AP MACRO Unit 5 MCQ

Which of the following is not a characteristic of the market system?

C) government ownership of the major industries

Which of the following is a fundamental characteristic of the market system?

A) property rights

Copyrights and trademarks are examples of:

C) property rights.

The pursuit of self-interest:

D) gives direction to the market system.

The regulatory mechanism of the market system is:

C) competition.

Broadly defined, competition involves:

B) independently acting buyers and sellers and freedom to enter or leave markets.

Competition means that:

B) there are independently-acting buyers and sellers in each market.

Well-defined property rights:

D) encourage owners to maintain or improve their property.

To increase the amount of capital goods in a full employment-full production economy, society must:

A) decrease consumption.

Roundabout production usually leads to:

C) greater production.

Which of the following is an example of a capital good?

D) a Boeing 777 airplane.

If an economy is operating on its production possibilities curve, an increase in the production of capital goods:

C) necessitates production of fewer consumer goods.

The basic reason for the production of capital goods is to:

D) enhance future productive efficiency.

Roundabout production refers to the:

A) use of capital goods in the production process.

The division of labor means that:

C) workers specialize in various production tasks.

Specialization in production is important primarily because it:

A) results in greater total output.

Specialization--the division of labor--enhances productivity and efficiency by:

D) all of the above.

Specialization in production is economically beneficial primarily because it:

B) permits the production of a larger output with fixed amounts of resources.

Barter:

C) entails the exchange of goods for goods.

The coincidence-of-wants problem associated with barter refers to the fact that:

A) for exchange to occur each seller must have a product that some buyer wants.

The use of money contributes to economic efficiency because:

D) it promotes specialization by overcoming the problems with barter.

Which of the following is one of the Four Fundamental Questions?

D) What goods and services will be produced?

Normal profit is:

B) a cost because they represent payments made for the resources which the businessperson owns and supplies.

Economic profit is:

D) not an economic cost because it need not be realized for a business to acquire and retain entrepreneurial ability.

A firm's economic profit is:

B) profit over and above that which it needs to compensate for the time and other resources the owner supplies.

Which of the following is not an economic cost?

C) economic profits.

If competitive industry Z is making substantial economic profit, output will:

C) expand, product price will fall, and economic profit will disappear.

When a competitive industry is in equilibrium:

A) economic profit will be zero.

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

D) reallocate resources from less desired to more desired uses.

In a market economy a significant change in the demand for product X will:

D) do all of the above.

Economic profits in an industry suggests the industry:

B) should be larger to better satisfy consumer demand.

Economic profits and losses:

B) are essential to the reallocation of resources from less desired goods to more desired goods.

If an increase occurs in the demand for product X, all of the following will occur except:

D) a decrease in the prices of resources employed in industry X.

An increase in demand for strawberries is most likely to:

A) increase the demand for strawberry pickers.

If competitive industry Y is incurring substantial losses, output will:

C) contract, product price will rise, and losses will disappear.

The economic function of profits and losses is to:

B) signal that resources should be reallocated.

In a competitive economy prices:

D) do all of the above.

Suppose a firm's total economic cost in producing 1,000 aluminum baseball bats is $10,000. These bats are then sold by the firm for $12,000. Thus:

C) the firm's economic profit is $2000.

If a competitive industry is neither expanding nor contracting, we would expect:

B) economic profits to be zero.

Suppose industry A is realizing substantial economic profit. Which of the following best describes the adjustment process that would bring about a new equilibrium?

D) Firms will enter the industry, output will rise, and product price will fall.

An industry is in long-run equilibrium when:

D) economic profits are zero.

When economists say that the demand for a resource is a derived demand, they mean that:

B) the demand for resources depends on the demand for the product that those resources produce.

Which of the following best reflects the idea of derived demand?

C) Economic resources are demanded because there is a demand for the goods they produce.

The competitive market system:

D) encourages innovation because successful innovators are rewarded with economic profits.

An increase in consumer demand for product X increases the demand for resources used in producing X. This indicates that:

B) the idea of derived demand is relevant.

In a market economy the distribution of income will be determined primarily by:

B) the quantities and prices of the resources that households supply.

