Which of the following are components of the circular flow model?

Multiple select question.

Component market
Factor market
Businesses
Product market
Households

In recent years, new smartphones have replaced wristwatches, printed maps, cameras, etc.. This
is an example of ______.
Multiple choice question.

technological destruction
central planning
creative destruction
capital accumulation

In which of the following markets do households buy the goods and services that businesses
make available?

Labour market
Factor market
Product market
Capital market
Stock market
Resource market

Select all that apply

Which of the following best describe how goods and services will be produced?

By utilizing a level of labour equal to the level of capital available to a firm

Through the maximization-cost production method
By utilizing the right mix of labour and capital to minimize cost per unit of output
By locating production facilities optimally to hold down production and transportation expenses
Over the years many people have benefited from technological innovations and advancements,
like the personal computer and medical discoveries. This illustrates which of the following
concepts?

invisible hand
greed
self-interest
inefficiency

A business owned and managed by a single person is called a Blank______.

sole proprietorship
sole corporation
corporation
monopoly
monopsony

True or false: The lack of incentives contributed to the economic problems faced by the
economies of the former Soviet Union, eastern Europe, and China prior to market reforms.

True
False

In the circular flow model, the market economy creates ______.

Multiple choice question.

continuous, repetitive flows of goods and services, factors of production and money.
a flow of goods and services among households
a flow of money among economic units such as households and businesses
and expands the available resources needed for the production of goods and services.

 According to the circular flow model, households buy the goods and services that businesses
make available in the product market.

 In the circular flow model ______.

firms sell resources to households
households spend income in the product market
households produce goods
households receive income through the product market
 Goods and services are produced when production is organized in combinations and
ways ______.

that averages the cost per unit of output

that reduce the total costs of the final goods and services to consumers
that minimize the cost per unit of output
where the costs per unit of output are equal to the capital investment

 True or false: The factor market is the place where factors of production or the services of
resource suppliers are produced.
True
False

 A sole proprietorship is a business owned and managed by a single person.

 Input shortages, supply chain problems and natural disasters destroying factories are all
examples of the Blank______ doing business.
consumer issues of
controllable factors of
profit in
risk of

 Which of the following are economic problems which were faced by the former Soviet
Union, Eastern Europe, and China (prior to its market reforms)?

Diminishing returns problem

Coordination problem
Dysfunctional capital markets
Incentive problem

Which of the following are components of the circular flow model?

Factor market
Product market
Component market
Businesses
Households
 The profit-and-loss system rewards entrepreneurs with profits if they make sensible business
decisions, and they suffer losses if they make poor business decisions.

The product market is the place where ______.

businesses sell resources and households sell goods and services
businesses sell resources and households buy resources
businesses sell resources and households buy goods and services
businesses sell goods and services and households buy goods and services

Under the market system, who is subject to business risk and the possibility of losing money?
Multiple choice question.
A firm's employees
A firm's board of directors
A firm's executive management
A firm's owners

Which of the following does not occur in the factor market?

Multiple choice question.
Households sell resources and businesses buy them.
Businesses buy factors of production from households because they are necessary for producing
goods and services.
Households own all economic resources directly as workers or entrepreneurs.
Households produce goods.
Households own all economic resources indirectly through their ownership of business
corporations.

The two major benefits that arise from the market system's restriction of business risk to owners
and investors are ______.
Multiple choice question.
attracting inputs and diversifying attention
attracting outputs and diversifying attention
attracting outputs and focusing attention
attracting inputs and focusing attention

There is no risk in owning a business and owners' always reap the rewards of hard work.
True false question.
True
False
True or false: The lack of incentives contributed to the economic problems faced by the
economies of the former Soviet Union, eastern Europe, and China prior to market reforms.
True false question.
True
False

What guides entrepreneurs toward sensible business decisions?

