Homework 2 In Tutorial Library

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TITLE: Homework 2


CLASS / COURSE: ECON 25100: Microeconomics


Homework 2
1. Which of the following is a distinguishing feature of a market system? 
A. public ownership of all capital.  
B. central planning.  
C. wide-spread private ownership of capital.    
D. a circular flow of goods, resources, and money.  
2. Competition means that: 
A. sellers can manipulate market price by causing product scarcities.  
B. there are independently-acting buyers and sellers in each market.    
C. a product can be purchased at a number of different prices.  
D. there is more than one seller in a market.  
3. Specialization in production is economically beneficial primarily because it: 
A. allows everyone to have a job which they like.  
B. permits the production of a larger output with fixed amounts of resources.    
C. facilitates trade by bartering.  
D. guarantees full employment.  
4. In a market economy a significant change in consumers' desire for product X will: 
A. alter the profits or losses received by certain firms.  
B. cause a reallocation of scarce resources.  
C. cause some industries to expand and others to contract.  
D. do all of these.    
5. Economic profits in an industry suggest the industry: 
A. can earn more profits by increasing product price.  
B. should be larger to better satisfy consumers' desire for the product.    
C. has excess production capacity.  
D. is the size that consumers want it to be.  
6. An increase in consumer desire for strawberries is most likely to: 
A. increase the number of strawberry pickers needed by farmers.    
B. reduce the supply of strawberries.  
C. reduce the number of people willing to pick strawberries.  
D. reduce the need for strawberry pickers.  
7. If competitive industry Y is incurring substantial losses, output will: 
A. expand as resources move toward industry Y.  
B. contract as resources move toward industry Y.  
C. contract as resources move away from industry Y    
D. expand as resources move away from industry Y.  
8. Answer the next question(s) on the basis of the following information: Suppose 30 units of product A can be produced by employing just labor and capital in the four ways shown below. Assume the prices of labor and capital are $2 and $3 respectively.
Refer to the above information. Which technique is economically most efficient in producing A? 
A. I  
B. II  
C. III  
D. IV    
9. The market system's answer to the fundamental question "Who will get the goods and services?" is essentially: 
A. "Those willing and able to pay for them."    
B. "Those who physically produced them."  
C. "Those who most need them."  
D. "Those who get utility from them."  
10. The market system's answer to the fundamental question "How will the system accommodate change?" is essentially: 
A. "Through government leadership and direction."  
B. "Through the guiding function of prices and the incentive function of profits."    
C. "Through training and retraining programs."  
D. "Through random trial and error."  
11. "Consumer sovereignty" means that: 
A. buyers can dictate the prices at which goods and services will be purchased.  
B. advertising is ineffective because consumers already know what they want.  
C. buyers control the quality of goods and services through regulatory agencies.  
D. buyers determine what will be produced based on their "dollar votes" for the goods and services offered by sellers.    
12. The invisible-hand concept suggests that: 
A. market failures imply the need for a national economic plan.  
B. big businesses are inherently more efficient than small businesses.  
C. the competitiveness of a capitalistic market economy invariably diminishes over time.  
D. assuming competition, private and public interests will coincide.    
13. The market system: 
A. produces considerable inefficiency in the use of scarce resources.  
B. effectively harnesses the incentives of workers and entrepreneurs.    
C. is inconsistent with freedom of choice in the long run.  
D. has slowly lost ground to emerging command systems.  
14. "Because the outputs of many industries are the inputs to other industries, the failure of any single industry to fulfill the output quantities specified in the central plan caused a chain-reaction of adverse repercussions on production." This quotation best identifies the: 
A. incentive problem under central planning.  
B. self-sufficiency dilemma under communism.  
C. resource overcommitment problem under communism.  
D. coordination problem under central planning.    
15. The incentive problem under communist central planning refers to the idea that: 
A. planners had to direct required inputs to each enterprise.  
B. workers, managers, and entrepreneurs could not personally gain by responding to shortages or surpluses or by introducing new and improved products.    
C. the immediate effect of more investment was less consumption.  
D. exports had to be equal to imports for a central plan to work.  
16. The fact that the major indicator of enterprise success in the Soviet Union and pre-reform China was the quantity of output implied that: 
A. product quality was neglected.    
B. production costs were minimized.  
C. product-mix met consumer needs.  
D. technological advance was too rapid.  
17. The two basic markets shown by the simple circular flow model are: 
A. capital goods and consumer goods.  
B. free and controlled.  
C. product and resource.    
D. household and business.  
18. Refer to the above diagram. Flow (1) represents: 
A. wage, rent, interest, and profit income.    
B. land, labor, capital, and entrepreneurial ability.  
C. goods and services.  
D. consumer expenditures.  
19. In terms of the circular flow diagram, households make expenditures in the _____ market and receive income through the _____ market. 
A. product; financial  
B. resource; product  
C. product; resource    
D. capital; product  
20. Which of the following best illustrates the circular flow model in action? 
A. Bobbie goes to work and builds cars, and uses the income she receives to buy food at the grocery store.  
B. Evan buys a new couch; the owner of the furniture store uses some of the money from the sale to pay her supplier, and uses the rest to take her family out to dinner.  
C. Boeing experiences a surge in orders for new airplanes, prompting the company to hire more workers.  
D. All of the above.    

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