Question 1

A bed of oysters is not an example of a factor of production but the shucked oysters used to make oyster stew is a factor of production.

Accepted Answer

Both a bed of oysters and shucked oysters can be considered factors of production in the fishing industry. A bed of oysters is a natural resource, while shucked oysters are a processed good that can be used in the production of other goods (such as oyster stew).

Question 2

If a brewery wants to raise funds to purchase a new fermenting vat,it does so in the

Accepted Answer

The answer of If a brewery wants to raise funds...

Question 3

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

Accepted Answer

The payment received by suppliers of entrepreneurial skills is called profits, not wages.

Question 4

All of the following countries come close to the free market benchmark except

Accepted Answer

North Korea is a closed, command economy, meaning the government controls all aspects of the economy and the production and distribution of goods and services. It does not come close to the free market benchmark. Canada, Germany, and Singapore all have market-based economies with varying degrees of government intervention, but they are generally considered to be relatively free market economies.

Question 5

Adam Smith's behavioural assumption about humans was that people

Accepted Answer

Adam Smith believed that humans usually act in a rational, self-interested way, and that this behaviour ultimately benefits society as a whole through the invisible hand mechanism.

Question 6

In a free market there are virtually no restrictions or,at best,few restrictions on how factors of production can be employed.

Accepted Answer

In a free market, individuals and businesses have the freedom to use factors of production (land, labor, and capital) in any way they choose, within the bounds of the law. There may be some minimal regulations or restrictions in place for public safety or environmental protection, but overall there are few limitations on economic activity in a free market system.

Question 7

Each person goes about her daily business seeking to maximise her own self-interest.In doing so,she contributes to the welfare of society at large.This is the idea underlying Adam Smith's 'invisible hand'.

Accepted Answer

This is indeed the idea underlying Adam Smith's concept of the 'invisible hand', where the pursuit of individual self-interest can lead to the promotion of the greater good of society as a whole.

Question 8

Which of the following is a factor of production?

Accepted Answer

The security guard at the local bank is a factor of production as they are contributing to the process of producing a service (security). Factors of production are things that are used in the production of goods or services. A necklace, shares of stock, and casino chips are not factors of production as they do not directly contribute to the production process.

Question 9

All of the following are critical functions of the government in facilitating the operation of a market economy except

Accepted Answer

Ensuring an equal distribution of income to all citizens is not a critical function of the government in facilitating the operation of a market economy. Market economies are based on the principle of supply and demand, where prices for goods and services are set by market forces. Governments may implement policies to address income inequality, but it is not a necessary function for the operation of a market economy. The other choices listed - protecting private property, enforcing property rights, and enforcing contracts - are all critical functions of the government in facilitating the operation of a market economy.

Question 10

In economics,the term 'free market' refers to a market where products are traded but not sold.

Accepted Answer

In economics, the term 'free market' refers to a market where the prices of products are determined by supply and demand, without any government intervention or regulation. Products in a free market are not only traded but also sold.

Question 11

Adam Smith's invisible hand refers to

Accepted Answer

Adam Smith's invisible hand refers to the process by which individuals acting in their own self-interest bring about a market outcome that benefits society as a whole. It is the idea that the pursuit of self-interest in a competitive market economy results in the best possible outcome for society. The invisible hand is not a physical thing, but rather a metaphor for the power of the market to allocate resources efficiently.

Question 12

An Inquiry into the Nature and Causes of the Wealth of Nations,published in 1776,was written by

Accepted Answer

The book "An Inquiry into the Nature and Causes of the Wealth of Nations" was written by Adam Smith and published in 1776. The book is considered one of the most important works in the field of economics and is often credited with founding the discipline of economics as we know it today.

Question 13

In a free market there are significant restrictions on how a good or service can be produced or sold.

Accepted Answer

In a free market, there are typically no significant restrictions on how a good or service can be produced or sold. The market operates based on supply and demand, and firms are free to enter or exit the market as they see fit. However, there may be some minimal regulations or restrictions in certain industries for things like safety or environmental concerns.

Question 14

An example of a factor of production is

Accepted Answer

A factor of production is a resource used in the production of a good or service, such as labor, land, or capital. In this case, a vintner hired by a vineyard is an example of labor, which is a factor of production. The bottle of wine (A) is already produced and not a resource, the loan (C) is a form of capital and not a resource, and the exported wine (D) is a finished product and not a resource.

Question 15

Entrepreneurs bring together the factors of production to produce goods and services.

Accepted Answer

Entrepreneurs are the individuals who bring resources like land, labor, and capital together to produce goods and services. Therefore, the statement is true.

Question 16

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

Accepted Answer

The payment received by suppliers of entrepreneurial skills is called profit, not interest. Interest is the payment received by suppliers of capital.

Question 17

When you purchase a new set of spurs you do so in the

Accepted Answer

Spurs are a finished product and are sold in the product market to consumers. The resource market refers to the market for factors of production such as labor, capital, and natural resources. The input market refers to the market for inputs used in production such as raw materials and intermediate goods. The factor market refers to the market where factors of production are bought and sold.

Question 18

Which of the following statements about an entrepreneur is false?

Accepted Answer

An entrepreneur does not sell his entrepreneurial services in the output market. Rather, he sells his output or product in the market.

Question 19

Crude oil is not an example of a factor of production,but when crude oil is processed into petrol,it is a factor of production.

Accepted Answer

Crude oil is a natural resource, not a factor of production. Only after it undergoes processing and is transformed into petrol, it becomes a factor of production in industries such as transportation and manufacturing.

Question 20

Stricter laws and regulations to protect intellectual property rights

Accepted Answer

Stricter laws and regulations to protect intellectual property rights encourage innovation and investment, leading to a more successful market system. It ensures that creators and inventors receive fair compensation for their contributions, which in turn incentivizes them to continue creating and innovating. This leads to more competition, improved quality and efficiency, and overall economic growth.

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