Economics Midterm Review

Unit 1 - Fundamentals

1) The United States government is LEAST LIKELY involved in the nation's economy as aA) consumer of goods and services.C) protector against false advertising and environmental hazards.

B) planner deciding what to produce.D) regulator charged with preserving competition in the marketplace.

Explanation: The United States government does not act as a central planner deciding what to produce. In a market economy such as the United States, decisions concerning what to produce are made by private producers in response to market conditions. Central planning is a characteristic of socialist and communistic economies.

2) Benjamin has saved $40.00 for concert tickets, but decides to buy a new pair of jeans instead. In this scenario, what do the concert tickets MOST LIKELY represent?A) capitalC) opportunity cost

B) scarcityD) decreased demand

Explanation: Opportunity cost is defined as the value of an economic choice a person did not make.

3) Acme Furniture Manufacturers has just purchased a large supply of exotic lumber that is ready for use in their new line of furniture. This purchase BEST represents which of the factors of production?

A) landC) labor

B) entrepreneurshipD) capital

Explanation: Timber- or trees- are considered to be a natural resource, or "land."

4) Mr. Simpson has decided to start a new company to produce bobble-head dolls. He has hired a contractor to build his factory and a manager to run the company for him. Mr. Simpson PRIMARILY represents which factor of production?A) capitalC) labor

B) entrepreneurshipD) land

Explanation:Entrepreneurship is defined as the ability and risk-taking involved in starting a new business.

5) Which characteristic is PRIMARILY associated with a command economy?A) competition among suppliers in the marketC) centralized decision making about what will be produced

B) free access to the marketplace for producersD) competition in the marketplace to provide consumer choice

Explanation: Centralized decision making about what will be produced as well as about how things will be produced are primary characteristics of command economies. These are also sometimes referred to as "planned" economies.6) Which of these BEST represents capital investment for a company?

A) advertisingC) buying new equipment

B) renting spaceD) hiring new employees

Explanation: In economics, capital includes the buildings and equipment needed to produce goods and services.

7) The BEST explanation of why there will always be scarcity is becauseA) people and their tools are inefficient.C) governments create scarcity to keep people wanting more.

B) natural disasters create frequent shortages.D) while peoples' wants are unlimited, resources are limited.

Explanation: While people and machines are inefficient and disasters can cause shortages, they do not account for the ever-present scarcity of raw goods and resources that define scarcity.

Use the chart above to answer questions 8) and 9).

8) A company is trying to decide how many workers to hire. They want to maximize profits. What is the maximum number of workers the company can hire to maximize profits while not having marginal costs exceed marginal revenue?A) 8C) 10

B) 9D) 11

Explanation: The company should hire 9 workers to maximize profits. With the addition of the 10th worker, marginal costs exceed marginal revenue.

9) The owners of a local business are making a rational decision about how many workers to hire. How many workers would cause the marginal costs to exceed the marginal benefits?A) 8C) 10

B) 9D) 11

Explanation: 10 workers cause the marginal costs to exceed the marginal benefits. Although the marginal costs for 11 workers are also higher that the marginal revenue, the marginal costs from 10 workers had already raised the costs.

10) New e-commerce businesses, including companies like eBay, focus on voluntary exchange. Which generalization BEST describes this type of commerce?A) Decentralized decision-making requires a large bureaucracy.C) Centralized decision-making results in buyers and sellers freely engaging in commerce.

B) Centralized decision-making produces dramatic economic output.D) Decentralized decision-making results in buyers and sellers freely engaging in commerce.

Explanation: Voluntary exchange (like eBay) results in decentralized decision-making with buyers and sellers freely engaging in commerce.

11) A measure of the amount of output produced by a given amount of inputs in a specific period of time is the definition ofA) allocation.C) opportunity costs.

B) productivity.D) equilibrium price.

Explanation: Productivity is defined as a measure of the amount of output produced by a given amount of inputs in a specific period of time. Labor- and the cost associated with it- plays an important role in determining this.

12) Bob would like to increase his earnings. The option MOST LIKELY to increase his earnings potential in the long-term is toA) spend money to renew current training.C) spend money for additional training and education.

B) take a similar position with a different company.D) laterally transfer to a different job within his company

Explanation: Bob will MOST LIKELY increase his earnings potential in the long-term if he spends money for additional training and education. This might make his short-term finances difficult, but over time he will likely make much, much more money than if he had not gone to school.

