Multiple Choice
Identify the
choice that best completes the statement or answers the question.
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1.
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The responsibilities of people in a free enterprise economy include
a. | being truthful. | c. | open disclosure. | b. | obeying the law. | d. | All of the
above |
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2.
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Which of the following is not a feature of free enterprise?
a. | private property | c. | voluntary exchange | b. | public property | d. | competition |
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3.
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Eminent domain refers to
a. | the city government having the right to permit or prohibit businesses from building
within the city limits. | b. | the right to own your own home and keep others
from entering it. | c. | the right of government to take ownership of
private land without the consent of the owner by compensating owners for the loss of their
land. | d. | the right of a company to take ownership of private land without the consent of the
owner by compensating owners for the loss of their land. |
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4.
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Economists believe that people respond to
a. | the wishes of the government. | c. | monetary
incentives. | b. | speeches from politicians. | d. | requests from policy makers. |
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5.
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The circular flow diagram shows
a. | relationships in the economy. | c. | economic
policies. | b. | how banks circulate money. | d. | the flow of world trade. |
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6.
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On the circular flow diagram, tax dollars flow to the government from
a. | households and businesses. | c. | households. | b. | foreign
countries. | d. | businesses. |
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7.
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The amount of money that a business receives from the sale of its production is
called
a. | profit. | c. | total revenue. | b. | loss. | d. | average cost. |
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8.
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The money that a business pays for the things required for production of its
products is called
a. | costs. | c. | losses. | b. | profits. | d. | revenues. |
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9.
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Although there are no guarantees in a free enterprise system, it offers
a. | success. | c. | high incomes. | b. | freedom. | d. | government
backing. |
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10.
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Entrepreneurs are motivated by
a. | the desire to be famous. | c. | humanitarian
reasons. | b. | potential profit. | d. | goodwill. |
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11.
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Which of the following is a public good?
a. | hamburger | c. | post office | b. | car | d. | beauty shop |
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12.
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Which of the following is a private good?
a. | bicycle | c. | school | b. | court | d. | park |
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13.
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A person who receives the benefits of a good without paying for it is called
a
a. | bum. | c. | free rider. | b. | freeloader. | d. | thief. |
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14.
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The government produces public goods because
a. | it is the only entity that knows how to do so. | b. | it prohibits
businesses from producing them. | c. | the private market will not produce
them. | d. | All of the above |
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15.
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National defense is an example of a
a. | private good. | c. | positive externality. | b. | public
good. | d. | negative
externality. |
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16.
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An externality exists when
a. | one person’s actions affect another person. | b. | the buyers and
sellers meet. | c. | the government is involved. | d. | businesses sell their products to foreign
countries. |
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17.
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Positive externalities occur when one person’s actions
a. | make that person wealthy. | c. | result in harm to another
person. | b. | beneficially affect another person. | d. | have no impact on
others. |
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18.
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A negative externality
a. | has an adverse effect on a third party. | c. | has an adverse effect on the
producer. | b. | has an adverse effect on the consumer. | d. | affects everyone
equally. |
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19.
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Which of the following products have been created by entrepreneurs to help
consumers economize on time?
a. | computers | c. | cell phones | b. | microwave ovens | d. | All of the
above |
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20.
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According to this textbook, taxation
a. | always achieves its intended effect. | b. | can be accurately accessed by policy
makers. | c. | comes with unintended consequences. | d. | has no effect on consumer
spending. |
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21.
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The controversial Supreme Court case Kelo v. New London was about
a. | economic incentives. | c. | competition. | b. | voluntary exchange. | d. | private
property. |
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22.
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Which of the following is not a result of competition?
a. | lower wages | c. | better quality goods | b. | bigger selection of
products | d. | lower
prices |
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23.
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In the United States, laws have been developed to
a. | regulate business ownership. | c. | regulate trade. | b. | regulate
banking. | d. | regulate
innovation. |
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24.
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The circular flow has two loops. What do they represent?
a. | the flow of dollars and the flow of loans | b. | the flow of goods
and the flow of services | c. | jobs and incomes | d. | the flow of goods
and services and the flow of dollars |
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25.
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On the circular flow diagram, resources flow from
a. | businesses to the government. | c. | households to the
government. | b. | households to businesses. | d. | businesses to households. |
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26.
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What do households sell to businesses?
a. | services | c. | goods | b. | assets | d. | resources |
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27.
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Profits and losses are signals to
a. | firms earning the profits or taking the losses. | b. | firms standing on
the sidelines. | c. | consumers who follow business trends. | d. | Both a and b |
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28.
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Which document does not specifically contain free enterprise economic
principles within it?
a. | U.S. Constitution | c. | Bill of Rights | b. | Declaration of Independence | d. | Das
Kapital |
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29.
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Which of the following documents notes that “private property [shall
not] be taken for public use, without just compensation”?
a. | U.S. Constitution | c. | Bible | b. | Bill of Rights | d. | Declaration of
Independence |
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30.
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When the Constitution states that “no tax or duty shall be laid on
articles exported from any State,” it is strongly supporting
a. | states’ rights. | c. | competition. | b. | equality. | d. | taxation. |
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31.
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The economist and entrepreneur who created the system of offering overbooked
passengers compensation if they would take a later flight was
a. | Julian Simon. | c. | Frederic Bastiat. | b. | Steve Jobs. | d. | Thomas Sowell. |
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32.
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Economists agree that the role of government is to
a. | produce nonexcludable public goods. | c. | produce an economic plan for
production. | b. | enforce contracts. | d. | Both a and b |
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33.
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Public goods include all of the following except
a. | a park. | c. | your yard. | b. | national defense. | d. | the beach. |
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34.
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A free rider is a person who
a. | receives the benefit of a good and pays full price. | b. | receives the benefit
of a good but doesn’t pay for it. | c. | buys a good at a discount
price. | d. | None of the above |
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35.
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Businesses prefer to produce
a. | excludable public goods. | c. | nonexcludable private
goods. | b. | nonexcludable public goods. | d. | All of the above |
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36.
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The government will provide nonexcludable public goods and pay for them
with
a. | interest. | c. | taxes. | b. | bonds. | d. | savings. |
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37.
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A good is excludable if
a. | one person’s use of the good reduces another person’s enjoyment of
it. | b. | the government regulates whether or not you may use it. | c. | people can be
prevented from using it. | d. | it is produced by a private
firm. |
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38.
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National defense is a good example of a public good because
a. | individuals can’t afford to arm themselves properly. | b. | everyone wants to be
protected. | c. | there aren’t enough private security companies to protect
us. | d. | it is difficult to exclude people from receiving the benefits from national defense
once it is provided. |
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39.
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Which of the following is an externality?
a. | a neighbor’s dog barking | c. | a neighbor landscaping his
yard | b. | pollution from a local factory | d. | All of the
above |
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40.
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The government can minimize the negative externalities in society through
a. | the court system. | c. | taxation. | b. | regulation. | d. | All of the
above |
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