Economic Systems Quiz
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Questions and Answers

Which of these statements about businesses and households are correct? (Select all that apply)

  • Households sell resources and businesses buy them. (correct)
  • Households provide economic resources directly as workers or entrepreneurs. (correct)
  • Households purchase goods and services from firms.
  • Businesses buy resources from households because they are necessary for producing goods and services. (correct)

    • For a market system to maximize its potential, it must develop methods for ______.

    assessing and managing risk

    Which statements about the profit system are true? (Select all that apply)

  • It is actually a profit and loss system. (correct)
  • It provides financial incentive for taking large risks.
  • It encourages entrepreneurs to make prudent decisions. (correct)
  • It exposes employees to business risk.

    • What are the two major benefits that arise from the market system's restriction of business risk to owners and investors?

    <p>attracting inputs and focusing attention</p> Signup and view all the answers

    In a market system, firm ______ are subject to business risk.

    <p>owners or entrepreneurs</p> Signup and view all the answers

    The market system attracts inputs and focuses owners' attention on risk management by restricting business risk to which two groups? (Select all that apply)

    <p>Investors</p> Signup and view all the answers

    Why does every society need to develop an economic system?

    <p>Every society faces the economizing problem.</p> Signup and view all the answers

    What is considered to be 'pure capitalism'?

    <p>Laissez-faire capitalism</p> Signup and view all the answers

    Which characteristics best describe a command system? (Select all that apply)

    <p>The government owns most property resources.</p> Signup and view all the answers

    Which of the following is true of a market system?

    <p>A market system is a combination of centralized government initiatives and decentralized actions taken by firms.</p> Signup and view all the answers

    A _____________ is an institution or mechanism that brings buyers and sellers into contact.

    <p>market</p> Signup and view all the answers

    What type of system is a particular set of institutional arrangements that responds to the economizing problem?

    <p>economic</p> Signup and view all the answers

    What type of ownership gives capitalism its name?

    <p>Private</p> Signup and view all the answers

    What does 'laissez-faire' refer to?

    <p>Limiting the government's interference in the economy.</p> Signup and view all the answers

    What does mutually agreeable economic transactions mean?

    <p>Transactions that all parties find acceptable.</p> Signup and view all the answers

    Who owns most property resources in a command system?

    <p>Government</p> Signup and view all the answers

    Which of the following describes a market system?

    <p>A market system</p> Signup and view all the answers

    What ensures that entrepreneurs and private businesses are free to obtain and use economic resources?

    <p>Freedom of enterprise</p> Signup and view all the answers

    What represents an institution or mechanism that brings buyers and sellers into contact?

    <p>Market</p> Signup and view all the answers

    When economic units in a society attempt to achieve their particular goals, it is referred to as what?

    <p>self-interest</p> Signup and view all the answers

    Which of the following allow private individuals and businesses to utilize property as they wish? (Select all that apply)

    <p>The right of private property</p> Signup and view all the answers

    Mutually agreeable economic transactions take place as a result of?

    <p>property rights</p> Signup and view all the answers

    How many sellers must there be for competition in a market economy?

    <p>2</p> Signup and view all the answers

    The market system depends on ______ among buyers and sellers.

    <p>competition</p> Signup and view all the answers

    Freedom of ______ ensures that entrepreneurs and private businesses are free to use economic resources.

    <p>enterprise</p> Signup and view all the answers

    What best describes competition in a market with two or more buyers and sellers acting independently?

    <p>competition</p> Signup and view all the answers

    In a ______ system, people act in their own self-interest.

    <p>market</p> Signup and view all the answers

    What determines product and resource prices in a market system?

    <p>the interaction between buyers and sellers</p> Signup and view all the answers

    What is true when there are many buyers and sellers acting independently in a market?

    <p>No single buyer or seller can dictate the price of the product or resource.</p> Signup and view all the answers

    The basis of competition is freedom of ______ exercised in the pursuit of ______.

