Econ Ch 2 Test

Where are traditional economies usually found?

• in small communities that welcome change

• in large communities that welcome change

• in small communities that avoid change

• in large communities that are able to deal with environmental disaster

What “invisible hand” regulates the free market economy?

• incentive and efficiency

• specialization

• economic equity

• competition and self-interest

The United States economy is a mixed economy

• based on a traditional economy, but allowing some government intervention

• based on a centrally planned economy, but limiting government intervention.

• based on a free market, allowing no government intervention

• based on a free market, but allowing some government intervention.

Government intervention in a modern economy is useful because

• the needs and wants of a modern society are always met by the marketplace

• the marketplace has many incentives to create public works such as parks.

• governments are more able to meet some needs and wants of modern society

• free market principles do not encourage growth.

How does a free market economy determine who will get what is produced?

• by giving it to those that can pay

• by factor payment amounts

• by its wants and needs

• by economic equity

What is the product market?

• the market in which income is received for supplying land, labor, or capital

• the market in which governments collect taxes from firms and consumers

• the market in which firms purchase the factors of production from households

• the market in which households purchase the goods and services that firms produce

What does the process of specialization do for an economy?

• It eliminates unemployment

• It makes production more efficient

• It fosters competition

• It makes labor easier to control.

What must a nation’s economy do in order to improve the standard of living?

• remain stable

• grow

• reach economic equity

• allow central planning

What does “consumer sovereignty” mean in a free market economy?

• The customer is always right

• Customers have the power to decide what gets produced

• People with the most money are treated like royalty.

• Producers of goods are also customers.

Who owns the factors of production in a free market economy?

• households

• businesses

• firms

• the market