13)Our greatest primary task is to put people to work. This is no unsolvable problem if we face it wisely and courageously. It can be accomplished in part by direct recruiting by the Government itself, treating the task as we would treat the emergency of a war, but at the same time, through this employment, accomplishing greatly needed projects to stimulate and reorganize the use of our natural resources.-Franklin D. Roosevelt, First Inaugural Address, 1933Four years after the stock market crash, FDR became the thirty-second president. This portion of his speech MOST LIKELY illustrates his belief thatA) governments should go to war to increase the number of jobs in the military.C) the natural resources of the U.S. were running out.

B) governments should get actively involved in addressing unemployment.D) the U.S. was on the brink of WWII.

Explanation: This portion of FDR's speech MOST LIKELY illustrates his belief that governments should get actively involved in addressing unemployment. FDR's view of the government's role in providing public goods and services is considered more "liberal" in that he created the New Deal programs to address the problems of the Great Depression.

14)

How does the activity in this image represent specialization?A) The products being produced are specialized for each worker.C) This worker is making a product that is different from that of other workers.

B) This worker is completing one of many parts of a final product.D) This worker is performing many different steps in the production of a product.

Explanation: Division of labor is a form of specialization.

15)Government Attempts to Regulate Technologyby Stephen J. Bigelow, Processor Magazine, November 12, 2004

"One of the key roles of government is to form policies and regulate activities that improve the health and welfare of everyday citizens or protect citizens from harm. Because technology plays such a critical role in our lives, it's no surprise that governments also seek to place controls and regulations on technologies, as well. Most regulatory efforts have either resulted in undesired side effects or have proven impractical because they are impossible to enforce...In general, small and medium-sized enterprises are disproportionately hit by the cost of regulatory compliance."

Which of these BEST summarizes the opinion of the author regarding regulatory activities of the government?A) Most types of government regulations result in harm to consumers.C) Small technology enterprises bear less of the costs of regulatory compliance.

B) Regulatory measures often have results contrary to the original intention.D) Government effectively monitors regulatory compliance of the technology industry.

Explanation: The third sentence notes that the regulations often result "in undesired side effects or have proven impractical because they are impossible to enforce."

16)"With respect to interstate and overseas air transportation to consider the following as being in accordance with the public convenience and necessity: (1) the maintenance of safety as the highest priority in air commerce; (2) placing maximum reliance on competition in providing air transportation services; (3) the encouragement of air service at major urban areas through secondary or satellite airports; (4) the avoidance of unreasonable industry concentration which would tend to allow one or more air carriers to unreasonably increase prices, reduce services, or exclude competition; and (5) the encouragement of entry into air transportation markets by new air carriers, the encouragement of entry into additional markets by existing air carriers, and the continued strengthening of small air carriers."

- Public Law 95-504, "Airline Deregulation Act"

The LEAST LIKELY result of the passage of the Airline Deregulation Act of 1978 wasA) ticket prices determined by market forces.C) a decreased average level of safety for passengers.B) greater competition within the airline industry.D) the creation of more and smaller airports in the U.S.

Explanation: A decreased average level of safety for passengers would be least likely to be one of the effects of this act. Notice that the first point in the act specifically states that maintaining airline safety is the "highest priority" in the industry. Deregulation is an important aspect of a market economy.

17)To promote competition...in order to secure lower prices and higher quality services for American telecommunications consumers and encourage the rapid deployment of new telecommunications technologies.

-Telecommunications Act of 1996

A) regulation.C) deregulation.

B) divestiture.D) market failure.

Explanation: "To promote competition" is the key to the answer.

18)

According to the information from the U.S. Department of Labor, which factor has the GREATEST impact on raising labor productivity?A)research & developmentC)profit sharing

B)education & skillD)recruitment

Explanation: According to the graph, education & skill are most important in raising labor productivity. See: your parents and teachers are right!

19) Communism and socialism are usually found in what type of economic system?A) commandC) pure market

B) traditionalD) mixed market

Explanation: Due to the degree of government involvement in answering the basic economic questions, communism and socialism are forms of command economies. However, there is a small degree of socialism in the United States economy, too, such as minimum wage laws, safety standards on cars and baby clothing, and many others.

20) How do private property rights contribute to a capitalist system?A) The government owns most of the factors of production.C) Individuals are free to own the resources used to produce goods.

B) High quality products and reasonable prices are guaranteed.D) Businesses can determine what to produce based on consumer demand.

Explanation: Private property rights is a characteristic of capitalism. So as long as all laws are being followed, individuals are free to own the resources used to produce goods.