Multiple choice question.
Organized labour system
The profit-and-loss system
Federal and provincial regulations
Banking system

Under the Blank______ system, only a firm's owners are subject to business risk and the
possibility of losing money.
Multiple choice question.
democratic
market
command
economic

The two major benefits that arise from the market system's restriction of Blank______ to owners
and investors are (1) attracting inputs and (2) focusing responsibility and rewards.
Multiple choice question.
bank communication
business risk
profit
executive management

Select all that apply

Which of the following are economic problems which were faced by the former Soviet Union,
Eastern Europe, and China (prior to its market reforms)?
Dysfunctional capital markets
Incentive problem
Diminishing returns problem
Coordination problem
True or false: The lack of incentives contributed to the economic problems faced by the
economies of the former Soviet Union, eastern Europe, and China prior to market reforms.
True false question.
True
False

Select all that apply

From an economic perspective, which of the following are true of a market?

It is a location utilized to store producer supplies and inventories.

The pursuit of buyers and sellers is making themselves better off.
Buyers and sellers interact in their desire to buy and sell a good or service.
It is a virtual and/or physical institution or space.

Which of the following refers to demand?

Multiple choice question.
Both the buyer and seller sides of any market
The producer side of any market
The buyer side of any market
The seller side of any market

 Fill in the Blank Question

The law of demand describes a(n) inverse relationship between the price of a good or
service and the quantity demanded of that good or service.

 By convention, we measure quantity demanded on the Blank______ axis and price on

the Blank______ axis.
Multiple choice question.
horizontal; vertical
vertical; horizontal

 The market demand curve is the Blank______ of all Blank______ demand curves for a good
or service.
summation; individual
subtraction; individual
exponent; individual
quotient; individual
product; individual
 Buyers and sellers are brought together in a Market
 All of the following are the determinants of demand, except _blank_.
number of buyers in the market
the prices of related goods
price of substitutes in production
consumers' incomes
consumer tastes
consumer expectations

 The concept of demand can be summarized by a schedule or curve showing the quantity of a
product that would be Blank______.
consumed at various possible prices
produced at various possible prices
subsidized at various possible prices
given away at only one price

 Consumers buy Blank______ at each price if the demand curve shifts to the Blank______.
Multiple choice question.
the same amount; left
more; right
less; right
more; left

Select all that apply

According to the law of demand, which of the following statements are true, all other things
being equal?
Multiple select question.
As price decreases, quantity demanded increases.
As price increases, quantity demanded decreases.
As price increases, quantity demanded increases.
As price decreases, quantity demanded decreases.

A Blank______ the demand curve represents a change in demand while a Blank______ the
demand curve represents a change in the quantity demanded.
Multiple choice question.
rotation of; movement along
rotation of; shift of
shift of; movement along
movement along; shift of
True or false: Quantity demanded is illustrated on the vertical axis, while price is illustrated on
the horizontal axis.
True false question.
True
False

Graphically, market demand curve is the Blank______ sum of the individual demand curves.
Multiple choice question.
vertical
horizontal

 Which of the following are determinants of demand?

Number of sellers
Number of buyers
Prices of related goods
Consumer tastes
Corporate taxes and subsidies
Changes in income
Factor prices
Consumer expectations

 Fill in the blank

Market supply is a schedule or curve showing the various amounts of a product
that producers are willing and able to make available for sale at each possible price during a
specific period.

 Consumers buy Blank______ at each price if the demand curve shifts to the Blank______.
Multiple choice question.
less; right
more; left
the same amount; right
less; left

 A change in demand is represented by a Blank______ the demand curve, while a change in

quantity demanded is represented by a Blank______ the demand curve.
shift of; movement along
movement along; shift of
shift of; shift of
movement along; movement along
 Fill in the Blank Question
Price and quantity supplied have a(n) positive relationship.

 The market demand curve is the Blank______ of all Blank______ demand curves for a good
or service.
summation; individual
product; individual
exponent; individual
quotient; individual
subtraction; individual

The supply curve is an upward-sloping curve because as price Blank______, the producer will be
willing to supply Blank______ of the product.
Multiple choice question.
decreases; the same amount
increases; more
increases; less
decreases; more

Which of the following has the greatest effect on the quantity supplied that producers are willing
and able to supply?
Multiple choice question.
price
cost
positive technological changes
Number of buyers

True or false: We obtain the market supply curve by "vertically adding" the supply curves of the
individual producers.
True false question.
True
False

There is Blank______ relationship between the price and quantity supplied.

