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Chapter 1 practice quiz

One major element of the command system is:
Central planning conducted by the government
Insurance companies facilitate the transfer of risk from:
Those who have a low-risk tolerance to those with high risk-tolerance
Economic systems differ from one another based on who own the factors of production and:
Who make decisions regarding what to produce and how it is produced
In a market system, a firm’s employees are typically shielded from business risk by:
Wage contracts
If two variables are completely unrelated to each other, then graphing these two variables will yield a line that is:
Either vertical or horizontal
Which question is an example of a microeconomic question?
Will the merger of two airlines likely lead to higher cost of air travel in the economy?
If economic resources are perfectly interchangeable between the two products shown on a production possibilities graph:
The production possibilities curve would be a straight line
Which is an example of barter?
A person trades a desk for a box of tools
Laissez-faire capitalism is characterized by:
Very limited government role in the economy
The term consumer sovereignty means that:
What is produced is ultimately determined by what consumers buy
From an economic perspective, when a student decides to go to the movies instead of studying for a test, it indicates that in the student’s

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thinking the marginal:
Cost of going to the movies is less than the marginal benefit of going to the movies
What is the best economic explanation for why a person would drop out of college to take a job or start a business?
the expected future benefits from starting a business now are greater than the costs
One basic problem faced by central planners, but hardly present in a market system, has to do with:
Coordinating production in various industries so that bottlenecks do not develop
Capitalism gets its name from the fact that capital resources are mostly:
Treated as private property
Which of the following is not a reason why specialization and trade are beneficial to society?
Firms and workers become less dependent on others for producing goods and services
The idea that the desires of resource suppliers and firms to further their own self-interest will automatically further the public interest is known as:
The invisible hand
Laissez-faire capitalism limits the government’s economic functions to the following, except:
Setting prices of individual goods and services
If economic profits in a particular industry increase, then we would expect:
Firms to enter that industry thus expanding it
The market economy is regarded as “efficient” in that:
It directs resources towards products that the society wants most
Assume that a consumer purchases only two products and there is a decrease in the consumer’s income. The prices of the two products stay constant. The decrease in income will result in a:
Shift of the budget line inward to the left
Suppose that a consumer purchases just two goods, X and Y. The slope of the budget line would indicate the:
Opportunity cost of good X in terms of good Y given up for each unit of Y
Which of the following statements about the right to private ownership is false?
It weakens the incentive to maintain the property that one already owns
Consumers express self-interest when they:
Seek the lowest price for a product
The government may impose industrial safety regulations and occupational licensing requirements in which of the following economic systems?
Mixed market economy
Which situation would most likely cause a nation’s production possibilities curve to shift inward?
The destruction caused by bombing and warfare in a losing military conflict
Which of the following best describes the “invisible hand” concept?
Self-interest in a market system will automatically promote the public interest as well
Anything that is generally acceptable in trading for goods and services is a:
Medium of exchange
The Heritage Foundation in 2012 ranked which of the following economies to have among the highest economic freedom?
Hong Kong
In a market system, as one industry expands while another contracts, resources will flow:
From one industry due to the changes in resource prices paid by firms

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