be frozen and reheated. foods more Answer:

699 Scarcity, Choice, and Opportunity Cost: Economics in Practice Skill:

700 Analytic AACSB:

701 Analytic Skills

702 Tr s ue e /F al

703 In economics, the term capital refers only to some form of money. Answer:

704 FALSE Diff: 2 Topic:

706 Definition

707 Among the resources used in production are labor and capital. Answer:

708 TRUE Diff: 2 Topic:

710 Definition

711 Things already been produced that are in turn used to produce other goods and services over time are that have called "capital." Answer:

714 Definition

715 When two people trade, one must lose. Answer:

720 Economi c growth shifts a society's production possibility frontier away from the origin. Answer:

725 A production possibility frontier is bowed in from the origin due to specialized resources. society's Answer:

728 Fact

729 The c problem" is that given scarce resources, how do large societies go about answering the basic "economi economic questions of what will be produced, how it will be produced, and who will get it. Answer:

732 Definition

733 Compara tive advantage refers to the ability to produce better quality goods than a competitor. Answer:

736 Definition

737 Compara tive advantage refers to the ability to produce at a lower opportunity cost than a competitor. Answer:

740 Definition

741 The government produces only what the market is willing to pay for. Answer:

746 Eco no mic Syst ems

748 M h ul o ti i pl c e e C

749 An in which a central authority draws up a plan that establishes what will be produced and when, economy sets production goals, and makes rules for distribution is a A)

750 free market economy. B)

751 laissez-faire economy. C)

752 public goods economy. D)

753 command economy. Answer:

755 Economic Systems Skill:

756 Definition

757 An in which individual people and firms pursue their own self-interest without any central economy direction or regulation is a(n) A)

758 command economy. B)

759 laissez-faire economy. C)

760 invisible-hand economy. D)

761 private-sector economy. Answer:

764 Definition

765 Which of the following statements is FALSE? A)

766 Many planned have not fared very well in recent years; many of these economies have almost completely economies collapsed. B)

767 Command operate the most efficiently because the government makes all the production decisions. economies C)

768 In command economies consumers still exercise choice. D)

769 In a command government answers the questions of what to produce, how to produce it, and how to economy the distribute it. Answer:

774 4)

775 Which of the following is an element of a command economy? A)

776 The market decides distribution. B)

777 The means of production are privately owned. C)

778 Production decisions are centralized. D)

779 The market decides what will be produced. Answer:

782 Fact

783 Which of the following statements is NOT true for a command economy? A)

784 Consumers have some choices concerning what they buy. B)

785 The government decides what is produced. C)

786 The amount of a good supplied always equals the amount of the good demanded. D)

787 The state decides how to distribute what is produced. Answer:

790 Fact

791 In a laissez-faire economy ______what gets produced, how it is produced, and who gets it. A)

792 the behavior of buyers and sellers determines B)

793 the central government authority determines C)

794 firms but not consumers determine D)

795 consumers but not firms determine Answer:

798 Fact

799 An institution through which buyers and sellers interact and engage in exchange is A)

800 a central authority. B)

801 "laissez-faire." C)

802 a market. D)

803 a production frontier. Answer:

806 Definition

807 Which of the following is NOT true of a market economy? A)

808 In its pure form, it is also known as a laissez-faire economy. B)

809 Decisions are regulated by a central agency. C)

810 The between buyers and sellers answers the basic economic questions of what gets produced, interaction how it gets produced, and who gets it. D)

811 It relies on millions of individual economic decisions to determine economic outcomes. Answer:

814 Fact

815 9)

816 Consum er sovereignty A)

817 is dependent on profits. B)

818 is the idea that consumers can buy whatever they want to. C)

819 is the idea that consumers determine what is produced in the economy through their demands. D)

820 is only possible in a monarchy. Answer:

823 Definition

824 The idea consumers ultimately dictate what will be produced by choosing what to purchase is known as that A)

825 laissez-faire. B)

826 the economic problem. C)

827 centralized decision making. D)

828 consumer sovereignty. Answer:

831 Definition

832 The that households have accumulated out of past income through saving and inheritance is amount A)

833 future income. B)

834 wealth. C)

835 consumption. D)

836 past income. Answer:

839 Definition

840 In a free market system, the amount of output that any one household gets depends on its A)

841 income. B)

842 wealth. C)

843 wage and interest income. D)

844 income and wealth. Answer:

849 Advocat es of an unregulated market system argue that A)

850 competition promotes efficiency. B)

851 competition leads to innovation. C)

852 competition leads to product variety and quality. D)

853 all of the above Answer:

858 The basic coordinating mechanism in a free market system is A)

859 quantity. B)

860 price. C)

861 a central government authority. D)

862 the corporation. Answer:

865 Fact

866 Which of the following statements is FALSE? A)

867 In a free system, the basic economic questions are answered without the help of a central market government plan or directive. B)

868 Individuals their own-self interest will produce products and services that other people want. guided by C)

869 The basic mechanism in a free market system is quantity adjustments toward equilibrium. coordinating D)

870 In a free market system, competition forces firms to adopt efficient production techniques. Answer:

875 Some economists advocate government intervention in a market economy A)

876 to produce collective goods and services. B)

877 when resource costs for a private producer do not reflect the full cost to society. C)

878 to stabilize the economy. D)

879 all of the above Answer:

882 Fact

883 Tr s ue e /F al

884 A faire economy is one in which individual people and firms pursue their own self-interest laissez- without any central direction or regulation. Answer:

887 Definition

888 A d economy is one in which a central government sets output targets, incomes and prices. comman Answer:

891 Definition

892 3)

893 A command economy eliminates markets. Answer:

898 Price is the coordinating mechanism in a planned economy. Answer:

901 Definition

902 The that buyers determine what will be produced by choosing what they purchase is called notion consumer sovereignty. Answer:

905 Definition