Multiple choice question.
a constant
an inverse
no
a direct
Select all that apply
Which of the following are determinants of supply?
Multiple select question.
taxes and subsidies
factor prices
consumer expectations
technology

True or false: Quantity demanded is illustrated on the vertical axis, while price is illustrated on
the horizontal axis.
True false question.
True
False

True or false: The prices of the resources or factors used in the production process help
determine the costs of production incurred by firms.
True false question.
True
False

True or false: The supply curve is an upward sloping curve because as price decreases, the
producer will be willing to supply more of the product.
True false question.
True
False

A Blank______ the supply curve represents a change in supply while a Blank______ the supply
curve represents a change in the quantity supplied.
Multiple choice question.
rotation of; movement along
shift of; movement along
movement along; rotation of
movement along; shift

Market supply is a schedule or curve showing the various amounts of a product

that producers are willing and able to make available for sale at each possible price during a
specific period.

What determines market price and equilibrium output in a market?

Multiple choice question.
The interaction of buyers and sellers
The number of sellers in a market
Input prices
Quantity supplied
Quantity demanded

The market supply curve is the horizontal Blank______ of all the Blank______ supply curves for
a good or service.
Multiple choice question.
multiplication; individual
summation; total
subtraction; total
summation; individual

True or false: A surplus is when quantity supplied exceeds quantity demanded.

True false question.
True
False

Select all that apply

Which of the following are determinants of supply?

the number of sellers in the market
price expectations
consumer tastes
consumer income

The ability of the competitive forces of supply and demand to establish a price at which selling
and buying decisions are consistent is called Blank______.
Multiple choice question.
equilibrium allocation
equilibrium price
the rationing function of prices

The Blank______ incurred by firms when producing a good or service arise from the prices of
the inputs that are used to produce said good or service.
costs of production
marginal product of labour
negative externality
revenues and ultimately profits or losses

The production of a good or service in the least costly way is known as Blank______ efficiency.
Multiple choice question.
allocative
price
expenditure
cost
productive

A change in supply is represented by a Blank______ the supply curve while a change in quantity
supplied is represented by a Blank______ the supply curve.
Multiple choice question.
movement along; shift of
movement along; movement along
shift of; movement along
shift of; shift of

An increase in demand while holding supply constant results in a(n) Blank______ in equilibrium
price, and /but a(n) Blank______ in equilibrium quantity.
Multiple choice question.
increase; decreases
decrease; increase
increase; increase
decrease; decrease

The interaction of buyers and sellers determines equilibrium price and equilibrium . quantity

An increase in supply while holding demand constant results in a(n) Blank______ in equilibrium
price, but a(n) Blank______ in equilibrium quantity.
Multiple choice question.
decrease; decrease
increase; increase
increase; decrease
decrease; increase
A surplus is also known as an excess of Blank______.
Multiple choice question.
demand
imports
supply
capital

An increase in supply and a simultaneous and proportional decrease in demand will result
in Blank______ equilibrium price, with Blank______ equilibrium quantity.
Multiple choice question.
an increase in; no effect on
no effect on; no effect on
an increase in; an increase in
a decrease in; no effect on

The rationing function of prices is the ability of the competitive forces of supply and demand to
establish a(n) Blank______ at which selling and buying decisions are consistent.
Multiple choice question.
contract
price
quantity
agreement

Competition among corn producers forces them to use the best technology and right mix of
productive resources; otherwise their costs will be too high relative to the market price and they
will be unprofitable. This is best described asBlank______.
Multiple choice question.
productive efficiency
substitution in production
the law of supply
technological innovation
 Government may place legal limits on prices when it is determined that prices are
unfairly (high/low) for buyers or unfairly (high/low) for sellers.