    <p>choice; money</p> Signup and view all the answers

    Under the market system, ______ coordinate the decisions made by households and businesses.

    <p>markets and prices</p> Signup and view all the answers

    Competition among economic units ______. (Select all that apply)

    <p>Implies that producers can enter or leave an industry</p> Signup and view all the answers

    Why are advanced technology and capital goods important?

    <p>They enhance the productivity of workers.</p> Signup and view all the answers

    Which of the following does competition require? (Select all that apply)

    <p>Freedom of sellers and buyers to enter or leave markets</p> Signup and view all the answers

    The goods and services produced by an economic unit through ______ can be exchanged for a range of desired products.

    <p>specialization</p> Signup and view all the answers

    What does the interaction between buyers and sellers in a market system determine?

    <p>product and resource prices</p> Signup and view all the answers

    What is the human specialization of some process?

    <p>Division of labor</p> Signup and view all the answers

    Competition among sellers and government diffuses economic power within the economic units.

    <p>False</p> Signup and view all the answers

    What is the coordinating mechanism in a market system?

    <p>prices</p> Signup and view all the answers

    Money complicates exchange or trade.

    <p>False</p> Signup and view all the answers

    Which of the following is the most efficient method of production?

    <p>Using a combination of labor, capital, and technology</p> Signup and view all the answers

    What type of economic system is characterized by an active, but limited, government?

    <p>Modern market system</p> Signup and view all the answers

    What is the use of resources by a firm to produce one or a few goods?

    <p>specialization</p> Signup and view all the answers

    The five questions that every society must address reflect the reality of __________________ resources in a world of __________________ wants.

    <p>scarce; unlimited</p> Signup and view all the answers

    How does human specialization or division of labor contribute to output? (Select all that apply)

    <p>Specialization saves time.</p> Signup and view all the answers

    What is one of the primary functions of money?

    <p>medium of exchange</p> Signup and view all the answers

    In a market system, consumers exercise consumer sovereignty.

    <p>True</p> Signup and view all the answers

    Modern market economies usually have a(n) ______.

    <p>active, but limited, government</p> Signup and view all the answers

    Identify the five fundamental questions that all economies must address. (Select all that apply)

    <p>How will the system promote progress?</p> Signup and view all the answers

    Goods and services are produced efficiently when production is organized in combinations and ways that ______.

    <p>minimize the cost per unit of output.</p> Signup and view all the answers

    In a market economy, goods and services are distributed ______.

    <p>to consumers on the basis of their ability and willingness to pay the existing market price.</p> Signup and view all the answers

    What is likely to happen if increasing numbers of consumers decide to purchase organically farmed fruit? (Select all that apply)

    <p>Organic fruit profits will rise.</p> Signup and view all the answers

    Which of the following collectively direct resources to industries that are meeting consumer wants? (Select all that apply)

    <p>Dollar votes</p> Signup and view all the answers

    What is it called when new technologies replace old ones?

    <p>creative destruction</p> Signup and view all the answers

    Which of the following best describe how goods and services should be produced? (Select all that apply)

    <p>By utilizing the right mix of labor and capital</p> Signup and view all the answers

    What creates a unity between private interests and social interests?

    <p>a market system</p> Signup and view all the answers

    Who will get the goods and services produced in a market economy?

    <p>Those who have sufficient income and want to spend money on a particular good.</p> Signup and view all the answers

    What does the 'invisible hand' guide towards?

    <p>Public or social interests</p> Signup and view all the answers

    What is an example of the system accommodating change?

    <p>Buyers wanting more juice and less milk.</p> Signup and view all the answers

    Three virtues of the market system include what?

    <p>Freedom</p> Signup and view all the answers

    Why did command economies fail in the former Soviet Union?

    <p>incentive problems and coordination problems</p> Signup and view all the answers

    Creative destruction refers to what?

