Assignment 2

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Question 1 (1 point)

Consumer sovereignty refers to

the idea that the desires of both producers and the government ultimately decide what is produced.
the idea that consumers try to maximize their expenditures.
the idea that consumers ultimately determine what is produced.
a situation in which the government decides what is produced.
the fact that consumers' choices are limited to what the producers decide to produce.

Question 2 (1 point)

Competitive firms produce in the manner that _________ costs and __________ profits.

maximizes, minimizes
maximizes, maximizes
minimizes, minimizes
minimizes, maximizes
eliminates, maximizes

Question 3 (1 point)

In economics, the invisible hand is not

the self-interest that drives firms to provide what consumers want to buy.
government intervention in the economy.
what leads consumers to use their limited incomes to buy the goods and services that give them the most satisfaction.
a term attributed to Adam Smith.
what induces resource owners to supply resource services where they are most highly valued.

Question 4 (1 point)

When economists refer to the public sector, they refer to

the firms.
the public universities.
the political parties.
the government.
the households.

Question 5 (1 point)

Spending by which sector is the largest component of spending in the economy?

Sole proprietors
Investors
Firms
Government
Households

Question 6 (1 point)

The three basic types of businesses in the United States are

enterprises, partnerships, and corporations.
partnerships, firms, and proprietorships.
partnerships, multinationals, and corporations.
corporations, households, and proprietorships.
corporations, proprietorships, and partnerships.

Question 7 (1 point)

Which of the following would be considered an investment?

The purchase of a new winter coat
The deposit of $2,000 in a passbook account
The purchase of a share of IBM stock
The purchase of U.S. Treasury bills
The purchase of a new drilling machine by the Schmidt Construction Company

Question 8 (1 point)

A U.S. export occurs when

IBM purchases computer chips from Motorola.
France imports leather shoes from Italy.
Kuwait sells oil to a U.S. oil company.
Germany buys Pontiacs from General Motors.
Pepsi-Cola sells soft drinks to a local retailer.

Question 9 (1 point)

The circular flow model

shows that income is rarely equal to output.
shows how businesses sell their resource services to households.
illustrates how different sectors of the economy are linked together.
illustrates how business firms interact with one another.
shows the flow of output and income within one sector of the economy.

Question 10 (1 point)

The circular flow model for the private sector shows that

net exports are always equal to zero.
financial intermediaries use the deposits from households to make loans to businesses.
business firms are the revenue source for consumers.
the goods and services produced by business firms are sold through resource markets.
factors of production are demanded only by the government.

Question 11 (1 point)

A trade deficit arises because

net imports are negative.
imports exceed exports.
exports exceed imports.
inflows of goods and services from foreign countries are less than outflows of goods and services from the domestic country.
net exports are positive.

Question 12 (1 point)

All of the following are used to justify the intervention of the government in the private economy except

the existence of private property rights.
public goods.
positive externalities.
market imperfections.
incentives to free-ride on others.

Question 13 (1 point)

Which of the following is not an example of an externality?

Air pollution from factories
Throwing a candy wrapper out your car window
Selling a product below cost
The dumping of chemicals into a nearby lake
Education

Question 14 (1 point)

Which of the following would be classified as a public good?

Telephones
Automobiles
National defense
Cable television programs
Lottery tickets

Question 15 (1 point)

In the absence of government, an underallocation of resources generally exists for

external cost goods and services.
public goods and services.
imported products.
external benefit goods and services.
public and external benefit goods and services.

Question 16 (1 point)

Fluctuations in the economy are called

rent seeking.
business cycles.
public choice.
the free-rider problem.
None of these

Question 17 (1 point)

What is the difference between the microeconomic functions of government and the macroeconomic functions?

Macroeconomic functions deal with individual economic entities while microeconomic functions deal with broad economic sectors.
There are no macroeconomic functions of government because macroeconomics deals with broad economic sectors.
There are no microeconomic functions because microeconomics deals with individual economic entities.
Microeconomic functions deal with individual economic entities while macroeconomic functions deal with broad economic sectors.
There is no difference.

Question 18 (1 point)

Monetary policy would not include

reducing the money supply in an effort to control inflation.
increasing tax rates in an effort to control inflation.
increasing interest rates to control the money supply.
a policy directed toward controlling credit.
a Federal Reserve intervention in the economy.

Question 19 (1 point)

Who formulates fiscal policy in the United States?

Congress and the president
The director of the Office of Budget and Management and the Secretary of State
The Secretary of the Treasury and Congress
The president and the Council of Economic Advisers
The Federal Reserve

Question 20 (1 point)

According to the text, there are significant differences between the market system and the centrally planned system. All of the following are differences except

private individuals starting new businesses.
private ownership of land.
private ownership of businesses.
the existence of a government.
private choices and purchases of goods and services.

Question 1 (5.00 points)

Carefully analyze the consequences of a sudden trade deficit in the private-sector circular flow diagram. What role would financial intermediaries have to play in order to restore equilibrium conditions?

Question 2 (5.00 points)

Explain why and how the government takes a role in the economy.

Copyright 2008, by the Contributing Authors. Cite/attribute Resource. admin. (2006, July 03). Assignment 2. Retrieved August 28, 2008, from Free Online Course Materials — USU OpenCourseWare Web site: http://ocw.usu.edu/Economics/Introduction_to_Microeconomics/assignment2.htm. This work is licensed under a Creative Commons License.

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