 Which of the following reflects an increase in demand, while holding supply constant?
Multiple choice question.
An increase in equilibrium quantity and a decrease in equilibrium price
A decrease in both equilibrium price and quantity
An increase in equilibrium price and a decrease in equilibrium quantity
An increase in both equilibrium price and quantity
A price ceiling is the maximum legal price a seller may charge for a product or service where a
price at or below the ceiling is Blank______ and a price above the price ceiling is Blank______.
Multiple choice question.
legal; illegal
legal; legal
illegal; illegal
illegal; legal

Fill in the Blank Question

An increase in supply while holding demand constant, results in a decrease in equilibrium price,
but an increase in equilibrium quantity.

 Which of the following statements summarize the winners and losers of a government-
controlled market?
Multiple select question.
Consumers are winners with price floors as more products will be available at a price they are
willing to pay.
Farmers are winners with price floors because they will be willing to produce and offer more and
make more money.
Landlords are winners with price ceilings as there will be increased demand for their housing and
the price will increase.
Landlords are losers with rent controls as it is less attractive for landlords to offer housing at the
lower price.
Families are winners with rent controls as more families are willing to consume rental housing at
the lower price.
Consumers are losers with price floors as prices of products will increase.

An increase in supply and a simultaneous and proportional decrease in demand will result
in a(n) decrease in equilibrium price, with no effect on equilibrium quantity.

A price (floor/ceiling) is a legally mandated price imposed above the price, otherwise
known as the equilibrium price, that would be established between buyers and sellers in a free
market.

in certain markets, the government sometimes concludes that supply and demand will
produce prices that are unfairly high for buyers or unfairly low for sellers.
 A price (floor/ceiling) is the maximum legal price a seller may charge for a product or
service.

 Why do rent controls cause too few resources to be allocated to rental housing and too many
to alternatives uses?
Rent controls reduce consumer demand for luxury rental units.
Rent controls reduce incentives for governments to approve other real estate developments.
The price floor on rent reduces supply because landlords find it less attractive to offer rental
units.
 The price ceiling on rent reduces supply because landlords find it less attractive to offer
rental units.

True or false: A price at or above the price floor is illegal.

True false question.
True
False

The rationing function of prices is the ability of the competitive forces of supply and demand to
establish a(n) Blank______ at which selling and buying decisions are consistent.
Multiple choice question.
contract
quantity
price
agreement

If a market doesn't produce enough of an economically desirable good, economists refer to that
as a Blank______.
economic surplus
government intervention
overallocation
market failure
negative externality

Consumer surplus is the difference between the Blank______ price a consumer is willing to pay
for a product and the price paid.
Multiple choice question.
equilibrium
actual
lowest
highest

The ______ shows the seller's minimum acceptable price for each unit of the product.
Multiple choice question.
demand curve
supply curve
revenue curve

Fill in the blank question.

Producer surplus is the difference between the actual price a seller receives and the minimum
acceptable price.

All markets that have upward-sloping supply curves yield producer surplus.

 Select all that apply

A market failure is a situation in which a market does not function properly, and goods
are ______.
not produced at all
owned by the government
overproduced
privately owned
underproduced

Select all that apply

Which of the following are achieved at the equilibrium quantity of a good or service?
Allocative efficiency
A shortage of the good or service
Productive efficiency
A surplus of the good or service

______ is the difference between the maximum price a consumer is willing to pay for a product
and the actual price.
Multiple choice question. loss
Producer surplus
Consumer surplus
Product surplus

Fill in the blank question.

The supply curve shows the seller's minimum acceptable price at each unit of the product

 Points on the supply curve represent marginal cost.

Blank______ is the difference between the actual price a seller receives and the minimum
acceptable price.
Extra surplus
Consumer surplus
Producer profit
Producer surplus

Fill in the blank question.

Quantity levels lesser or greater than the efficient quantity create efficiency losses

True or false: All markets that have downward-sloping demand curves yield producer surplus.
True false question.
True
False

A cost or a benefit accruing to an individual or group, a third party, that is external to a market
transaction is known as
Multiple choice question.
an externality.
producer surplus.
consumer surplus.
dead weight loss.
an internal cost.