21) Which statement describes an opportunity cost that could result from the government regulating businesses?A) Less recalls occur as a result of government regulations.C) Government regulations can lead to an increase in production costs.

B) Government regulations can lead to an increase in product safety.D) Consumer protection declines as a result of government regulations.

Explanation: The opportunity cost is that government regulations can lead to an increase in production costs. This could lead to higher prices for the consumer.

22) Which of these is an example of how the U.S. Constitution protects the free enterprise system?A) Congress is given the power to borrow money.C) Congress is given the authority to raise and support armies.

B) Congress is given the authority to collect taxes.D) Congress is given the authority to grant patents and copyrights.

Explanation: One way the U.S. Constitution protects free enterprise is by giving Congress the authority to grant patents and copyrights. Part of Article I, Section 8 states that Congress will have the power to "promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries...." Innovation is encouraged by allowing creators of original works and inventions to be the sole producers or publishers of their works for a specified time, allowing the authors and inventors to potentially obtain economic benefits for their ideas.

23) In what way does specialization increase productivity?A) Specialization reduces scarcity.C) Specialization increases the demand for a product.B) Specialization reduces the cost of production.D) Specialized workers are generally more highly educated.

Explanation: Example, a specialized worker has a higher output without increasing the amount of labor required, therefore reducing labor costs.

24) In markets both parties are better off when they engage in voluntary, non-fraudulent exchange. What is the role of government in promoting such exchange?A) There is no role for the government; the government only impedes exchange.C) The role of government is to make sure all individuals are treated equally.

B) The governments role is to create legislation to prevent fraud.D) The governments role is to make sure sellers make a profit and stay in business.

Explanation:In order for both parties to be better off, the exchange has to be honest; meaning each person knows what they are getting. In this sense , the governments role is to create legislation to prevent fraud. While the government cannot prevent all fraud, by making it illegal, it reduces fraud and thus promotes more voluntary exchanges.

25) An investment in improving the skill level of labor is considered an investment inA) human capital.C) improved technology.

B) entrepreneurship.D) capital improvements.

Explanation: Any investment in labor training or education is considered an investment in human capital which is an improvement in the human resource, labor.

26) How might the development of the internet increase productivity?A) Workers can access social networking sites.C) The products of the business will be well known.B) Businesses have greater access to resources.D) Managers have more free time to search for other jobs.

Explanation: Although the internet can help products to become more well known, that increases sales, not productivity. Workers accessing social networking sites at work can actually decrease productivity.

27) Which scenario is the BEST example of how the government would act in a mixed market economy?A) The government requires a factory to produce surplus goods for the use of the military.C) The government allows only two competitors to offer goods for sale on the country's highways.

B) The government stops a factory from producing imitations of an expensive type of purse.D) The government imposes a limit on the number of television sets that can be exported annually.

Explanation: The government stops a factory from producing imitations of an expensive type of purse. In this situation, the government is protecting the free market, since producers would be less to produce high-demand items if they were afraid pirated versions would be allowed to be sold openly.

28) A firm conducted a market analysis and determined that a new worker should be hired. If the firm decided the price of the product will remain the same, what change should occur initially to maximize revenue?A) The firm should increase output.C) The firm should keep productivity the same.

B) The firm should decrease output.D) The firm should raise costs other than labor.

Explanation: The firm should increase output initially if they are unwilling to raise the price of the product. With increased productivity, the firm might consider lowering the price in the future. If the productivity remains the same with the additional worker, the firm might lose money.

29) How can firms use marginal analysis to determine the price of a product?A) Profit maximization can occur when the marginal cost exceeds the marginal revenue.C) Marginal analysis can be used to determine at what price profit maximization occurs.

B) The total cost of production can determine the individual unit price of a product.D) Firms can calculate the marginal cost of a product and set the price lower than the cost.

Explanation: Marginal analysis looks at the marginal costs and benefits of increasing price or productivity to achieve profit maximization, which only occurs when the marginal cost is equal to or less than the marginal revenue.

30) Firms use marginal analysis to determine prices byA) changing prices in accordance with information from retailers.C) examining the effect on revenue of small changes to the price of one item.

B) using comparisons with strong competitors to position prices accordingly.D) trying to minimize production costs by using better and more efficient methods.

Explanation: "Marginal" refers to the rate of change of revenue as price (or cost, etc.) changes.

31) What effect might high worker productivity have on determining the earnings of workers?A) The productivity of workers might result in little to no impact on the earnings.C) Higher earnings might increase the productivity of workers.

