A Unique Quiz On Market System

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Quizzes Created: 11 | Total Attempts: 11,645
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A Unique Quiz On Market System - Quiz

Review for McConnell and Brue 15 ed.


Questions and Answers
  • 1. 

    In a market system, the government owns most of the property resources (land and capital).

    • A.

      True

    • B.

      False

    Correct Answer
    B. False
    Explanation
    The statement suggests that in a market system, the government owns most of the property resources. However, this is not true. In a market system, property resources are owned by private individuals and businesses rather than the government. The government's role in a market system is typically limited to regulating and overseeing the functioning of the market, rather than owning the resources themselves.

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  • 2. 

    Property rights encourage investment, innovation, exchange, maintence of property, and economic growth.

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    Property rights provide individuals and businesses with the legal right to own, use, and transfer property. This creates an incentive for people to invest in and improve their property, as they can reap the benefits of their efforts. It also encourages innovation, as individuals have the freedom to develop new ideas and technologies without the fear of others taking their intellectual property. Property rights also facilitate exchange, as individuals can confidently buy, sell, and trade their property. By promoting investment, innovation, exchange, and the maintenance of property, property rights play a crucial role in fostering economic growth.

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  • 3. 

    The freedom of business firms to produce a particular consumer good is always limited by the desires of consumers for that good.

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    The statement is true because the freedom of business firms to produce a particular consumer good is ultimately determined by the demand and desires of consumers for that good. If there is no demand for a product, businesses have no incentive to produce it. Consumer preferences and purchasing power play a crucial role in shaping the production decisions of businesses. Therefore, the desires of consumers act as a constraint on the freedom of business firms to produce a particular consumer good.

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  • 4. 

    The pursuit of economic self-interest is the same thing as selfishness.

    • A.

      True

    • B.

      False

    Correct Answer
    B. False
    Explanation
    The pursuit of economic self-interest is not necessarily the same thing as selfishness. While economic self-interest involves individuals seeking to maximize their own economic well-being, it does not imply a disregard for the well-being of others. It is possible for individuals to pursue their economic self-interest in ways that benefit others and contribute to the overall welfare of society. Selfishness, on the other hand, implies a lack of concern for others and a focus solely on one's own interests. Therefore, the pursuit of economic self-interest is not inherently selfish.

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  • 5. 

    When a market is competitive, the individual sellers of a product are unable to reduce the supply of the product and control its price.

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    In a competitive market, there are numerous sellers of a product, none of whom have the power to manipulate or control the supply and price of the product. This is because in a competitive market, sellers have limited market share and are price takers, meaning they must accept the prevailing market price. Therefore, individual sellers cannot reduce the supply of the product or control its price, making the statement true.

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  • 6. 

    The market system is also a communication system.

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    The market system can be considered as a communication system because it facilitates the exchange of information between buyers and sellers. Through prices, advertising, and other forms of communication, the market system allows individuals and businesses to convey their preferences, needs, and offers to each other. This communication is essential for the functioning of the market system, as it enables buyers to make informed decisions and sellers to respond to market demand. Therefore, it is accurate to say that the market system is a communication system.

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  • 7. 

    The employment of capital to produce goods and services requires that there be "roundabout" production and it is more efficient than "direct" production.

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    The statement is true because "roundabout" production refers to the process of using capital to produce goods and services, which involves multiple stages and steps. This allows for more efficient and effective production compared to "direct" production, which involves a simpler and more straightforward process. By employing capital in a roundabout manner, businesses can optimize their production processes, increase productivity, and ultimately generate higher profits.

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  • 8. 

    Increasing the amount of specialization in an economy generally leads to the more efficient use of its resources.

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    Increasing the amount of specialization in an economy generally leads to the more efficient use of its resources because specialization allows individuals or firms to focus on specific tasks or industries where they have a comparative advantage. This leads to increased productivity and efficiency as people become more skilled and experienced in their specialized areas. Specialization also promotes economies of scale, as firms can produce goods and services more efficiently when they concentrate on a specific area of production. Additionally, specialization encourages trade and the exchange of goods and services, further enhancing resource allocation and efficiency.