Fill in the Blank Question

Fill in the blank question.

Economic efficiency is achieved at the equilibrium quantity.

Negative externalities (or spillover costs) result in a(n) ______ of resources to the production of
the good.
Multiple choice question.
underallocation
redistribution
overallocation
equalization

Consumer surplus is the difference between the Blank______ price a consumer is willing to pay
for a product and the price paid.
Multiple choice question.
highest
equilibrium
lowest
actual

Because some individuals do not consume a beneficial product but accrue benefits from others
who do consume the product benefiting society, producers Blank______.
Multiple choice question.
maintain resources at the same level to the beneficial product
overallocate resources to the beneficial product
underallocate resources to the beneficial product
demand government to mandate use of the beneficial product by society

Points on the demand curve represent Blank______.

Multiple choice question.
efficiency in production
marginal cost
marginal revenue
marginal benefit

Specific taxes and legislation are two government solutions for Blank______.
Multiple choice question.
positive externalities
pure monopoly
negative externalities
competitive markets
Multiple Select Question
Select all that apply

Two types of government solutions for negative externalities are: Blank______.

Multiple select question.
transfer payments
specific taxes
credit lines to firms
legislation
subsidies

______ are created when production does not provide the equilibrium quantity.
Multiple choice question.
No changes in efficiency
Efficiency losses
Efficiency gains

The direct way to reduce negative externalities from a certain activity is to pass
legislation limiting that activity.

A(n) externality is a cost or a benefit accruing to an individual or group, a third party, that is
external to a market transaction.

Direct controls on pollution raise the marginal cost of production because Blank______.
Multiple choice question.
the firms must purchase, operate and maintain pollution control equipment
the firms must pay taxes in order to operate and maintain pollution control equipment
the firms must eliminate pollution control equipment
the firms must pay new taxes on overproduction and overallocation of resources

A(n) Blank______ is indicated when there is an overallocation of resources to the production of

a good or service.
Multiple choice question.
negative externality
spillover benefit
economic surplus
positive externality
When the government implements a direct control, the Blank______ curve shifts to
the Blank______ and the initial overallocation of resources is corrected.
Multiple choice question.
demand; right
supply; right
demand; left
supply; left

The result of positive externalities is that the market produces too Blank______ units of a
product that could benefit society, resulting in producers Blank______ resources to that product.
Multiple choice question.
few; overallocating
few; underallocating
many; underallocating
many; overallocating

Specific taxes and legislation are two government solutions for Blank______.
Multiple choice question.
pure monopoly
competitive markets
positive externalities
negative externalities

Government can attempt to correct a market experiencing a positive externality by directly

producing the good, or by Blank______ producers and/or consumers of the good.
Multiple choice question.
subsidizing
educating
regulating
taxing

The direct way to reduce negative externalities from a certain activity is Blank______.
Multiple choice question.
to pass taxes limiting that activity
to pass legislation limiting that activity
to pass legislation encouraging that activity
to pass taxes encouraging that activity
True or false: Government could correct the overallocation of resources by subsidizing
consumers of the product.
True false question.
True
False

Direct controls raise the marginal cost of production because firms must operate and maintain
pollution control equipment.

True or false: A subsidy to a producer is a payment from the government to decrease the
producers' cost to encourage more supply of a product beneficial to society.
True false question.
True
False

When the government implements a direct control, the supply curve shifts to the ______ and the
efficiency loss______.
Multiple choice question.
left; grows
left; disappears
right; disappears
right; grows

Because some individuals do not consume a beneficial product but accrue benefits from others
who do consume the product benefiting society, producers Blank______.
Multiple choice question.
underallocate resources to the beneficial product
overallocate resources to the beneficial product
maintain resources at the same level to the beneficial product
demand government to mandate use of the beneficial product by society

Government can attempt to correct a market experiencing a (positive/negative) externality by

subsidizing producers and/or consumers, or by government production of the product.