    <p>The creation of new products and production methods.</p> Signup and view all the answers

    What is the title of Adam Smith's 1776 book discussing market economy?

    <p>The Wealth of Nations</p> Signup and view all the answers

    What does the circular flow model create?

    <p>Continuous flows of goods and services, resources, and money</p> Signup and view all the answers

    What drives technological advancements in society?

    <p>The profit motive.</p> Signup and view all the answers

    In the circular flow model, households sell resources to, and buy products from what?

    <p>firms</p> Signup and view all the answers

    A ____________ proprietorship is a business owned and managed by a single person.

    <p>sole</p> Signup and view all the answers

    Which of the following are true of the partnership form of business organization? (Select all that apply)

    <p>Partners share profits and losses.</p> Signup and view all the answers

    What are the components of the circular flow model?

    <p>businesses, resource market, households, product market</p> Signup and view all the answers

    In the circular flow model, households _____ resources and _____ products.

    <p>sell; buy</p> Signup and view all the answers

    The product market is the place where what occurs?

    <p>Households sell resources that businesses buy.</p> Signup and view all the answers

    What type of business structure involves two or more individuals owning and operating a business together?

    <p>partnership</p> Signup and view all the answers

    The resource market is where resources are produced.

    <p>False</p> Signup and view all the answers

    What does the circular flow model create?

    <p>Continuous flows of goods and services, resources, and money</p> Signup and view all the answers

    How does the market system develop methods for analyzing and managing risk?

    <p>By presenting businesses with the economic consequences of their decisions.</p> Signup and view all the answers

    How does the profit system guide entrepreneurs? (Select all that apply)

    <p>By punishing them with losses when they choose poorly</p> Signup and view all the answers

    In the circular flow model, households spend their income in what market?

    <p>the product market</p> Signup and view all the answers

    Who are a firm's owners called?

    <p>residual claimants</p> Signup and view all the answers

    Study Notes

    Economic Systems

    • Every society needs an economic system to address the economizing problem due to scarce resources.
    • Laissez-faire capitalism defines "pure capitalism" with minimal government intervention, focused on protecting property and enforcing contracts.

    Command Systems

    • In a command system, the government owns most property resources and a central planning board makes economic decisions.
    • The key characteristics include government control over output and production decisions.

    Market Systems

    • A market system blends centralized government initiatives with decentralized actions of firms.
    • Market systems are defined by private ownership of resources, encouraging freedom of enterprise and consumer sovereignty.

    Competition and Markets

    • Competition requires at least two buyers and two sellers acting independently in a market.
    • Prices for products and resources are determined by the interaction of buyers and sellers within the market.
    • Markets facilitate mutually agreeable transactions and enable the division of labor and specialization.

    Roles of Money and Technology

    • Money serves primarily as a medium of exchange, simplifying trade.
    • Technological advancements and creative destruction continuously reshape the market, replacing outdated products and methods.

    The Circular Flow Model

    • In the circular flow model, households sell resources to firms and purchase products, creating continuous flows of goods, services, and money.
    • Components include businesses, resource markets, product markets, and households.

    Business Structures

    • A sole proprietorship is a business owned by a single individual, while a partnership involves two or more individuals pooling resources and skills.
    • In the resource market, households provide economic resources, including labor.

    Profit System and Risk Management

    • The profit system guides entrepreneurs by rewarding wise decisions with profits and punishing poor choices with losses.
    • Business risk is primarily borne by owners and investors, which attracts inputs and ensures focus on risk management.

    Fundamental Economic Questions

    • All economies must address essential questions:
      • What goods and services will be produced?
      • How will goods and services be produced?
      • Who will receive the goods and services produced?
      • How will the system accommodate change?
      • How will the system promote progress?

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    Description

    Test your understanding of different economic systems including laissez-faire capitalism, command systems, and market systems. This quiz will challenge your knowledge on how these systems manage resources and competition in economies.

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