Economics - Chapter 2 Quiz

Which of the following is a characteristic of the market system according to the text?

Limited role of the government in protecting private property

What is the motivating force of economic units in the market system?

Self-interest

What does freedom of choice enable in the market system?

Owners to employ or dispose of their property and money as they see fit

What is a key component of the market system for coordinating economic decisions?

Markets and prices Signup and view all the answers

What is the role of competition in the market system?

To promote efficiency among economic units Signup and view all the answers

What did Adam Smith note about the operation of a market system in his book The Wealth of Nations?

The unity between private interests and social interests Signup and view all the answers

In the market system, who determines production goals for each enterprise?

Central planning board Signup and view all the answers

What is one of the inherent shortcomings of the market system according to the text?

"Market failures" Signup and view all the answers

What is one of the fundamental questions addressed by the market system?

How to accommodate change Signup and view all the answers

What is the main factor that drives firms to produce output at minimum cost per unit?

Minimizing cost through competition Signup and view all the answers

How are goods and services generally distributed to consumers?

Based on ability and willingness to pay market price Signup and view all the answers

What is one of the insurmountable problems encountered by command systems according to the text?

The coordination problem Signup and view all the answers

What creates continuous, repetitive flows of goods and services, resources, and money in a dynamic market economy?

The circular flow diagram Signup and view all the answers

What is the role of consumer preferences in a market system according to the text?

Consumer preferences influence the distribution of goods and services. Signup and view all the answers

What drives existing competitors to expand output in response to changes in consumer preferences?

Self-interest Signup and view all the answers

What contributes to a higher standard of living for society in a market system according to the text?

Capital accumulation and technological improvements Signup and view all the answers

What is one of the issues encountered by command systems when they misjudged the output mix?

Persistent shortages and surpluses of products Signup and view all the answers

In a market economy, what provides a strong incentive for technological advance and better products?

The market system Signup and view all the answers

What leads firms to use part of their profit income to purchase capital goods according to the text?

Profit income accumulation Signup and view all the answers

What is one of the problems faced by command systems when they encountered expansion?

The coordination problem became more difficult Signup and view all the answers

What is the main difference between a command system and a market system?

In a command system, the government owns most property resources and economic decision making occurs through a central economic plan, while in a market system, ownership of resources is in private hands and the market coordinates economic activity. Signup and view all the answers

What are the main characteristics of the market system?

Private ownership of resources and freedom of enterprise. Signup and view all the answers

How does the market system decide what to produce?

Based on consumer demand expressed through dollar votes Signup and view all the answers

How does the market system promote progress?

By promoting technological progress through the incentive of increased profits Signup and view all the answers

What is the main coordinating mechanism in the market system?

Market forces of supply and demand Signup and view all the answers