Assessment
Multiple-Choice Questions
1. All of the following are characteristics of a market economy except
a. The government controls production and consumption decisions.
b. Private property of individuals is well defined and protected.
c. Competition puts pressure on businesses to satisfy consumer desires.
d. Profits are an incentive for producers to respond to consumer choices.
2. In the case of stock trades, the secondary market consists of
a. The purchase of a company's stock by investment banks.
b. The first offering of a company's stock to the public.
c. The trading of a company's stock in a stock market through brokers.
d. All trading that occurs in the initial public offering of a stock.
3. All of the following are true of the New York Stock Exchange except
a. It is the oldest of the major stock markets.
b. It has a fixed number of memberships called "seats.
c. It is the home of the S & P 500 stock index.
d. It is the largest market in terms of stock trade value.
4. Which of these is an accurate statement about the NASDAQ and the NYSE?
a. The NASDAQ is a secondary market; the NYSE is a primary market.
b. Trading on both the NASDAQ and the NYSE is limited to one physical location.
c. Membership on the NYSE is limited; the NASDAQ has an open membership.
d. The NASDAQ was founded before the NYSE.
Essay Question
Briefly explain the role profits play in a market economy. Then explain how investors in the stock market are driven by the desire to earn profits when they buy stocks. Describe two ways in which investors can earn profits from investing in stocks.
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