B) The more productive workers are, it might increase their earnings.D) Earnings might be solely determined by productivity.

Explanation: The more productive workers are, it might increase their earnings. The market value of a product can also impact the earnings of workers. The prospect of higher earnings might increase productivity, but that is the reverse argument of what the question asks.

32) Some products (such as roads, sewer systems, and railroads) are not adequately supplied by the marketplace acting alone. Therefore, choices about building such things are made byA)governments.C)stockholders.

B)referendums.D)private corporations.

Explanation: Governments typically make these decisions, and then contract the work to private firms.

33) Even though the United States is traditionally viewed as a market economy, what role does the government have in the economy?A) The government is in charge of setting the prices within the economy.C) The government has no role within the market economy of the United States.

B) The government is in charge of the taxing and spending of the government.D) The government is to make sure that there is fairness and equity within all markets of the economy.

Explanation: The government is in charge of the taxing and spending of the U.S. government. This is called the Fiscal Policy. Even though the government is a regulatory agent, the government usually allows the economy to flow with some control of the fiscal policy to help with economic stability.

34) Approximately 50% of Iran's economy is planned by the nation's government, while in Israel that percentage is just over 10%. Which statement would MOST likely be true given this information?A) Israel's oil industry is more profitable than Iran's.C) Israel is more likely to be impacted by international sanctions than Iran.

B) There are more opportunities for entrepreneurs in Israel than in Iran.D) High-tech industries are less-likely to be successful in Israel than they are in Iran.

Explanation: There are more opportunities for entrepreneurs in Israel than in Iran. Iran's central planning has actually gone down in recent years, resulting in increased entrepreneurship. However, Israel's economy is much more free-market based.

35)A. It is more efficientB. The goods and services may benefit individuals other than the purchaser.C. The value of the goods or services is greater than the individual consumer could afford.D. It promotes economic equity.

What are reasons why governments provides public goods and services?A) A and BC) B, C, and D

B) B and CD) A, B, C, and D

Explanation: The governments provide public goods and services because of efficiency, equity, and affordability.

36.Cotton GinPersonal ComputerWater WheelAll of these inventions aided society in improving in which economic area?A) CompetitionC) ScarcityB) ProductivityD) Unemployment

Explanation: All of these inventions allowed people to make more things and to make them more easily.

37)Joseph is a teacher. He also enjoys working on automobiles. Recently, Joseph has been so busy at his teaching job that he has had no time to work on his car. He decided to pay his friend, Larry, to do some vehicle maintenance for him.What is this type of economic transaction known as?A) SpecializationC) Marginal Analysis

B) InterdependenceD) Voluntary Exchange

Explanation: Both Joseph and Larry benefited from this exchange because Joseph voluntarily paid Larry for his work on his car.

38)Economic theory defines specialization as the production of one or just a few goods and services. Specialization refers to how an individual, organization, state or country focuses available resources. Instead of trying to produce and sell many different products, people or countries use overstock to trade for what they may need. The system trade uses the concept of specialization. One country may have the resources to produce sugar at a low cost. Another country may choose to specialize in beef. Each produces more than what they need in order to obtain other goods at a lower cost.What conclusion can be inferred from the above text?

A) Each party cannot benefit from specialization.C) The richer country will take advantage of the poorer country when it comes to trade.

B) Specialization can only benefit those who have something to tradeD) Both countries that use specialization can benefit from trade because they can meet needs and then trade the rest.

Explanation: No one will trade unless there is a benefit. Therefore, everyone benefits when there is trade.

39)Controlled by strong governmentUsually focuses on industrial goodsLittle attention paid to agriculture and consumer goodsGovernment directs industry in need areasWhat economic system is being described?A) CommandC) Mixed

B) MarketD) Traditional

Explanation: Command economy has government control of the economy, especially in controlling industry and production. Supply and demand will not drive this economy.

40) What are two advantages that a market economy has over a mixed economy?A) more limits on profitsC) more security and equity for producers and consumers

B) more control over prices and wagesD) more freedom and efficiency for producers and consumers

Explanation: Market economies are noted for their freedom of choice and for allowing firms to answer the three basic economic questions in the best way possible, therefore increasing efficiency.

41) A government institutes a rule that schools are allowed to sell whatever foods it chooses, provided that those foods are not high in sugar. Such a ruling is aligned with which economic system?A) commandC) mixed

B) marketD) tradtiona

Explanation: The government did not tell the schools explicitly what they could sell. The government only placed a limit. Therefore, the decision is most in line with a mixed economy. Some freedom with some government oversight.

