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Macroeconomics 2.3 Studyguide
Terms in this set (46)
1) Which of the following is a factor of production?
A) a sofa produced by a furniture manufacturer
B) 20 shares of Microsoft stock
C) the janitor at the local elementary school
D) $500 in cash
2) An example of a factor of production is
A) a car produced by an auto manufacturer.
B) a worker hired by an auto manufacturer.
C) a loan granted to an auto manufacturer.
D) the automobiles exported by an auto manufacturer.
3) If a vineyard wants to raise funds to purchase a new bottling machine, it does so in the
A) factor market. B) output market.
C) product market. D) alcoholic beverages market.
4) A worker is hired in a
A) goods and services market. B) product market.
C) government market. D) factor market.
5) When you purchase a new surfboard you do so in the
A) resource market. B) product market.
C) input market. D) factor market
6) The resource income earned by those who supply labor services is called
A) wages and salaries. B) stock options.
C) profit. D) bonus.
7) Which of the following statements about an entrepreneur is true?
A) purchases other factors of production in the output market
B) develops the vision for the firm and funds the producing unit
C) sells his entrepreneurial services in the output market
D) does not face personal risk
8) The circular flow model demonstrates
A) the role of the government in overseeing the market system.
B) the roles played by households and firms in the market system.
C) how shortages and surpluses are eliminated in a market.
D) how demand and supply for goods and services are brought into equilibrium.
A) have no influence on the circular flow in a market economy.
B) purchase resources in the product market.
C) sell goods in the product market.
D) sell resources in the factor market.
A) purchase final goods and services in the factor market.
B) purchase final goods and services in the product market.
C) purchase resources in the product market.
D) purchase resources in the factor market.
11) In the circular flow model, households
A) sell goods and services in the input market.
B) and firms spend earnings from resource sales on goods and services in the factor market.
C) hire resources sold by firms in the factor market.
D) spend earnings from resource sales on goods and services in the product market
12) Which of the following is not a flow in the circular flow model?
A) the flow of goods and services and the flow of resources to produce goods and services
B) the flow of profit and the flow of revenue
C) the flow of income earned by households and the flow of expenditures incurred by
D) the flow of revenue received by producers and the flow of payments to resource owners
15) Which of the following are represented by the same flow in the circular flow model?
A) the flow of goods and the flow of factors of production
B) the flow of costs and the flow of revenue
C) the flow of income earned from the sale of resources and the flow of expenditures on
goods and services
D) the flow of income received by households and the flow of tax revenues paid by firms
16) Which of the following statements is true about a simple circular flow model?
A) Producers are neither buyers nor sellers in the product market.
B) Households are neither buyers nor sellers in the input market.
C) Producers are buyers in the factors market.
D) Households are sellers in the product market.
19) Which of the following is an examples of spending on factors of production in the circular flow
A) Tuan purchases a cappuccino at the student union.
B) Laurence rents a car to drive to a wedding in San Diego.
C) Yvette pays $50 to join a softball league.
D) TheȱȈLucky DuckyȈȱcasino buys a new craps table for the casino floor.
20) All of the following are examples of spending on goods and services in the circular flow model
A) Amanda purchases a new electric guitar to pursue her hobby seriously.
B) Chaitanya buys a new spa pedicure chair for her expanding nail salon business.
C) Hernan buys a pizza at Papa Cȇs.
D) Lenny buys a new digital camera to take pictures at his sonȇs graduation.
21) Published in 1776, ________ was written by Adam Smith.
A) ȈThe General Theory of Employment, Interest, and MoneyȈ
B) ȈThe Communist ManifestoȈ
C) ȈThe Declaration of EconomicsȈ
D) ȈAn Inquiry into the Nature and Causes of the Wealth of NationsȈ
26) Which of the following countries does not come close to the free market benchmark?
A) the United States B) Japan
C) Cuba D) France
27) Adam Smithȇs ________ refers to the process by which individuals acting in their own
self-interest bring about a market outcome that benefits society as a whole.
A) Utopian society B) comparative advantage model
C) invisible hand D) survival of the fittest theory
28) A critical function of the government in facilitating the operation of a market economy is
A) producing goods and services for low income households.
B) setting up and enforcing private property rights.
C) ensuring an equal distribution of income to all citizens.
D) controlling the market prices of food items.
29) The ability to exercise control over oneȇs own resources within the confines of the law refers to
A) the free market. B) oneȇs property rights.
C) entrepreneurship. D) having an absolute advantage.
30) The primary purpose of patents and copyrights is to
A) provide owners with large profit forever.
B) protect firms from being taken advantage of by competing firms.
C) protect domestic firms from foreign competition.
D) encourage the expenditure of funds on research and development to create new products.
31) If property rights are not well enforced, all of the following are likely to occur except
A) fewer goods and services will be produced.
B) economic efficiency will be reduced.
C) an economy will produce inside its production possibilities frontier.
D) a significant number of people will be willing to risk their funds by investing them in local
32) A successful market economy requires well defined property rights and
A) balanced supplies of all factors of production.
B) an independent court system to adjudicate disputes based on the law.
C) detailed government regulations.
D) a safety net to ensure that those who cannot participate in the market economy can earn an
33) All of the following are considered intellectual property except
A) books. B) films.
C) software. D) shares of stock.
34) A guild is
A) a group of independent producers competing with each other.