The most efficient combination of resources in producing any output is the combination that:

B) can be obtained for the smallest money outlay.

Refer to the above data. In view of the indicated resource prices, the economically most efficient production technique(s) is (are):

B) #2 and #4.

Refer to the above data. Assuming that the firm is motivated by self-interest and that the 20 units which can be produced with each technique can be sold for $2 per unit, the firm will:

A) realize an economic profit of $10.

Refer to the above data. Which of the following statements concerning this industry is correct?

C) The industry will expand as new firms enter.

Refer to the above data. If a new production technique is developed that enables a firm to produce 20 units of output with 3 units of land, 3 of labor, 1 of capital, and 2 of entrepreneurial ability, this technique would:

B) be adopted because it would lower production costs and increase economic profit.

Which technique is economically most efficient in producing A?

D) IV.

If the price of product A is $.50, the firm will realize:

B) an economic profit of $2.

In a competitive market economy firms will select the least-cost production technique because:

B) to do so will maximize the firms' profits.

The market system's answer to the fundamental question "What will be produced?" is essentially:

A) "Goods and services that are profitable."

The market system's answer to the fundamental question "How will the goods and services be produced?" is essentially:

D) "At least-cost production."

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."

The market system's answer to the fundamental question "How will the system accommodate change?" is essentially:

B) "Through the guiding function of prices and the incentive function of profits."

The advent of DVDs threatens to eventually demolish the market for videocassettes. This is an example of:

A) creative destruction.

Consumer sovereignty refers to the:

C) idea that the decisions of producers and resource suppliers must be appropriate to consumer demands.

The dollar votes of consumers ultimately determine the composition of output and the allocation of resources in a market economy. This statement best describes the concept of:

B) consumer sovereignty.

Assume the demand for product Y increases and the market system responds by producing more Y. This illustrates:

D) the directing or guiding function of prices.

Which of the following best describes the guiding function of competitive prices?

C) The market system can negotiate reallocations of resources that are appropriate to changes in consumer tastes, technology, and resource supplies.

Which of the following best describes the invisible-hand concept?

A) The desires of resource suppliers and producers to further their own self-interest will automatically further the public interest.

The invisible hand refers to the:

B) notion that, under competition, decisions motivated by self-interest promote the social interest.

The invisible-hand concept suggests that:

D) assuming competition, private and public interests will coincide.

The invisible-hand concept suggests that:

D) when firms maximize their profits, society's output will also be maximized.

Two major virtues of the market system are that it:

A) allocates resources efficiently and allows economic freedom.

The market system:

B) effectively harnesses the incentives of workers and entrepreneurs.

In 1975 McDonald's introduced its Egg McMuffin breakfast sandwich, which remains popular and profitable today. This longevity illustrates the idea of:

C) consumer sovereignty.

In 1996 McDonald's introduced its Arch Deluxe hamburger, which failed to catch on with the public and was subsequently dropped from the menu. This failure illustrates the idea of:

A) consumer sovereignty.

According to economist Donald Boudreaux, the world's tens of billions of individual resources get arranged productively:

B) because private property encourages people to consider the alternative uses of their resources and select those that provide the most rewards.

According to economist Donald Boudreaux:

A) private property eliminates the possibility that resource arrangements will be random.

Market economies use capital goods because they improve productive efficiency.

True.

Differences in opportunity costs are the basis for specialized production and trade.

True.

Money functions as a medium of exchange in permitting the ready comparison of the relative worth of heterogeneous products.

False.

Consumer sovereignty means that legislation now protects the rights of consumers to dispose of their incomes as they see fit.

False.

Programs by state governments to keep milk prices higher than market-determined prices to protect family dairy farms from bankruptcy promote the efficient allocation of resources.

False.

Specialization may expand total output even though the individuals involved may have identical abilities.

True.

The wants of consumers are expressed on the demand side of the product market.

True.

Costs can be defined as total payments made to workers, land owners, and capital suppliers less normal profits.

False.

If firms in any industry fail to earn normal profits, firms will immediately or eventually leave the industry.

True.

The guiding function of prices indicates that, at equilibrium prices, neither product surpluses nor shortages can occur.

False.

The invisible hand refers to the many indirect controls that the Federal government imposes in the market system.

False.