Multiple-Choice Review Questions

1. Which of the following is a fundamental economic question?
(A) Who will get how much of each good and service?
(B) Who should pay taxes?
(C) Who will work?
(D) Who will make the economic decisions?
(E) Who will be allowed into the economy?

2. In a command economy
(A) the market dictates the answers to the fundamental economic questions.
(B) competition helps answer the fundamental economic questions.
(C) state and local governments respond to the fundamental economic questions.
(D) the central government dictates the answers to the fundamental economic questions.
(E) laws are set up to answer the fundamental economic questions.

3. Market economies
(A) rely on markets to coordinate economic activity.
(B) rely on the government to address the fundamental economic questions.
(C) rely on elected officials to make the most important economic decisions.
(D) rely on courts to ensure people and firms get what they deserve.
(E) are more equitable than command economies.

4. Prices in capitalist economies are
(A) unfair.
(B) determined in competitive markets.
(C) determined, in most cases, by the federal government.
(D) a reflection of our basic values.
(E) a means to achieve equality.

5. If the market for corn is competitive, then
(A) it is difficult for new suppliers to join in.
(B) buyers will get all they want at a good price.
(C) the market favors buyers.
(D) the market is fair.
(E) there must be many buyers and sellers.

6. Compared to a command economy, a capitalist economy emphasizes
(A) equity.
(B) planning.
(C) efficiency.
(D) centralization.
(E) human rights.

7. Allocative efficiency
(A) implies optimal resource deployment.
(B) means no inferior products will be produced.
(C) ensures the distribution of output is equitable.
(D) can only occur in pure command economies.
(E) defies the idea of the invisible hand.

8. Scarcity
(A) implies nonoptimal resource deployment.
(B) applies to some, but not all, resources.
(C) is an issue in every economy.
(D) exists in command economies only.
(E) is eradicated by the invisible hand.

9. If buyers bid up the price of a good, then
(A) sellers will try to bring more of it to market.
(B) sellers will bring less to market anticipating less demand at the higher price.
(C) fewer resources will be devoted to its production.
(D) they must not want it.
(E) its price will eventually fall back to normal.

10. If a capitalist society wants more coffee, then the relative price of coffee will
(A) fall.
(B) rise.
(C) not necessarily change.
(D) remain unchanged.
(E) change indeterminantly.

11. If the relative price of coffee rises due to a change in tastes in a capitalist society, then
(A) less coffee will be consumed.
(B) more resources will be devoted to coffee production.
(C) less tea will be consumed.
(D) suppliers will bring less to market.
(E) the price will eventually return to where it was prior to the change in tastes.

12. The invisible hand
(A) works in command economies as well as capitalist economies.
(B) works in capitalist societies.
(C) is concerned with resource allocation when markets are regulated.
(D) refers to regulation in command economies.
(E) requires altruism.

13. In the market for resources in the circular flow diagram, households
(A) get goods and services from firms.
(B) send only labor to firms.
(C) send only land and labor to firms.
(D) send land, labor, and capital to firms.
(E) send spending to firms.

14. In the market for goods and services in the circular flow diagram, households
(A) get wages and profits from firms.
(B) get goods and services from firms.
(C) send only land and labor to firms.
(D) send land, labor, and capital to firms.
(E) send labor to firms.

15. Suppose we observe the price of a product rising and more of the product being bought and sold. This could be a result of
(A) a decrease in the supply of the product.
(B) an increase in the supply of the product.
(C) an increase in demand for the product.
(D) a decrease in demand for the product.
(E) a shortage.

Free-Response Review Questions

1. What are the fundamental economic questions?
2. Contrast how the fundamental economic questions are addressed in command versus capitalist economies.
3. Cite the advantages and disadvantages of command economies.