B) an organization of producers that limits the amount of a good produced.
C) a group of nations who agree not to compete with each other.
D) a nation that is a free market benchmark.
35) In 18th century Europe, governments gave guilds legal authority to limit production of goods.
This authority obstructed the market mechanism because the guildȇs actions prevented the
forces of ________ from coordinating the self-interested decisions of producers and consumers.
A) absolute advantage B) demand and supply
C) opportunity cost D) nature
36) When a celebrity has the desire to have his image protected following his death, this is best
described as an example of the protection of
A) an invention. B) a patent.
C) a trademark. D) intellectual property.
37) In the desire to have a celebrityȇs image protected to prevent it from being used in ways he
would not approve, a celebrityȇs estate
A) will probably not be successful, since there are no laws regulating this kind of use in the
B) will have to be granted a patent declaring the celebrityȇs image a new product, and this
will give the estate protection for 7 years.
C) can rely on U.S. laws that protect intellectual property rights to prevent the unauthorized
use of his image.
D) will most likely be more successful in developing countries than in high-income countries,
since property regulations are better enforced in developing countries.
38) Which of the following is a factor of production?
A) an acre of forested land B) a U.S. Treasury bond
C) 20 shares of Ford stock D) $25,000 in cash
39) Which of the following is an example of spending on goods and services in the circular flow
A) Micah purchases a new wrench for his auto repair business.
B) Chester buys a first-class ticket from Atlanta to London for his long-awaited vacation.
C) Toby buys a new lawn mower to use in his lawn care business.
D) Lily purchases a new massage table for use in her therapy center.
Since 2008, the United States has been involved in trade negotiations over the Trans -Pacific Partnership
(TPP), a free trade agreement with 11 other countries on both sides of the Pacific Ocean. One area of the
negotiations involves patents and intellectual property rights in the pharmaceutical industry. A number
of developing countries have ignored international agreements concerning patents and intellectual
property rights as a way to benefit their domestic pharmaceutical industries, to the detriment of those
companies which have spent considerable time and money developing new medicines. For every 5,000 to
10,000 experimental drugs contemplated, only one will typically gain FDA approval, and this occurs only
after up to 15 years of research at an average cost of more than $1 billion. Also, 30 percent of the U.S.
workforce is either directly or indirectly employed in the pharmaceutical industry, so protection of these
intellectual property rights is very important for the U.S. economy.
Source: Doug Schoen,ȱȈIntellectual Property Rights Matter,Ȉȱ Forbes, September 24, 2013.
40) Refer to the Article Summary. If these developing countries continue to ignore the international
agreements which protect intellectual property rights, all of the following would most likely
A) pharmaceutical companies would decrease investment in the development of more
B) pharmaceutical companies would consider expanding operations to these developing
C) fewer patents would be issued to pharmaceutical companies.
D) fewer dollars would be spent on the development of new medicines.
41) Because the copyright on the L. Frank Baum book The Wonderful Wizard of Oz expired many
years ago, the actual written words from the book are in the public domain, which means
A) any publisher can now can claim copyright of Baumȇs words.
B) only the first publisher to reissue the book can claim copyright of Baumȇs words.
C) no publisher can claim copyright of Baumȇs words, but the book can be reissued by any
D) no publisher can claim copyright of Baumȇs words because the book can never be reissued.
42) The payment received by suppliers of entrepreneurial skills is called profit
43) In the circular flow model, households demand resources such as labor services in the product
44) In economics, the termȱȈfree marketȈȱrefers to a market where no sales tax is imposed on
45) In a free market there are virtually no restrictions, or at best few restrictions, on how a good or
service can be produced or sold.
46) A stand of redwood trees is not an example of a factor of production but the harvested and
processed redwood is a factor of production.
47) The idea underlying Adam SmithȇsȱȈinvisible handȈȱis that people tend to behave in ways that
go unnoticed in society.
48) The payment received by suppliers of entrepreneurial skills is called rent.
49) In the circular flow model, households supply resources such as labor services in the product
50) A welding machine is an example of a factor of production if it is being used to produce
51) In a simple circular flow diagram, who supplies factors of production in markets and who buys
these factors of production? Who supplies goods and services in markets and who buys these
goods and services?
Answer: Households supply factors of production and buy goods and services in markets. Firms
buy factors of production and supply goods and services in markets
52) List the four broad categories of factors of production
Answer: labor, capital, natural resources, and entrepreneurship
53) Define the termȱȈproperty rights.ȈȱExplain why the lack of well defined and enforceable
property rights is detrimental to the smooth functioning of a market system.
Answer: The termȱȈproperty rightsȈȱrefers to the rights that individuals or firms have to the
exclusive use of their resources, within the confines of the law. Well defined and
enforceable property rights provide the incentive for people and firms to invest resources
and undertake risks. This encourages the production of a wide range of goods and
services. Without property rights and the means to enforce these rights, no person would
want to undertake such a risk.
56) Identify whether each of the following transactions will take place in the factor market or in the
a. Shondra buys a Harley-Davidson Softail motorcycle.
b. Aimee works 20 hours a week at a grocery store.
c. Gustavo sells a warehouse to a produce delivery company.
d. Ocean Spray increases employment at its Middleboro, Massachusetts plant.
Answer: a takes place in the product market.
b, c, and d take place in the factor market.
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