Question 1

Consumer sovereignty means that legislation now protects the rights of consumers to dispose of their incomes as they see fit.

Accepted Answer

False

Question 2

The economy of the former Soviet Union was best described as:
A)authoritarian capitalism.
B)mixed capitalism.
C)a command economy.
D)market socialism.

Accepted Answer

The economy of the former Soviet Union was a command economy, where all economic decisions were made by the central government. The government owned and controlled all means of production and allocated resources according to a detailed plan. Therefore, the correct choice is C.

Question 3

The guiding function of prices indicates that, at equilibrium prices, neither product surpluses nor shortages can occur.

Accepted Answer

At equilibrium prices, the quantity demanded and quantity supplied are equal, which means there is no surplus or shortage of the product. This is the guiding function of prices, ensuring that the market reaches a balance where both buyers and sellers are satisfied.

Question 4

In a capitalistic economy:
A)consumers can never be sovereign.
B)markets can never be competitive.
C)there is a reliance on the market system.
D)the government owns the means of production.

Accepted Answer

In a capitalistic economy, there is a reliance on the market system, where prices are determined by supply and demand, and businesses strive to maximize profits. While consumers may not always be sovereign, as their choices are limited by prices and availability, and markets may not always be perfectly competitive, as some businesses may have advantages over others, the basic principle of capitalism is a free market-driven economy. The government does not own the means of production, as private individuals or companies own and operate businesses.

Question 5

In the simple circular flow model businesses are suppliers of final products.

Accepted Answer

In the simple circular flow model, businesses are suppliers of final products to households, who are consumers. They are also buyers of factors of production such as labor and capital from households.

Question 6

Which of the following statements best describes a mixed economy?
A)In a mixed economy, society determines production and the allocation of goods and services only through the market system.
B)In a mixed economy, government policies determine the production and the allocation of goods and services, but each individual is free to pursue his or her own self-interest.
C)In a mixed economy, the government and private sectors interact in determining production and allocation of goods and services.
D)In a mixed economy, the role of individual self-interest is relatively unimportant because government makes most of the economic decisions.

Accepted Answer

A mixed economy is a combination of a market economy and a command economy. In a mixed economy, both the government and private sector interact in determining the production and allocation of goods and services. The government intervenes when necessary to promote the general welfare and prevent negative externalities, while individuals and businesses are free to pursue their self-interest within the framework of government regulations. This system aims to balance the benefits of the market economy, such as efficiency and innovation, with the benefits of the command economy, such as social equity and stability.

Question 7

The private ownership of property resources and use of prices to direct and coordinate economic activity is characteristic of:
A)a command system.
B)a market system.
C)communism.
D)socialism.

Accepted Answer

The private ownership of property resources and use of prices to direct and coordinate economic activity is a key feature of a market system, where individuals decide what to produce, how to produce, and for whom to produce, based on market signals. In a command system, the government owns and controls all property resources and decisions are made by a central planning authority. Communism and socialism are political systems that advocate for public ownership of resources and the means of production, with distribution based on need rather than market forces.

Question 8

The economy of North Korea most closely approximates:
A)pure capitalism
B)a command economy
C)market socialism
D)authoritarian capitalism

Accepted Answer

North Korea has a command economy where the central government sets production goals and controls all aspects of the economy, including the distribution of resources and the prices of goods and services. Private enterprise is strictly limited, and the government owns and operates major industries.

Question 9

Money functions as a medium of exchange in permitting the ready comparison of the relative worth of heterogeneous products.

Accepted Answer

Money is a medium of exchange that facilitates the comparison of the relative prices of different goods and services. It allows people to exchange goods and services without having to barter or exchange like-for-like items. This function of money makes markets more efficient and facilitates economic transactions.

Question 10

A division of labour enhances society's output by permitting people to take advantage of existing differences in their abilities and skills.

Accepted Answer

A division of labour allows individuals to specialize in tasks that they are best suited for, resulting in increased productivity and efficiency. This allows society to produce more goods and services than if everyone tried to do everything themselves.

Question 11

Households and businesses are both suppliers in the product market.

Accepted Answer

Households are typically demanders in the product market, purchasing goods and services, while businesses are the suppliers, providing these goods and services.

Question 12

Property rights do not encourage people to cooperate.

