Chapter 2 Quiz

The circular flow model shows all of the following, except

• people earning money by exchanging their factors of production with businesses.

• households exchanging with businesses in product markets and resource markets.

• businesses selling resources to households.

• consumers earning income by helping produce goods and services.

Many businesses work together as a team to provide you with products like bread and peanut butter. For the most part, businesses do this in our economy because they are guided by

• voluntary exchange.

• government.

• the banking system.

• the stock market.

The circular flow is a simplified picture of our economy in which

• a person buys a milkshake at an ice cream store.

• someone uses a mail order catalog, telephone, or credit card to buy clothing.

• None of the above.

• Both of the above.

Throughout history, people have used money mainly because

• governments have required it.

• without money, there would be no scarcity.

• it is impossible to exchange without using money.

• None of the above.

In a free enterprise system,

• individuals may organize any lawful business.

• everyone has the right to vote in elections.

• goods are so plentiful that they are free.

• workers do not charge for their labor.

When resources are privately owned,

• people have incentives to use them carefully and productively.

• people typically ignore the opportunity costs and benefits of using the resources.

• it is impossible to exchange without using money.

• None of the above.

In a market economy, prices provide information. This means that prices

• usually tell businesses about the values consumers put on various products.

• often let households know which products businesses want to buy.

• tell the government which products it should allow businesses to produce.

• clearly identify products that aren’t scarce.

Competition can take many forms, but there would be no competition at all without

• money.

• markets.

• scarcity.

• businesses.

In resource markets, businesses compete against

• one another.

• households.

• private owners of resources.

• no one.

Most businesses earn their profits by

• competing successfully against consumers.

• charging exorbitant prices.

• selling what consumers want to buy at prices they are willing to pay.

• ignoring consumers’ preferences.