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A firm will earn an economic profit if:

its total sales revenue exceeds the sum of all its economic costs

Economic profit exists when:

Total revenues exceed the payment of all economic costs

Which statement accurately summarizes the relationship between the prices of goods and their relative scarcity?

The price of a good is a direct function of the relative scarcity of the good

Exchange by barter requires a coincidence of wants.

True

Suppose a firm can produce 70 units of a hypothetical product, Zenia, by combining labor, land, capital, and entrepreneurial ability in each of the four ways shown in the table below. Assume further that the firm can hire labor at $3 per unit, land at $3 per unit, capital at $6 per unit, and entrepreneurship at $9 per unit.Refer to the above table. Which technique is economically the most efficient way of producing Zenia?

D

Refer to the above figure. If box A represents businesses and box B represents the resource market in this circular flow model, then the real flow of goods, services, and economic resources would be represented by flows:

(7), (5), (4), and (2)

Competition is more likely to exist when:

There is free entry into and exit out of industries

The market system is characterized by:

private property rights

Which would not be characteristic of a capitalist economy?

Government ownership of the factors of production

The market economy is regarded as "efficient" in that:

It directs resources to meet consumer demand

The competitive market system encourages innovation and technological advance, primarily through

profitable returns to innovative firms

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:

D is the product market and box B is the resource market

A major feature of a market system is that:

There is consumer sovereignty

With an increase in profits in a particular industry, we would expect:

Firms to enter the industry

Economic profits and losses:

help determine which industries survive or fail

In the circular flow model, households function on the selling side of the resource market and the buying side of product markets

True

In the circular flow model, there is a money flow of economic resources and finished goods and services and a real flow of income and consumption expenditures.

False

Refer to the above figure. If box B represents the resource market and flow (3) represents money income, then

Box D is the product market and box C is households

Consumers express self-interest when they:

Seek the lowest price for a product

An increase in the demand for a product and a reduction in its costs of production would:

Encourage firms to enter an industry

In a market system, well-defined property rights are important because they

Encourage economic activity

How does human specialization contribute to an economy's output

It makes use of differences in abilities

Property rights are the right of the government to own, use, and dispose of resources in an economy

False

Refer to the above figure. If box A represents businesses and flow (7) represents goods and services, then

Box D is the product market and box B is the resource market

Which best describes the "invisible hand" concept?

The desires of producers and resource suppliers to further their own self-interest will automatically promote the social interest

By consumer sovereignty we mean that:

Consumers determine what goods and services are produced

In the simple circular flow model:

Households are sellers of resources and demanders of products

Refer to the above figure. If box D represents the product market and flow (6) represents consumption expenditures, then box C is

Households, flow (7) is goods and services, and flow (8) is revenue

Suppose a firm can produce 70 units of a hypothetical product, Zenia, by combining labor, land, capital, and entrepreneurial ability in each of the four ways shown in the table below. Assume further that the firm can hire labor at $3 per unit, land at $3 per unit, capital at $6 per unit, and entrepreneurship at $9 per unit.Refer to the above table. If the price of labor declines from $3 to $2 per unit, then what is the least costly way of producing Zenias?

B

In a market economy, the money incomes of individuals depend primarily upon:

The value and amounts of the productive resources the individuals possess

Which is an example of barter?

A person trades a desk for a box of tools

Which is necessary to make a trade in a barter economy?

A coincidence of wants

The market system is characterized by:

Private ownership of the means of production

More specialization in a market economy generally leads to the more efficient use of its resources

True

Economic efficiency entails getting the smallest amount of output from a given level of input of scarce resources

False

The command systems of the Soviet Union and eastern Europe failed in part because:

central planners found it increasingly difficult to coordinate the economic decisions of consumers, resource suppliers, and businesses

In a market economy, entrepreneurs are most concerned with

Maximizing profits or minimizing losses

If a change in consumer preferences results in many more consumers registering their "dollar votes" in favor of peaches, which of the following will most likely follow?

Profits of peach growers will rise and peach production will rise

Why might a company use barter rather than money to make a transaction?

Barter can enable two firms to trade when their cash flows are limited

Which of the following characteristics is least unique to a market system?

the widespread use of money

Refer to the above figure. If box A represents businesses and box D represents the product market in this circular flow model, then money flow in the model would be represented by:

(1), (3), (6), and (8)

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:

Consumer sovereignty

Human specialization, or the division of labor:

increases output by enabling workers to take advantage of differences in their skills

From society's point of view, the economic function of profits is to:

Direct resources in response to changes in the economy

The market system is an economic system that:

Gives private individuals and institutions the right to own resources used in production

A firm can produce a single unit of output by combining labor and capital in any of the combinations shown in the following table. Labor costs $2 per unit and capital costs $4 per unit.Refer to the table. Which is the most efficient technique for producing the output?

A

As new firms enter an expanding industry:

Economic profits tend to decline

In the market system, the least costly techniques of production will be chosen by competitive firms because

Profits will be highest with such techniques

Refer to the following diagram of a circular flow model of the economy:
in the diagram, consumer expenditures are represented by:

Flow4

Suppose a firm can produce 70 units of a hypothetical product, Zenia, by combining labor, land, capital, and entrepreneurial ability in each of the four ways shown in the table below. Assume further that the firm can hire labor at $3 per unit, land at $3 per unit, capital at $6 per unit, and entrepreneurship at $9 per unit.Refer to the above table. If each of the 70 Zenias that are produced sells for $1 each, what will be the economic profit for the firm?

13

The development of CDs and DVD that significantly reduced the market for cassette tapes. This would be an example of:

Creative Destruction

In 1999, McDonald's introduced the "Big Xtra" and it turned out to be successful product. In the marketplace for fast-food products, this success would be an example of:

Consumer Sovereignty

Refer to the above figure. If flow (1) is the cost businesses pay to the resource market, then:

(2) is the flow of productive resources

One of the most important economic resources is money.

False

Which of the following is a capital good?

A steel fabrication facility

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