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Questions and Answers
The resource market is the place where resources or the services of households are produced.
The resource market is the place where resources or the services of households are produced.
False (B)
For a market system to maximize its potential, it must develop methods for ______.
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)
Which statements about the profit system are true? (Select all that apply)
- It discourages entrepreneurs from making prudent decisions.
- It encourages entrepreneurs to make prudent decisions. (correct)
- It is actually a profit and loss system. (correct)
- It is only focused on profits.
In a market system, firm __________ are subject to business risk.
In a market system, firm __________ are subject to business risk.
What are the two major benefits that arise from the market system's restriction of business risk to owners and investors?
What are the two major benefits that arise from the market system's restriction of business risk to owners and investors?
Which of the following is the reason why every society needs to develop an economic system?
Which of the following is the reason why every society needs to develop an economic system?
Which is considered to be 'pure capitalism'?
Which is considered to be 'pure capitalism'?
Which of the following characteristics define a command system? (Check all that apply)
Which of the following characteristics define a command system? (Check all that apply)
What is the command system also known as? (Check all that apply)
What is the command system also known as? (Check all that apply)
Private individuals and firms, not the government, own most of the property resources such as land and capital in a free _______ system.
Private individuals and firms, not the government, own most of the property resources such as land and capital in a free _______ system.
A(n) ______ system is a particular set of institutional arrangements and a coordinating mechanism that responds to the economizing problem.
A(n) ______ system is a particular set of institutional arrangements and a coordinating mechanism that responds to the economizing problem.
Is a market system a combination of centralized government initiatives and decentralized actions taken by firms?
Is a market system a combination of centralized government initiatives and decentralized actions taken by firms?
What does the term 'laissez-faire' refer to?
What does the term 'laissez-faire' refer to?
An __________ is an institution or mechanism that brings buyers and sellers into contact.
An __________ is an institution or mechanism that brings buyers and sellers into contact.
Choose those characteristics that best describe a command system.
Choose those characteristics that best describe a command system.
Private individuals and businesses are able to utilize property as they wish as a result of:
Private individuals and businesses are able to utilize property as they wish as a result of:
Communism exhibits all the characteristics of a ______ system.
Communism exhibits all the characteristics of a ______ system.
Mutually agreeable economic transactions take place as a result of:
Mutually agreeable economic transactions take place as a result of:
In which of the following do private individuals and firms own most of the property resources such as land and capital?
In which of the following do private individuals and firms own most of the property resources such as land and capital?
_______________ property rights help to facilitate exchange in a free market system.
_______________ property rights help to facilitate exchange in a free market system.
Which of the following is characterized by the private ownership of resources and the use of markets to coordinate and direct economic activity?
Which of the following is characterized by the private ownership of resources and the use of markets to coordinate and direct economic activity?
Which of the following ensures that entrepreneurs and private businesses are free to obtain and use economic resources to produce their choice of goods and services?
Which of the following ensures that entrepreneurs and private businesses are free to obtain and use economic resources to produce their choice of goods and services?
Which of the following represents an institution or mechanism that brings buyers and sellers into contact?
Which of the following represents an institution or mechanism that brings buyers and sellers into contact?
When every economic unit in a society attempts to achieve its own particular goal, usually requiring delivering something of value to others, it is referred to as ______.
When every economic unit in a society attempts to achieve its own particular goal, usually requiring delivering something of value to others, it is referred to as ______.
______ ownership of capital gives capitalism its name.
______ ownership of capital gives capitalism its name.
The basis of competition is freedom of ______ exercised in the pursuit of ______.
The basis of competition is freedom of ______ exercised in the pursuit of ______.
The most important feature of property rights is that they ______.
The most important feature of property rights is that they ______.
Competition among economic units ______.
Competition among economic units ______.
The title to an automobile or the deed to a cattle ranch assures a buyer that the seller is the legitimate owner of that property. This is an example of property rights _______.
