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Refer to the following:
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The above is a circular flow model of the economy. In the diagram, consumer expenditures are represented by: |
| | A) | Flow 1 |
| | B) | Flow 2 |
| | C) | Flow 3 |
| | D) | Flow 4 |
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| 2 | |
Which of the following is a capital good? |
| | A) | A steel fabrication facility |
| | B) | A state highway construction bond |
| | C) | A share of Microsoft stock |
| | D) | A gallon of milk |
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| 3 | |
In a competitive economy, prices do all of the following except: |
| | A) | guide consumers in their purchases of goods and services |
| | B) | guide firms in their purchases of inputs |
| | C) | discourage innovation |
| | D) | guide firms in deciding which markets to enter |
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| 4 | |
The "command system" is also known as: |
| | A) | capitalism |
| | B) | the market system |
| | C) | the political system |
| | D) | socialism or communism |
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| 5 | |
In a specific industry, firms are making positive economic profits. We should expect that: |
| | A) | firms will enter the industry |
| | B) | firms will exit the industry |
| | C) | product prices will rise in the industry |
| | D) | firms will neither exit nor enter the industry, as it is in equilibrium |
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| 6 | |
Private ownership of resources is best captured by which of the following concepts? |
| | A) | Freedom of choice |
| | B) | Freedom of enterprise |
| | C) | Property rights |
| | D) | Self-interest |
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| 7 | |
Suppose output is falling in a specific competitive industry. Which of the following most likely represents the market conditions in this industry? |
| | A) | Economic profits are negative |
| | B) | Economic profits are positive |
| | C) | There has been increased demand for product or service |
| | D) | The industry is in equilibrium |
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| 8 | |
Which of the following best exemplifies the "guiding function" of prices? |
| | A) | Milk production increases in response to an increase in consumer preferences for milk |
| | B) | A firm produces output at lowest cost |
| | C) | The market system encourages investment and technological change |
| | D) | Maryann decides against purchasing a CD from her favorite band because she thinks it is priced too high |
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| 9 | |
The deed to the family home represents a: |
| | A) | consumer good |
| | B) | capital good |
| | C) | government restriction on freedom of choice |
| | D) | property right |
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| 10 | |
The command systems of the Soviet Union and eastern Europe failed in part because: |
| | A) | previously abundant economic resources became scarce |
| | B) | central planners found it increasingly difficult to coordinate the economic decisions of consumers, resource suppliers, and business |
| | C) | firms manufactured too much output for consumers to be able to buy, resulting in a general glut |
| | D) | prices were set too low in all markets |
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