Accepted Answer

Property rights can actually encourage cooperation by providing individuals with the security and incentive to invest in and improve their property, which can benefit themselves as well as others in their community. For example, a farmer who owns their land is more likely to use sustainable practices to preserve the soil and environment for future generations, rather than exploiting the land for short-term gain. This can benefit the wider community and encourage cooperation among neighbors.

Question 13

Which would not be characteristic of a capitalist economy?
A)government ownership of the means of production
B)competition and unrestricted markets
C)reliance on the market system
D)free enterprise and choice

Accepted Answer

Capitalism emphasizes private ownership of the means of production and minimal government interference in the market. Therefore, government ownership of the means of production would not be characteristic of a capitalist economy.

Question 14

The "invisible hand" refers to the many indirect controls which the federal government imposes in a system of mixed capitalism.

Accepted Answer

The "invisible hand" is a concept in free market economics that suggests that individuals acting in their own self-interests will inadvertently benefit society as a whole through the market mechanism of supply and demand. It does not refer to government controls in mixed capitalism.

Question 15

The command system is also known as:
A)the market system.
B)pure capitalism.
C)market socialism.
D)socialism or communism.

Accepted Answer

The command system is synonymous with socialism or communism, where the government makes all economic decisions and controls resources.

Question 16

In a competitive market economy, firms and resource suppliers will seek to further their own self-interest, but at the same time, as if guided by an "invisible hand," they will promote the public interest.

Accepted Answer

This statement reflects the concept of Adam Smith's "invisible hand," which suggests that individual pursuit of self-interest in a competitive market can lead to benefits for society as a whole.

Question 17

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

Accepted Answer

The term "laissez faire" means "let it be" or "leave it alone." It suggests that the government should not interfere with the operation of the economy, allowing businesses and individuals to compete freely without government regulation or intervention. This approach is often associated with free-market capitalism. Therefore, option C is the most appropriate choice. Options A and B do not accurately reflect the concept of laissez faire, and option D suggests government intervention, which is contrary to the laissez-faire approach.

Question 18

Today, China's economy most closely approximates:
A)pure capitalism
B)a command economy
C)market socialism
D)authoritarian capitalism

Accepted Answer

China's economy is often referred to as a "market socialist" system. The government has a significant role in the economy, owning many large enterprises and influencing economic policy. However, there are also market mechanisms in place, such as private businesses and foreign investment. This differs from a command economy (choice B) where the government controls all aspects of the economy, and pure capitalism (choice A) where the market is completely free from government intervention. Authoritarian capitalism (choice D) may describe aspects of China's political system but does not accurately capture the economic system.

Question 19

Government alters the distribution of income by market intervention, in which case it modifies the prices established by market forces.

Accepted Answer

Government intervention can take the form of taxes, subsidies, price controls, and regulations that impact the prices and incomes of individuals and businesses in the market. These interventions can alter the distribution of income and wealth by reducing or increasing the amount of money people receive from work, investments, or government transfers.

Question 20

The wants of consumers are expressed on the demand side of the product market.

Accepted Answer

The demand side of the product market represents the wants and needs of consumers, which are the driving force behind the demand for goods and services.

Quiz 2: B: The Market System and the Circular Flow

Consumer sovereignty means that legislation now protects the rights of consumers to dispose of their incomes as they see fit.

The economy of the former Soviet Union was best described as:

The guiding function of prices indicates that, at equilibrium prices, neither product surpluses nor shortages can occur.

In a capitalistic economy:

In the simple circular flow model businesses are suppliers of final products.

Which of the following statements best describes a mixed economy?

The private ownership of property resources and use of prices to direct and coordinate economic activity is characteristic of:

The economy of North Korea most closely approximates:

Money functions as a medium of exchange in permitting the ready comparison of the relative worth of heterogeneous products.

A division of labour enhances society's output by permitting people to take advantage of existing differences in their abilities and skills.

Households and businesses are both suppliers in the product market.

Property rights do not encourage people to cooperate.

Which would not be characteristic of a capitalist economy?

The "invisible hand" refers to the many indirect controls which the federal government imposes in a system of mixed capitalism.

The command system is also known as:

In a competitive market economy, firms and resource suppliers will seek to further their own self-interest, but at the same time, as if guided by an "invisible hand," they will promote the public interest.

The term "laissez faire" suggests that:

Today, China's economy most closely approximates:

Government alters the distribution of income by market intervention, in which case it modifies the prices established by market forces.

The wants of consumers are expressed on the demand side of the product market.