42)

Using this chart, you can conclude that in Australia's economyA) buyers and sellers determine what goods are made.C) the national government owns most of the land resources.

B) private property is rationed out according to need.D) the provincial governments own most of the capital resources.

Explanation:Australia is overwhelmingly a market economy. Because of this, you can conclude that buyers and sellers determine what goods are made. This is a prime characteristic of a "market economy."

43)The country of South Africa has a growing economy that is one of the best in Africa. South Africa's annual GDP growth rate is almost 3%. Many private businesses are flourishing in the country. South Africa produces the majority of Africa's electricity. However, one of the major threats to South Africa's economy is the shortage of electricity to all areas of the country. Fortunately, the government of South Africa is presently addressing the problem by constructing and financing new electric power stations.What kind of economic system does South Africa have?A) CapitalismC) Mixed

B) CommandD) Traditional

Explanation: The country has private industry, yet the government steps in to meet the needs of the country or people when private industry cannot meet that need. Mixed economy is the type of economic system of South Africa.

44)As the map illustrates, Africa is exceedingly rich in natural resources, chiefly precious metals and oil. A significant part of the continent makes its money on diamonds, gold or oil.How does this map relate to the distribution of natural resources for countries such as South Africa?A) South Africa has no natural resources. They need to develop industry and import raw materials in order to export finished goods.C) South Africa is rich in oil and diamond, and they need to learn to mine these resources effectively in order to trade for other resources from other African countries.

B) South Africa is rich in gold, and they need to learn to mine gold effectively in order to trade for other resources from other African countries. D) South Africa has many natural resources; however, they are land-locked and need to effectively work with other nations to move natural resources through other countries for exporting.

Explanation:South Africa is rich in gold, and you need to learn to mine gold effectively in order to trade for other resources from other African countries Gold is desirable and is highly traded throughout the world. Learning to mine effectively would make effective uses of these resources and allow for more trading opportunities.

45) Since the early 1980's, Turkey has made significant strides in moving away from government run businesses and toward privately run businesses. This shows that Turkey's economy has made a move in which direction?A) from market to commandC) from traditional to commandB) from command to marketD) from market to traditional

Explanation: A market system is characterized by private ownership of businesses. Therefore, an increase in private ownership would indicate a move toward market economics. Moving away from government control would mean that the economy is moving away from a command system.

46) How are the economic systems of North Korea and China similar?A) Both systems have emerging market economies.C) Both systems have democratic-type governments.

B) Both systems lack technological innovations.D) Both systems have a centrally planned economy.

Explanation:Both systems have a centrally planned economy. While China does open parts of their economy to a market economy, North Korea has one of the world's most centrally directed and least open economies in the world. This situation leads to many economic problems for the North Koreans.

47) What is the basic problem that all economies must deal with?A) how to satisfy limited wants with limited resourcesC) how to satisfy unlimited wants with limited resources

B) how to satisfy limited wants with unlimited resourcesD) how to satisfy unlimited wants with unlimited resources

Explanation: All economies deal with the problem of scarcity. This means they must decide how to satisfy unlimited wants with limited resources.

48) All of these are ways a society can improve its productivity EXCEPTA) Education.C) Technology.

B) Regulation.D) Trade.

Explanation:Investing in education, trading with other societies, and technology all help to increase productivity. The only one that does not is regulation. Regulation actually reduces productivity by forcing businesses to have to deal with enforcing rules, which uses resources that could be used to produce something.

49) A headline in a local paper reads, "New Product Aims to Attract Teen Girls". Which economic question does this headline answer?A) What should be produced?C) When will it be produced?

B) How will it be produced?D) For whom will it be produced?

Explanation:The economic question the headline is attempting to answer is "For whom will it be produced?". All economies must answer these questions. The way in which the questions are answered determines the economic system.

50) What is a likely result of the United States providing free healthcare for every citizen?A) Lower TaxesC) Lower Interest RatesB) Higher TaxesD) Higher interest rates

Explanation:In order for the government to provide anything, it must use tax revenue. In order to offer something that it has not offered yet, the United States would need to collect Higher Taxes. These taxes may only be charged to certain income groups or may be levied on certain products.

Unit 2 - Microeconomics

1) The statement "the quantity demanded of a product varies inversely with its price" is a definition ofA) laissez-faire.C) the invisible hand.