The title to an automobile or the deed to a cattle ranch assures a buyer that the seller is the legitimate owner of that property. This is an example of property rights _______.
Which of the following does competition require?
Which of the following does competition require?
Freedom of ________ ensures that entrepreneurs and private businesses are free to obtain and use economic resources to produce their choice of goods and services.
Freedom of ________ ensures that entrepreneurs and private businesses are free to obtain and use economic resources to produce their choice of goods and services.
Product and resource prices in a market system are determined by ______.
Product and resource prices in a market system are determined by ______.
In a _______ system, people act in their own self-interest.
In a _______ system, people act in their own self-interest.
Is it true that no single buyer or seller can dictate the price of the product or resource because others can undercut that price?
Is it true that no single buyer or seller can dictate the price of the product or resource because others can undercut that price?
In order to have competition in a market economy, there must be at least _____ or more sellers acting independently in a particular market.
In order to have competition in a market economy, there must be at least _____ or more sellers acting independently in a particular market.
Freedom of entry and exit of producers enables an economy to adjust to changes in which of the following areas?
Freedom of entry and exit of producers enables an economy to adjust to changes in which of the following areas?
The market system depends on ______ both among buyers and among sellers.
The market system depends on ______ both among buyers and among sellers.
What is the coordinating mechanism in a market system?
What is the coordinating mechanism in a market system?
Two or more buyers and two or more sellers acting independently in a particular product market with the freedom to enter and leave the market best describes ______.
Two or more buyers and two or more sellers acting independently in a particular product market with the freedom to enter and leave the market best describes ______.
Which of the following is the most efficient method of production?
Which of the following is the most efficient method of production?
The interaction between buyers and sellers in a market system determines ______.
The interaction between buyers and sellers in a market system determines ______.
Is it true that specialization means using available resources to produce a variety of goods and services?
Is it true that specialization means using available resources to produce a variety of goods and services?
Is it true that competition among sellers and government diffuses economic power within the economic units that make up an economy?
Is it true that competition among sellers and government diffuses economic power within the economic units that make up an economy?
Which of the following does competition imply?
Which of the following does competition imply?
_____________ is the use of resources by an individual, firm, region, or nation to produce one or a few goods or services rather than the entire range of goods and services.
_____________ is the use of resources by an individual, firm, region, or nation to produce one or a few goods or services rather than the entire range of goods and services.
Under the market system, ______ coordinate the decisions made by households and businesses.
Under the market system, ______ coordinate the decisions made by households and businesses.
Which of the following correctly state the importance of advanced technology and capital goods? (Check all that apply)
Which of the following correctly state the importance of advanced technology and capital goods? (Check all that apply)
How does human specialization or division of labor contribute to a society's output?
How does human specialization or division of labor contribute to a society's output?
Rather than produce a wide array of goods and services, it is more efficient for economies to produce goods and services based upon ______.
Rather than produce a wide array of goods and services, it is more efficient for economies to produce goods and services based upon ______.
Is it true that money complicates exchange or trade?
Is it true that money complicates exchange or trade?
Which of the following best illustrates exchange through barter?
Which of the following best illustrates exchange through barter?
The goods and services produced by an economic unit through ______ can be exchanged for a full range of desired products produced by other economic units.
The goods and services produced by an economic unit through ______ can be exchanged for a full range of desired products produced by other economic units.
An active, but limited, government is characteristic of which type of economic system in modern advanced industrial economies?
An active, but limited, government is characteristic of which type of economic system in modern advanced industrial economies?
Identify the five fundamental questions that all economies, whether market or command, must address.
Identify the five fundamental questions that all economies, whether market or command, must address.
______ is the human specialization of some process.
______ is the human specialization of some process.
Which of the following collectively direct resources to industries that are meeting consumer wants?
Which of the following collectively direct resources to industries that are meeting consumer wants?
Money performs several functions, but first and foremost it is a ______.
