Topic 2: Free Enterprise and Other Economic

Who benefits from the free market economy?

Which of the following BEST answers that question?

• consumers and producers

• people living in poverty

• wealthy entrepreneurs

• the federal government

Which basic economic question deals with the issue of where a person can afford to live?

• How should goods and services be produced?

• Who consumes the goods and services that are produced?

• Why should goods and services be produced?

• What goods and services should be produced?

This photograph represents the type and scale of economic activity that is typical of a

• centrally planned economy

• free market economy

• specialized economy

• traditional economy

What does this graphic suggest about economic equity in American society since 1976?

• Equity was achieved in the early 2000s.

• Equity has remained stable over time.

• Equity has steadily increased over time.

• Equity has steadily decreased over time.

"Every individual necessarily labors to render the annual revenue of the society as great as he can. . . . He intends his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention."

—Adam Smith, The Wealth of Nations

Which of the following BEST paraphrases this quotation?

• Competition is the invisible hand that motivates individuals to sell their labor.

• By pursuing their own self-interest, individuals help the economy grow.

• Through specialization, individuals succeed in increasing their annual revenue.

• The invisible hand is a basic characteristic of the free enterprise system.

Which of the following is a function of firms in the market economy?

• They ensure that the monetary flow is greater than the physical flow.

• They supply households with land, labor, and capital.

• They convert land, labor, and capital into goods and services.

• They consume the goods and services that households produce.

“Competition encourages entrepreneurs to find new ways of producing goods and services.” This statement MOST CLOSELY relates to which of the advantages shown in the concept web?

• growth and innovation

• variety of goods and services

• freedom of choice for consumers and producers

• efficient response to changing marketplace conditions

Based on this Venn diagram, which economic goal do communist and socialist systems both try to achieve?

• economic efficiency

• economic freedom

• economic equity

• economic profit

In a society with a command economy, who answers the basic economic questions?

• consumers in markets

• producers in markets

• a central government

• a military commission

What is one of the major disadvantages of a centrally planned economy?

• It lacks the capacity to produce factory goods because its resources are scarce.

• It places individual freedoms above the pursuit of societal goals.

• It focuses on rewarding innovation instead of guaranteeing jobs and income.

• It does not allow producers of goods and services to respond to consumer signals.