Question 1

In a market system, which of the following is a major benefit of making the firm's owners and investors exclusively shoulder the business risk?

Accepted Answer

When the firm's owners and investors exclusively shoulder the business risk, it allows firms to more easily attract labor and other suppliers of inputs because they do not have to bear the risk and uncertainty of the business. This provides stability and consistency for suppliers of inputs and makes it more attractive for them to engage with the business.

Question 2

In the circular flow model of the market system, households' major role is to

Accepted Answer

In the circular flow model of the market system, households buy products from businesses and sell resources (such as labor) to businesses. Therefore, their major role is to buy products and sell resources.

Question 3

In the circular flow model of the market system, business firms' major role is to

Accepted Answer

In the circular flow model, business firms sell products to households and buy resources (such as labor, land, and capital) from them.

Question 4

In the circular flow diagram, households get their ability to pay for their consumption expenditures from the

Accepted Answer

Households receive their incomes by providing resources (such as labor, land, and capital) to firms in exchange for payment. This income then allows households to make consumption expenditures and participate in the product markets.

Question 5

Property rights give to some people the right to coerce others into giving up their property.Difficulty: 01 Easy
Learning Objective: 02-02 List the main characteristics of the market system.Test Bank: II Topic: Characteristics of the Market System

Accepted Answer

Property rights do not give individuals the right to coerce others; they ensure individuals can own and control their property legally, protecting against coercion.

Question 6

The money income of households consists of all the following, except

Accepted Answer

Revenues are the total amount of income generated through sales or services in a business, whereas the money income of households only includes income earned by individuals such as wages, profits, and interest.

Question 7

The circular flow model illustrates

Accepted Answer

The circular flow model shows how businesses and consumers are interdependent and how they interact to exchange goods and services for money. This highlights the importance of the market economy and how the supply and demand of goods and services drive the economy.

Question 8

The simple circular flow model shows that workers and capital owners offer their services to firms through the

Accepted Answer

The resource markets represent the market where workers and capital owners offer their services (in form of labor and capital). Therefore, option B is correct. The product markets represent the market where firms sell their goods and services to households and businesses, while the money and financial markets deal with the exchange of financial assets such as stocks, bonds, and currency.

Question 9

According to the circular flow model, product markets are where

Accepted Answer

Product markets are where businesses earn their revenues from households by selling goods and services.

Question 10

The economy of the United States in the past can best be described as laissez-faire capitalism.

Accepted Answer

The answer of The economy of the United States in...

Question 11

In a market system, the task of assessing and managing the business risk of a firm is taken on by the firm's

Accepted Answer

Entrepreneurs are responsible for assessing and managing business risks as they are the ones who organize and operate the business, taking on the associated risks.

Question 12

Property rights give the government the right to own, use, and dispose of resources in an economy.Difficulty: 01 Easy
Learning Objective: 02-02 List the main characteristics of the market system.Test Bank: II Topic: Characteristics of the Market System

Accepted Answer

Property rights typically refer to the legal rights of individuals or entities to own, use, and dispose of resources, not the government. In a market system, property rights are crucial for the functioning of markets and are usually held by private individuals or businesses.

Question 13

Selfishness and self-interest are identical concepts in economics.Difficulty: 01 Easy
Learning Objective: 02-02 List the main characteristics of the market system.Test Bank: II
Topic: Characteristics of the Market System

Accepted Answer

Selfishness and self-interest are not identical in economics; self-interest involves making decisions that benefit oneself while considering the impact on others, whereas selfishness disregards others' needs or well-being.

Question 14

In a market system, a firm's employees are typically shielded from business risk by

Accepted Answer

Wage contracts provide employees with a guaranteed salary regardless of business performance, thereby shielding them from business risk. Profit-sharing agreements, on the other hand, tie compensation to the success of the firm, exposing employees to more risk. The Social Security program and paid vacation leaves are not specifically designed to shield employees from business risk.

Question 15

A market system is characterized by the private ownership of resources and the use of prices to coordinate economic activity.

Accepted Answer

A market system is defined as an economic system where private individuals or businesses own and control the factors of production, such as land, labor, and capital. Prices are determined by supply and demand, and they serve as signals to coordinate economic activity. Therefore, the statement is true.

Question 16

In a command economy, the head of each household makes the fundamental economic choices such as what to produce and how to produce output.

Accepted Answer

In a command economy, the government makes all the fundamental economic choices, not the heads of households.

Question 17

According to economist Donald Boudreaux in the "Last Word" section of the chapter, what best explains why the market system is not a random, chaotic mess?

Accepted Answer

Private property rights encourage mutual accommodation that leads to an arrangement of resources that is productive.

Question 18

Most market economies, such as the U.S.and the U.K., allow government policies and actions aimed at promoting economic growth and stability.

Accepted Answer

Most market economies allow government intervention in the form of policies and actions to promote economic growth and stability. However, the extent and nature of government intervention may vary depending on the country and its economic system.

Question 19

Which of the following is not a major category of business structure?

Accepted Answer

The three major categories of business structure are sole proprietorship, partnership, and corporation. Public agency is not a type of business structure, but rather a type of organization typically associated with government or nonprofit entities.

Question 20

Which of the following would be primarily determined in the resource markets?

Accepted Answer

Wage rates for certain professions, such as computer programmers and engineers, would be determined primarily in the resource markets where the supply and demand for these types of workers dictate their compensation.

Quiz 2: The Market System and the Circular Flow