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TITLE: Quiz 2

UNIVERSITY / INSTITUTE: Purdue University

CLASS / COURSE: ECON 25100: Microeconomics

QUESTION DESCRIPTION:

Quiz 2
 
1. Capitalism is an economic system that: 
 
A. Produces more capital goods than consumer goods  
B. Produces more consumer goods than capital goods  
C. Gives the government the right to tax individuals and corporations  
 D. Gives private individuals and corporations the right to own productive resources    
 
2. Which statement best describes a command economy? 
 
A. The production of goods and services is determined primarily by markets, but the allocation of goods and services is determined primarily by government  
B. The production of goods and services is determined primarily by government, but the allocation of goods and services is determined primarily by markets  
C. The production and allocation of goods and services is determined primarily through markets  
 D. The production and allocation of goods and services is determined primarily through government    
 
3. Which statement is correct? 
 
A. The operation of a market system eventually results in an equal distribution of income  
B. Producers are "kings" in a market economy because they determine what is produced  
C. The market system is efficient at allocation of resources, but not consumer goods to their most valued uses  
 D. Freedom of choice and enterprise are essential elements of the market system    
 
4. The maximization of profit and the minimization of losses is the primary factor affecting the economic decision making of: 
 
A. Workers  
B. Consumers  
C. Public officials  
 D. Entrepreneurs    
 
5. In a market system, well-defined property rights are important because they: 
 
A. Reduce unnecessary investment  
B. Limit destructive economic growth  
C. Create economic problems  
 D. Encourage economic activity    
 
6. Which of the following is not a reason why specialization and trade are beneficial to society? 
 
A. The output of economic goods may be increased with no increase in resources  
B. Scarce resources are utilized more efficiently  
 C. A division of labor lowers prices for products  
D. A countries will specialize in the production of the good for it can produce the greatest amount of output.    
 
7. The direct exchange of goods for goods is: 
 
 A. Barter    
B. The circular flow  
C. The invisible hand  
D. Roundabout production  
 
8. The market system is said to be characterized by "consumer sovereignty." This is because: 
 
A. A large number of consumer goods are produced  
B. The prices of consumer goods are regulated by government  
C. Consumer goods are more profitable than investment goods  
 D. Of the role of consumers in determining what goods are produced    
 
9. If a business's total economic cost of producing 2,000 units of a product is $1,000,000 and this output is sold to consumers for $1,300,000, then the firm would earn an economic profit of: 
 
A. $200,000  
 B. $300,000    
C. $1,000,000  
D. $1,300,000  
 
10. An increase in the demand for a product and a reduction in its costs of production would: 
 
A. Decrease profits  
B. Encourage firms to leave an industry  
 C. Encourage firms to enter an industry    
D. Cause a shortage of the product  
 
11. The following table illustrates alternative production techniques for producing 18 widgets that can be sold for $1 each for a total revenue of $18.
 
Refer to the above table. Using the technique cited in the previous question will result in an: 
 
A. Economic loss of $2    
B. Economic profit of $1    
C. Economic profit of $2    
 D. Economic profit of $3    
 
12. Which statement accurately summarizes the relationship between the prices of goods and their relative scarcity? 
 
 A. The price of a good is a direct function of the relative scarcity of the good    
B. The price of a good is an inverse function of the relative scarcity of the good  
C. The price of a good is independent of the relative scarcity of the good  
D. High prices lead to greater relative scarcity  
 
13. The development of the Internet and e-mail to replace regular mail services in many cases would be an example of: 
 
A. Roundabout production  
B. Derived demand  
 C. Creative destruction    
D. Specialization  
 
14. The idea that firms and resource suppliers in seeking to further their own self-interests in a competitive market economy also simultaneously promotes the public or social interest is a description of: 
 
A. The guiding function of prices  
B. Capital accumulation  
 C. The "invisible hand"    
D. "Dollar votes"  
 
15. In the system of central planning: 
 
A. There is rapid decay of the infrastructure  
 B. There is severe inflation in wholesale and retail prices  
C. Economic growth leads to widespread unemployment among workers  
D. The outputs of some industries become inputs for other industries    
 
16. What was the major success indicator for enterprises in the former Soviet Union and pre-reform China? 
 
 A. Production targets    
B. Revenue from the turnover tax  
C. The level of prices for products produced  
D. The rate of profit on products produced  
 
17. Which is true of an economy which operates entirely through central planning? 
 
 A. Individual economic performance is reduced by the absence of the profit motive    
B. There is relative ease in matching resource allocation to consumer demand  
C. Producers receive market information through the price mechanism  
D. The system adapts easily to technological change  
 
18. Refer to the above figure. If flow (1) is the cost businesses pay to the resource market, then: 
 
 A. (2) is the flow of productive resources    
B. (4) is the flow of goods and services  
C. (6) is the flow of money income  
D. (7) is the flow of revenue  
 
19. Refer to the above figure. If you know that flow (8) is revenues and flow (4) is economic resources (land, labor, capital, and entrepreneurial ability), then box: 
 
A. A is the resource market and box B is the product market  
B. B is the resource market and box A is the product market  
C. C is the product market and box B is the resource market  
 D. D is the product market and box B is the resource market    
 
20. In 1997, McDonald's introduced the "55-cent special." It turned out to be an unsuccessful product. In the marketplace for fast-food products, this lack of success would be an example of: 
 
A. Normal profit  
B. Economic costs  
 C. Consumer sovereignty    
D. Medium of exchange  
 
  

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SUBJECTS / CATEGORIES:
1. Business Economics
2. Economics
3. Microeconomics

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