Money performs several functions, but first and foremost it is a ______.
Goods and services are produced efficiently when production is organized in combinations and ways ______.
Goods and services are produced efficiently when production is organized in combinations and ways ______.
Which of the following requires a coincidence of wants between a buyer and a seller?
Which of the following requires a coincidence of wants between a buyer and a seller?
In a market economy, goods and services are distributed ______.
In a market economy, goods and services are distributed ______.
Modern market economies usually have a(n) ______.
Modern market economies usually have a(n) ______.
If increasing numbers of consumers decide to purchase organically farmed fruit rather than conventionally farmed fruit, how is the market likely to respond?
If increasing numbers of consumers decide to purchase organically farmed fruit rather than conventionally farmed fruit, how is the market likely to respond?
The five questions that every society must address reflect the reality of (scarce/infinite) resources in a world of (limited/unlimited) wants.
The five questions that every society must address reflect the reality of (scarce/infinite) resources in a world of (limited/unlimited) wants.
Technological improvements or advancements also include new and improved methods that ______ production costs.
Technological improvements or advancements also include new and improved methods that ______ production costs.
Is it true that in a market system, consumers exercise consumer sovereignty, which is crucial in determining the types and quantities of goods produced?
Is it true that in a market system, consumers exercise consumer sovereignty, which is crucial in determining the types and quantities of goods produced?
In recent years, new MP3 and digital technologies have replaced compact disks. This is an example of ______.
In recent years, new MP3 and digital technologies have replaced compact disks. This is an example of ______.
Which of the following best describe how goods and services should be produced?
Which of the following best describe how goods and services should be produced?
The operation of ______ creates a curious unity between private interests and social interests.
The operation of ______ creates a curious unity between private interests and social interests.
Which of the following statements describe who will get the goods and services produced in a market economy?
Which of the following statements describe who will get the goods and services produced in a market economy?
Technological advancements, such as the personal computer and medical discoveries, are primarily driven by the profit motive. However, such advancements eventually promote the public or social interest as though they are guided by _____.
Technological advancements, such as the personal computer and medical discoveries, are primarily driven by the profit motive. However, such advancements eventually promote the public or social interest as though they are guided by _____.
Which of the following would be an example of the system accommodating change?
Which of the following would be an example of the system accommodating change?
Three virtues of the market system include ____, _____, and ______.
Three virtues of the market system include ____, _____, and ______.
Which of the following describes a technological advancement?
Which of the following describes a technological advancement?
Which of the following best describe the virtue of efficiency?
Which of the following best describe the virtue of efficiency?
The creation of new products and production methods that completely destroys the market positions of firms that are wedded to existing products and older ways of doing business is called _____.
The creation of new products and production methods that completely destroys the market positions of firms that are wedded to existing products and older ways of doing business is called _____.
Which of the following are reasons why the command economies of the former Soviet Union and of Eastern Europe failed? (Check all that apply)
Which of the following are reasons why the command economies of the former Soviet Union and of Eastern Europe failed? (Check all that apply)
The name of the 1776 book authored by Adam Smith noting that the operation of a market economy creates unity between private and social interests is called ______.
The name of the 1776 book authored by Adam Smith noting that the operation of a market economy creates unity between private and social interests is called ______.
Which of the following are components of the circular flow model?
Which of the following are components of the circular flow model?
The 'invisible hand' guides firms and resource suppliers to promote ______ even as they seek to further their own interests.
The 'invisible hand' guides firms and resource suppliers to promote ______ even as they seek to further their own interests.
In the circular flow model, households sell resources to and buy products from _______.
In the circular flow model, households sell resources to and buy products from _______.
In the circular flow model, households ______ resources and ______ products.
In the circular flow model, households ______ resources and ______ products.
In the circular flow model ______.
In the circular flow model ______.
Which of the following occur in the resource market?
Which of the following occur in the resource market?