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  • 9. 

    One way human specialization can be achieved is through a division of labor in productive activity.

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    Human specialization can be achieved through a division of labor in productive activity because when individuals focus on specific tasks or areas of expertise, they can become more efficient and skilled in those particular areas. This allows for increased productivity and the ability to produce higher quality goods and services. By dividing labor, individuals can also benefit from economies of scale and specialization, leading to overall economic growth and development. Therefore, the statement is true.

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  • 10. 

    Money is a device for facilitating the exchange of goods and services.

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    Money serves as a medium of exchange, allowing individuals to trade goods and services more easily. It eliminates the need for direct barter, where goods are exchanged for other goods. With money, individuals can assign a specific value to their goods or services and exchange them for money, which can then be used to purchase other goods or services. This system of exchange promotes economic efficiency and facilitates transactions in a complex market economy. Therefore, the statement that money is a device for facilitating the exchange of goods and services is true.

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  • 11. 

    "Coincidence of wants" means that two persons want to acquire the same good or service.

    • A.

      True

    • B.

      False

    Correct Answer
    B. False
    Explanation
    The statement is incorrect. "Coincidence of wants" refers to a situation where two parties have goods or services that the other party desires, creating a mutual exchange. It does not necessarily mean that both parties want to acquire the same good or service. Therefore, the correct answer is False.

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  • 12. 

    Shells may serve as money if sellers are generally willing to accept them as money.

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    Shells can serve as money if there is a general consensus among sellers that they are an acceptable form of currency. Money is a medium of exchange that is widely accepted in transactions, and historically, various objects such as shells, beads, or stones have been used as money in different cultures. Therefore, if sellers are generally willing to accept shells as a form of payment, they can indeed serve as money.

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  • 13. 

    One of the Four Fundamental questions is who will control the output.

    • A.

      True

    • B.

      False

    Correct Answer
    B. False
    Explanation
    This statement is false because one of the four fundamental questions is not about who will control the output. The four fundamental questions are commonly referred to as the "Four W's" - Who, What, Where, and When. The question of who will control the output is not one of these fundamental questions.

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  • 14. 

    Business firms try to maximize their normal profits.

    • A.

      True

    • B.

      False

    Correct Answer
    B. False
    Explanation
    Business firms do not necessarily try to maximize their normal profits. While profit maximization is a common goal for many firms, there are other objectives that firms may prioritize, such as market share growth, customer satisfaction, or long-term sustainability. Profit maximization may not always be feasible or desirable in certain situations, such as during periods of economic downturn or when firms are investing heavily in research and development. Therefore, the statement that business firms try to maximize their normal profits is false.

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  • 15. 

    Industries in which economic profits are earned by the firms in the industry will attract the entry of new firms.

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    When firms in an industry are earning economic profits, it indicates that the industry is highly profitable. This attracts new firms to enter the industry in order to take advantage of the potential profits. The entry of new firms increases competition, which eventually leads to a decrease in economic profits. Therefore, it is true that industries earning economic profits will attract the entry of new firms.

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  • 16. 

    If firms have sufficient time to enter industries, the economic profits of an industry will tend to disappear.

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    If firms have sufficient time to enter industries, it means that there are no barriers to entry and new firms can easily enter the market. When this happens, the market becomes more competitive as more firms enter, leading to a decrease in economic profits. This is because the increased competition drives down prices and reduces the ability of firms to earn above-normal profits. Therefore, the economic profits of an industry will tend to disappear when firms have sufficient time to enter.

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  • 17. 

    Business firms are only free to produce whatever they want in any way they wish if they do not want to maximize profits or minimize losses.