B) the law of demand.D) the law of supply.

Explanation: According to the law of demand, as price increases, the quantity demanded decreases and as price decreases, the quantity demanded increases.

2)

Assuming that the graph follows the normal laws of economics, the line representsA) demand.C) equilibrium price.B) supply.D) production possibilities.

Explanation: According to the law of supply, as price increases, supply increases. Thus a supply curve almost always slopes upward.

3) In a market economy, a high price will usually causeA) producers to offer less and consumers to buy less.C) producers to supply more and consumers to buy less

B) producers to offer less and consumers to buy more.D) producers to supply more and consumers to buy more.

Explanation: High prices signal greater profits for producers so they are likely to increase production. On the other hand, consumers are likely to reduce consumption.

4) Which factor might cause an increase in the supply of a product?A) a decrease in productivityC) the introduction of new technology

B) fewer sellers in the marketplaceD) an increase in the cost of raw materials

Explanation: The introduction of new technology often increases efficiency and reduces production costs. This increases profits and thus motivates producers to increase supply.

Use the graph above to answer questions 5) and 6).5) The purpose of this production possibilities graph is to showA) how supply and demand determine price.C) the number of workers required for a specific task.

B) whether the supply of goods is elastic or not.D) how limited resources can be used to produce a combination of items.

Explanation: When limited resources can be used to produce a combination of items, a production possibilities graph shows how many of each item could be produced with the resources available.

6) The graph is a production possibilities chart. Which of these might cause the line to move to the right?A) higher labor costsC) shortage of required resources

B) an increase in pricesD) improved technology in whoopee cushion production

Explanation: If the production possibilities line "expands" (moves to the right), production in increased. Improved technology in whoopee cushion production might cause such an increase.

7)

The graph shows a demand curve. What can be said about the demand line moving to the right?A) Demand has decreased.C) This indicates a reduced supply.B) Demand has increased.D) An equilibrium price has been determined.

Explanation: When demand has increased, the demand curve moves to the right. This shows that at a given price there is increased demand for a product.

8)

The diagram shows the circular flow of goods and resources in a market economy. According to this diagram, where do individuals sell their labor?A) in householdsC) in the product market

B) in the factor marketD) in the revenue market

Explanation: In the factor market, individuals (households) sell their labor (one of the factors of production). Businesses exchange money (income) for this labor.

9) If the supply of computer engineers increases at the same time that the demand for these workers decreases, what would be the MOST LIKELY effect on wages for these workers?A) Wages would stay the same as job opportunities increase.C) Wages would decline as the competition for jobs increases.

B) Wages would increase as the number of workers increases.D) Wages would increase as competition for these workers increases.

Explanation: Wages would decline as the competition for jobs increases. Workers and their wages follow the same laws of supply and demand as other products in the market.

10) The Law of Supply states thatA) the supply of a product is not affected by its price.C) when the supply of a product increases, the price of the product rises.

B) when the supply of a product decreases, the price of the product falls.D) the quantity supplied of a product will increase when the price of that product increases.

Explanation: The Law of Supply states that the quantity supplied of a product will increase as the price increases and will decrease as the price decreases.

11) A decrease in the price of a particular product will result inA) a decrease in the demand for that product.C) an increase in the quantity demanded of that product.

B) a shift in the production possibilities frontier.D) an increase in the quantity supplied of that product.

Explanation: According to the Law of Demand, when there is a decrease in price there will be an increase in the quantity demanded of that product.

12)

If a product is sold at the price indicated and supplied in the quantity indicated by the intersection of the supply and demand curves in the graph, there should beA) an increase in price.C) a shortage until the price is raised.

B) no shortage and no surplus.D) a change in the expected future price.

Explanation: If suppliers produce an item in the quantity and at the price indicated by the intersection of the supply and demand curves, there should be no shortage and no surplus of that item.

13) If the government decided to subsidize the production of bobble-head dollsA) the supply curve will shift to the left.C) the demand for bobble-heads will decrease.

B) the supply curve will shift to the right.D) the demand for bobble-heads will equal the supply.

Explanation: A government subsidy will reduce production costs. Because of this, suppliers would be willing to produce more items. This will cause the supply curve to shift to the right.

14) Consumers are told that the consumption of cauliflower will significantly reduce the risk of cancer. Which of these scenarios is likely to happen in the cauliflower market?A) The demand curve will shift to the left and the price of cauliflower will fall.C) The supply curve will shift to the right and the price of cauliflower will fall.

