ECN 104 Lecture Notes - Lecture 7: Token Money, Profit Maximization, Inverse Function
6 Jun 2018
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CHAPTER2TheMarketSystemandtheCircularFlow
Copyright(c)2010McGraw-HillRyersonLimited
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CHAPTER 2
The Market System
and the Circular Flow
Topic Question numbers
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2.1 Economic systems 1-11
The command system 1-4
The market system 5-11
2.2 Characteristics of the market system 12-50
Private property 12-18
Freedom of enterprise and choice 19-21
Self-interest 22-23
Competition 24-29
Markets and prices 30-32
Technology and capital goods 33-35
Specialization 36-41
Use of money 42-48
Active, but limited, government 49-50
2.3 Five fundamental questions 51-81
What will be produced? 51-59
How will the goods and services be produced? 60-61
Who will get the output? 62-65
How will the system accommodate change? 66-73
How will the system promote progress? 74-75
The "invisible hand" 76-81
2.4 The demise of the command system 82-84
The coordination problem 82-83
The incentive problem 84
2.5 The circular flow model 85-100
Factor market and Product market 85-100
The Last word 101-103
True-False Questions 104-114
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CHAPTER2TheMarketSystemandtheCircularFlow
Copyright(c)2010McGraw-HillRyersonLimited Page2
1. The command system is also known as:
A) market system.
B) pure capitalism.
C) market socialism.
D) socialism or communism.
Ans: D Level: Easy Main Topic: 2.1 Economic systems
Page: 31 Subtopic: The command system Type: Application
2. The economy of the former Soviet Union was best described as:
A) authoritarian capitalism.
B) mixed capitalism.
C) a command economy.
D) market socialism.
Ans: C Level: Easy Main Topic: 2.1 Economic systems
Page: 32 Subtopic: The command system Type: Application
3. The economy of North Korea most closely approximates:
A) pure capitalism
B) a command economy
C) market socialism
D) authoritarian capitalism
Ans: B Level: Easy Main Topic: 2.1 Economic systems
Page: 32 Subtopic: The command system Type: Application
4. The recent China's economy most closely approximates:
A) pure capitalism
B) a command economy
C) market socialism
D) authoritarian capitalism
Ans: C Level: Easy Main Topic: 2.1 Economic systems
Page: 32 Subtopic: The command system Type: Application
5. Which would not be characteristic of a capitalist economy?
A) government ownership of the means of production
B) competition and unrestricted markets
C) reliance on the market system
D) free enterprise and choice
Ans: A Level: Easy Main Topic: 2.1 Economic systems
Page: 32Subtopic: The market system Type: Application
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CHAPTER2TheMarketSystemandtheCircularFlow
Copyright(c)2010McGraw-HillRyersonLimited Page3
6. Which of the following statements best describes a mixed economy?
A) In a mixed economy, society determines production and the allocation of goods and
services only through the market system.
B) In a mixed economy, government policies determine the production and the
allocation of goods and services, but each individual is free to pursue his or her
own self-interest.
C) In a mixed economy, the government and private sectors interact in determining
production and allocation of goods and services.
D) In a mixed economy, the role of individual self-interest is relatively unimportant
because government makes most of the economic decisions.
Ans: C Level: Moderate Main Topic: 2.1 Economic systems
Page: 32Subtopic: The market system Type: Definition
7. The private ownership of property resources and use of prices to direct and coordinate
economic activity is characteristic of:
A) a command system.
B) a market system.
C) communism.
D) socialism.
Ans: B Level: Easy Main Topic: 2.1 Economic systems
Page: 32Subtopic: The market system Type: Definition
8. In a capitalistic economy:
A) consumers can never be sovereign.
B) markets can never be competitive.
C) there is a reliance on the market system.
D) the government owns the means of production.
Ans: C Level: Easy Main Topic: 2.1 Economic systems
Page: 32Subtopic: The market system Type: Application
9. The term "laissez faire" suggests that:
A) land and other natural resources should be privately owned, but capital should be
publicly owned.
B) land and other natural resources should be publicly owned, but capital equipment
should be privately owned.
C) government should not interfere with the operation of the economy.
D) government action is necessary if the economy is to achieve full employment and
full production.
Ans: C Level: Easy Main Topic: 2.1 Economic systems Page: 32
Subtopic: The market system Type: Definition
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Document Summary
Chapter 2 the market system and the circular flow. Chapter 2 the market system and the circular flow: the command system is also known as, market system. Ans: d level: easy main topic: 2. 1 economic systems. Subtopic: the command system type: application: the economy of the former soviet union was best described as: authoritarian capitalism. Subtopic: the command system type: application h: the economy of north korea most closely approximates: pure capitalism a command economy. Subtopic: the command system type: application l: the recent china"s economy most closely approximates: e pure capitalism a command economy. D) government ownership of the means of production competition and unrestricted markets reliance on the market system free enterprise and choice. Ans: a level: easy main topic: 2. 1 economic systems. In a mixed economy, society determines production and the allocation of goods and services only through the market system.