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    This statement is true because in a free market economy, business firms have the freedom to produce whatever goods or services they want and use any methods they prefer as long as it is within legal boundaries. However, if their goal is to maximize profits or minimize losses, they may need to consider market demand, cost-efficiency, and competitive strategies, which could limit their freedom in production and operations.

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  • 18. 

    The derived demand of a resource depends on the demands for the products the resource produces.

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    The statement is true because the derived demand of a resource refers to the demand for that resource being derived from the demand for the products it produces. In other words, the demand for a resource is dependent on the demand for the final products that are made using that resource. If there is a high demand for the products, then there will be a higher demand for the resource needed to produce those products. Conversely, if there is a low demand for the products, then there will be a lower demand for the resource.

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  • 19. 

    Resources will tend to be used in those industries capable of earning normal or economic profits.

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    Industries that are capable of earning normal or economic profits are more likely to attract resources. This is because these industries have the potential to generate higher returns on investment, making them more attractive to investors and entrepreneurs. On the other hand, industries that are unable to earn normal or economic profits may struggle to attract resources as they are perceived as less profitable or risky. Therefore, the statement that resources will tend to be used in those industries capable of earning normal or economic profits is true.

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  • 20. 

    Economic efficiency requires that a given output of a good or service be produced in the least costly way.

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    Economic efficiency refers to the optimal allocation of resources to produce a given output of a good or service at the lowest possible cost. This means that the production process should be carried out in a way that minimizes wastage and maximizes productivity. By producing goods or services in the least costly way, economic efficiency is achieved, leading to higher productivity, lower costs, and ultimately, maximizing societal welfare. Therefore, the statement "Economic efficiency requires that a given output of a good or service be produced in the least costly way" is true.

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  • 21. 

    If the market price of resource A decreases, firms will tend to employ smaller amounts of resource A.

    • A.

      True

    • B.

      False

    Correct Answer
    B. False
    Explanation
    If the market price of resource A decreases, firms will tend to employ larger amounts of resource A. This is because a decrease in price makes the resource more affordable for firms, leading to an increase in demand for it. As a result, firms will be inclined to employ larger amounts of resource A to take advantage of the lower cost and potentially increase their production or expand their operations.

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  • 22. 

    Changes in the tastes of consumers are reflected in changes in consumer demand for products.

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    Changes in consumer tastes refer to the shifts in preferences, desires, and trends among consumers. These changes directly impact the demand for products. When consumers' tastes change, they are more likely to seek out different products or variations of existing products, leading to a change in consumer demand. Therefore, it is true that changes in consumer tastes are reflected in changes in consumer demand for products.

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  • 23. 

    The incentive that the market system provides to induce technological improvement is the opportunity for economic profits.

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    The market system provides an incentive for technological improvement through the opportunity for economic profits. In a competitive market, firms that innovate and develop new technologies can gain a competitive advantage, attract more customers, and ultimately earn higher profits. This drives firms to invest in research and development, leading to technological advancements that benefit society as a whole. Therefore, the statement is true.

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  • 24. 

    The tendency for individuals pursuing their own self-interests to bring about results that are in the best interest of society as a whole is often called "the invisible hand".

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    The concept of "the invisible hand" suggests that when individuals act in their own self-interest, it can unintentionally benefit society as a whole. This idea was popularized by economist Adam Smith, who argued that the pursuit of individual self-interest in a free market system can lead to economic growth, innovation, and the overall betterment of society. Therefore, the statement that the tendency for individuals pursuing their own self-interests to bring about results that are in the best interest of society as a whole is true.

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  • 25. 

    A basic economic argument for the market system is that it promotes the efficient use of resources.

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    The market system promotes the efficient use of resources because it allows for competition and price mechanisms to allocate resources. In a market system, producers and consumers have the freedom to make their own choices based on prices and their own self-interest. This leads to the efficient allocation of resources as producers are incentivized to produce goods and services that are in demand, and consumers are able to choose the products that best satisfy their needs and wants. Overall, the market system encourages efficiency by allowing resources to flow to their most valued uses.

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