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| 1 | |
Refer to the following diagram of a circular flow model of the economy:
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In the diagram, consumer expenditures are represented by: |
| | A) | Flow 1. |
| | B) | Flow 2. |
| | C) | Flow 3. |
| | D) | Flow 4. |
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| 2 | |
For a market system, which of the following best answers the question, "What goods and services will be produced?" |
| | A) | Only those goods whose long-term profits are greater than average |
| | B) | Any good for which consumers are willing to pay a positive price |
| | C) | Any good whose production is characterized by the least-cost technology |
| | D) | Any good that returns its producers sufficient revenue to cover its total costs |
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| 3 | |
The command systems of the Soviet Union and eastern Europe failed in part because: |
| | A) | previously abundant economic resources became scarce. |
| | B) | central planners found it increasingly difficult to coordinate the economic decisions of consumers, resource suppliers, and businesses. |
| | C) | firms manufactured more output than consumers could afford to buy, resulting in a general glut. |
| | D) | prices were set too low in all markets. |
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| 4 | |
The competitive market system encourages innovation and technological advance, primarily through: |
| | A) | the government's tax code. |
| | B) | the process of "dollar voting". |
| | C) | the guiding function of consumer needs and preferences. |
| | D) | profitable returns to innovative firms. |
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| 5 | |
Human specialization, or the division of labor: |
| | A) | reduces output by dehumanizing workers. |
| | B) | reduces output by discouraging workers from learning a wide variety of tasks. |
| | C) | increases output by enabling workers to take advantage of differences in their skills. |
| | D) | increases output by allowing workers to each perform a wide variety of tasks. |
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| 6 | |
Economic profits and losses: |
| | A) | answer the question "Who will get the output?" |
| | B) | answer the question "How will the goods and services be produced?" |
| | C) | help determine which industries survive or fail. |
| | D) | are the expected outcomes of a decrease in dollar votes and an increase in dollar votes, respectively. |
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| 7 | |
If a change in consumer preferences results in many more consumers registering their "dollar votes" in favor of peaches, which of the following will most likely follow? |
| | A) | Profits of peach growers will rise and peach production will rise |
| | B) | Profits of peach growers will rise and peach production will fall |
| | C) | Profits of peach growers will fall and peach production will rise |
| | D) | Profits of peach growers will fall and peach production will fall |
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| 8 | |
The market system is characterized by: |
| | A) | widespread use of government price controls. |
| | B) | centralized decision-making. |
| | C) | limited use of capital goods. |
| | D) | private property rights. |
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| 9 | |
A firm will earn a positive economic profit if: |
| | A) | its total sales revenue equals the total cost of labor, capital, raw materials, and entrepreneurship. |
| | B) | it produces its output utilizing the least-cost production method. |
| | C) | it is regulated by government. |
| | D) | its total sales revenue exceeds the sum of all its costs. |
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| 10 | |
A firm can produce a single unit of output by combining labor and capital in any of the combinations shown in the following table. Labor costs $2 per unit and capital costs $4 per unit.
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Refer to the table. Which is the most efficient technique for producing the output? |
| | A) | A |
| | B) | B |
| | C) | C |
| | D) | D |
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