B) The supply curve will shift to the right and the price of cauliflower will rise.D) The demand curve will shift to the right and the price of cauliflower will rise.

Explanation: With such news, the demand for cauliflower will increase. This will cause the demand curve to shift to the right and the price will rise.

15) Which market structure has the largest number of suppliers?A) monopolyC) perfect competition

B) oligopolyD) monopolistic competition

Explanation: Perfect competition is characterized by a large number of suppliers who have open access to the market.

16) Which situation is the MOST LIKELY result of a price ceiling being set below the equilibrium price?A) decreased demandC) a shortage in the market

B) a surplus in the marketD) a higher equilibrium price

Explanation: A price ceiling is a set maximum price at which something can be sold. If this price ceiling is below the equilibrium price then there will be a shortage in the market.

17) Mr. Simpson is liable for all the debts of his company. Mr. Simpson has which type of business organization?A) monopolyC) conglomerate

B) corporationD) sole proprietorship

Explanation: In a sole proprietorship, the owner has unlimited liability. This means that he is responsible for all the debts of his company.

18) Columbia Tires and Pacific Tires together control 75% of the tire market in the country. This is an example of what type of market structure?A) monopolyC) perfect competition

B) oligopolyD) monopolistic competition

Explanation: An oligopoly exists when a few firms dominate an entire industry.

19) Corporate stockholders are not responsible for the debts of the corporation. This is MOST LIKELY an example ofA) dividends.C) limited liability.

B) partnerships.D) unlimited liability.

Explanation: Limited liability means that stockholders can not lose more than their original investment. They are not financially responsible for the losses of the company.

20) If a drug company is granted a patent on a new medication, which result is possible?A) a price ceilingC) a monopoly in the production of that medication

B) government control of that drugD) perfect competition in the market for that drug

Explanation: A patent gives a company the exclusive right to produce a particular product. Thus a patent may create a monopoly in the production of that medication.

21) Which of these is MOST LIKELY a result of apartment rent controls?A) a shortage of apartmentsC) decreased demand for apartmentsB) increased mobility of workersD) a dramatic increase in rental rates

Explanation: Rent controls usually result in rents below the equilibrium price. When this happens, there will be a shortage of apartments.

22) A price set below the current market price is a characteristic of aA) price floor.C) price ceiling.

B) regular price.D) equilibrium price.

Explanation: A price ceiling (a maximum price which may be charged) is usually a price set below the current market price. This means that since the price is set a little too low there will be a greater demand than the amount initially supplied.

23) Jorge and Fred have a product they would like to sell. They decide to share the risks and profits by forming an unincorporated business. The business organization Jorge and Fred have MOST LIKELY formed is a(n)A) partnership.C) entrepreneurship.

B) corporation.D) sole proprietorship.

Explanation: A partnership shares the risks and profits, which is MOST LIKELY the business organization Jorge and Fred have formed. If they were to for a corporation, they would have to consult many attorneys and get licenses from the government.

24) The Law of Demand is one of the most famous laws in economics. It states that when the price of a good rises, the amount demanded ______________, and when the price of a good falls, the amount demanded _____________.A) rises, risesC) rises, fallsB) falls, fallsD) falls, rises

Explanation: The law of demand is one of the most famous laws in economics. It states that when the price of a good rises, the amount demanded falls, and when the price of a good falls, the amount demanded rises.

25) Which relationship is the BEST example of the Law of Supply?A) The quantity of a good supplied rises as the price rises.C) The quantity of a good supplied falls as the price rises.

B) The quantity of a good supplied rises as the price falls.D) The quantity of a good supplied is not impacted by price.

Explanation: This is microeconomic law states that, if everything else is equal, the quantity of a good supplied rises as the price rises. This is done to maximize profits.

26) Which of these is the best economic definition of "pure competition"?A) the market is dominated by one sellerC) the market is dominated by two or more sellers

B) the market is dominated by a few buyersD) the market is not dominated by either buyers or sellers

Explanation: Pure competition exists when the market is not dominated by any one or group of buyers or sellers. There are very few examples of this, but sometimes agricultural products- such as sugar, rice, or vegetables- are good examples of this.

27) Sally and Wally have a great business idea. They have some money to invest and hope to find more people interested in investing. They are worried about the legal aspects and the liability. The BEST business form for them is MOST LIKELY aA) corporation.C) partnership.

B) monopoly.D) proprietorship.

Explanation: The BEST business form for them is MOST LIKELY a corporation. Although there are just two partners, they want investors and some protection from liability.