______ must rise as more of a good is produced beyond the point at which diminishing returns
sets in.
Multiple choice question.
Marginal costs
Marginal revenue
Total profit
Fixed costs
Marginal profit
Government can correct the Blank______ of resources by subsidizing consumers of the product.
Multiple choice question.
overallocation
overproduction
efficiency
underallocation

A (subsidy to a producer is a payment from the government to decrease a producer's cost in

order to encourage more output of a product deemed beneficial to society.

The marginal benefit curve for pollution reduction slopes Blank______.

Multiple choice question.
upward because of increasing marginal utility
upward because of increasing marginal returns
downward because of the law of diminishing marginal revenues
downward because of the law of diminishing marginal utility

When the government implements a direct control, the Blank______ curve shifts to
the Blank______ and the initial overallocation of resources is corrected.
Multiple choice question.
supply; left
demand; left
supply; right
demand; right

Suppose pollution has worse health effects on humans than previously believed. We would
expect society's marginal benefit (of pollution abatement) curve to shift Blank______ and for the
optimal level of pollution abatement to Blank______.
Multiple choice question.
rightward; rise
rightward; fall
leftward; fall
leftward; rise

The result of positive externalities is that the market produces too Blank______ units of a
product that could benefit society, resulting in producers Blank______ resources to that product.
Multiple choice question.
many; overallocating
few; overallocating
few; underallocating
many; underallocating

Beyond the point at which diminishing returns sets in, as more of a good is produced, marginal
costs tend to rise

Which of the following describes economically inefficient outcomes caused by shortcomings in

the public sector?
Multiple choice question.
Market failure
Deadweight loss
Government failure
Negative externality

True or false: Government could correct the overallocation of resources by subsidizing

consumers of the product.
True false question.
True
False
The marginal benefit curve for pollution reduction slopes downward because of the law of
diminishing marginal utility

What is the term for the situation when one party knows has a lot more information than the
other?
Multiple choice question.
information hazard
moral hazard
concise information
asymmetric information

Suppose the technology of pollution-control equipment improved noticeably in the future. We

would expect society's marginal cost curve to shift Blank______ and the optimal level of
abatement to Blank______.
Multiple choice question.
leftward; fall
rightward; fall
rightward; rise
leftward; rise
Because some individuals do not consume a beneficial product but accrue benefits from others
who do consume the product benefiting society, producers Blank______.
Multiple choice question.
overallocate resources to the beneficial product
underallocate resources to the beneficial product
demand government to mandate use of the beneficial product by society
maintain resources at the same level to the beneficial product

Government failure is the term used to describe Blank______.

Multiple choice question.
economically inefficient outcomes caused by shortcomings in the public sector
economically inefficient outcomes caused by negative and positive externalities
economically inefficient outcomes caused by the private sector
failure of allocative and productive efficiency in the private and public sectors

When information is asymmetric, society’s scarce resources may be allocated inefficiently, thus
implying that the Blank______ should intervene.
Multiple choice question.
the stock market
free market
banking system
government

Government can correct the Blank______ of resources by subsidizing consumers of the product.
Multiple choice question.
overproduction
underallocation
efficiency
overallocation

What is asymmetric information?

Multiple choice question.
When parties to a transaction are well informed and both are making a rational decision.
When both parties have little information and no transaction is made.
When one party in a market transaction has a lot more information than the other.
When both parties have access to a vast amount of information on the internet.

Suppose pollution has worse health effects on humans than previously believed. We would
expect society's marginal benefit (of pollution abatement) curve to shift Blank______ and for the
optimal level of pollution abatement to Blank______.
Multiple choice question.
leftward; rise
leftward; fall
rightward; rise
rightward; fall

When information is asymmetric, society’s scarce resources may be allocated Blank______, thus
implying that Blank______ should intervene.
Multiple choice question.
inefficiently, the government
inefficiently; the banking system
efficiently; government
efficiently; the banking system

True or false: Government could correct the overallocation of resources by subsidizing

consumers of the product.
True false question.
True
False