Which of the following are true of the partnership form of business organization?
Which of the following are true of the partnership form of business organization?
How does the market system develop methods for analyzing and managing risk?
How does the market system develop methods for analyzing and managing risk?
Which type of business structure is considered an independent legal entity?
Which type of business structure is considered an independent legal entity?
How does the profit system guide entrepreneurs?
How does the profit system guide entrepreneurs?
The function of firms in the circular flow model is to ______ resources and ______ products.
The function of firms in the circular flow model is to ______ resources and ______ products.
A firm's owners are called ______ because they are only paid after employees, suppliers, and lenders have been paid.
A firm's owners are called ______ because they are only paid after employees, suppliers, and lenders have been paid.
The product market is the place where _______.
The product market is the place where _______.
The market system attracts inputs and focuses owners' attention on risk management by restricting business risk to which two groups?
The market system attracts inputs and focuses owners' attention on risk management by restricting business risk to which two groups?
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Study Notes
Economic Systems
- Every society must develop an economic system to address the economizing problem.
- Economic systems can be categorized as market or command systems based on resource ownership and decision-making processes.
Capitalism and Command Systems
- Laissez-faire capitalism involves minimal government intervention, primarily focusing on protecting private property and enforcing contracts.
- Characteristics of a command system include government ownership of resources and a central planning board, also known as communism or socialism.
Market Systems
- In a market system, private individuals and firms own most resources, including land and capital.
- The system encourages self-interest, where economic units pursue their objectives, benefitting others in the process.
Property Rights and Economic Freedom
- Private property rights facilitate voluntary exchanges, enhancing cooperation and economic transactions.
- Freedom of enterprise allows entrepreneurs to utilize resources and produce goods, contributing to economic dynamism.
Price Mechanism
- Prices in a market system are determined by interactions between buyers and sellers, coordinating decisions and indicating resource allocation.
- Competition is fundamental, requiring at least two buyers and two sellers, fostering efficiency and flexibility in the economy.
Specialization and Division of Labor
- Specialization improves productivity by allowing individuals or firms to focus on specific tasks, increasing efficiency.
- The division of labor enhances resource utilization and contributes to economic output.
Circular Flow Model
- The circular flow model illustrates the interactions between households and businesses, showing how resources and products flow in the economy.
- Households provide resources to firms in the resource market and purchase goods in the product market.
Role of Money
- Money serves as a medium of exchange, simplifying transactions and facilitating trade over barter systems, which require a coincidence of wants.
- The market economy is driven by consumer sovereignty, where consumer preferences dictate production and resource allocation.
Technological Advancement
- Technological improvements often lead to creative destruction, where new innovations displace outdated practices and products.
- Efficiency in production is achieved by combing labor, capital, and technology effectively.
Market Failures and Economic Challenges
- Command economies, like those of the Soviet Union, failed due to coordination and incentive problems.
- Market systems address fundamental economic questions regarding production, distribution, and responsiveness to consumer demands.
Business Structures
- A sole proprietorship is owned by a single individual, while partnerships involve two or more owners sharing responsibilities and profits.
- Corporations operate as legal entities, capable of incurring debts and owning assets independently of their owners.
Competition and Consumer Sovereignty
- Competition promotes flexibility, allowing markets to adapt to changes in technology, resource availability, and consumer preferences.
- Consumer sovereignty ensures that goods and services produced reflect the collective wants and needs of society.
Risk Management in Market Systems
- The profit system guides firms by rewarding wise decisions with profits and penalizing poor choices with losses.
- Effective risk management allows businesses to navigate uncertainties in the market environment, attracting investments.
Fundamental Economic Questions
- All economies must address what goods and services to produce, how to produce them, who receives them, how to accommodate change, and how to promote progress.
Key Virtues of the Market System
- Important virtues include efficiency, incentives, and freedom, which enhance resource allocation, encourage innovation, and allow for personal economic choices.
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