28) One of the BEST measures of success for businesses and their entrepreneurs isA) loss.C) marginal cash.

B) profit.D) marginal revenue.

Explanation: One of the BEST measures of success for businesses and their entrepreneurs is profit. This concept of "profit motive" is a the main reason people start a business on their own in the first place.

29) The "market clearing price" is most closely associated withA) the price index.C) the price ceiling.

B) the price level.D) the equilibrium price.

Explanation: The market clearing price is most closely associated with the equilibrium price. This means that there is neither a shortage nor a surplus of goods at a specific price.

30) In a market economy, a high price is a signal forA) producers to supply less and consumers to buy less.C) producers to supply more and consumers to buy less.

B) producers to supply less and consumers to buy more.D) producers to supply more and consumers to buy more.

Explanation: In a market economy, a high price is a signal for producers to supply more and consumers to buy less. If a price is set TOO high, though, then consumers will buy less.

31) On the first day of school, the school store had 100 pencils for sale at $1 each. At the end of the week, there were 90 pencils left. The second week, the price of pencils dropped to $.75 each. At the end of the week, there were 75 pencils left. The store dropped the price $.25 each week, and at the end of the fourth week, there were no pencils left. Which price was the market clearing price?A)$.25C)$.75

B)$.50D)$1

Explanation: The market clearing price is when quantity demanded is equal to quantity supplied.32)

Percentage of Type of Business Organization: 1997

According to the 1997 Census, which business organization form is the MOST common in the United States, even through it is relatively insignificant in total sales?A) C corporationsC) subchapter S corporations

B) dual partnershipsD) individual proprietorships

Explanation: Approximately three-quarters of the businesses in the U.S. are individual proprietorships , though they account for about 5% of all sales in the country.

33) Which scenario BEST represents monopolistic competition?A) Two new restaurants open to compete with a national food chain.C) A college student chooses cellular service based on the availability of a specific type of phone.

B) Two firms compete against each other to sell pearls in an urban market.D) A company wins a contract to be the sole provider of phone and cable television service for a city.

Explanation: There are a few main characteristics of monopolistic competition, most importantly that there are many producers and many consumers in a given market, and those consumers believe that there are non-price differences among the competitors' products. Therefore, the relevant example is one in which A college student chooses cellular service based on the availability of a specific type of phone.

34)

Which market structure is BEST indicated by the photograph?A) monopolyC) pure competition

B) oligopolyD) modified competition

Explanation: An oligopoly is a business organization in which the products in a market are supplied by only a few dominant producers. Though there are some minor soda producers in the United States, most colas are made by Pepsi and Coke, or by companies that are owned by Pepsi and Coke.

35) In the product market,A) productive resources are bought and sold.C) a nation's total output of goods and services increases.

B) producers sell goods and services to consumers.D) the amount of output produced by a given amount of inputs is measured.

Explanation: As part of the circular flow of economic activity, in the product market, producers sell goods and services to consumers. Productive resources are bought and sold in the resource market (or factor market).

36) The MOST LIKELY incentive for entrepreneurs to start a new business isA) to make a profit.C) to risk financial failure.

B) to discover a new patent.D) to create a new social benefit.

Explanation: The MOST LIKELY incentive for entrepreneurs to start a new business is to make a profit. Although they may create a new patent or social benefit, these are not the primary incentives for entrepreneurs.

37) What is the relationship between quantity supplied and price?A) They are not related.C) They are inversely related.B) They are directly related.D) They are related through demand.

Explanation: Think of "supply" from the producer's point of view. If people are willing to pay more for a product, the producer will be more likely to make more of that product. The higher the price, the more they'll be willing to make. Therefore, they are directly related.

38) Which statement about the circular flow model is CORRECT?A) Businesses earn income from both the factor and product markets.C) Households earn income from the product market, and businesses earn revenue from the factor market.

B) Households earn income from both the factor and product markets.D) Households earn income from the factor market and businesses earn revenue from the product market.

Explanation: In the circular flow model, households earn income from the factor market and businesses earn revenue from the product market. Additionally, households spend money in product markets, and businesses can supply product markets with goods and services.

39) If a new machine was developed that picked coffee beans twice as fast as is currently possible, what would you expect to happen to the price of coffee?A) The price would increse to pay for the new machinery.C) The price would increase due to greater demand for coffee picked this way.

B) The price would decrease because there would be more coffee available.D) The price would decrease because fewer would want coffee picked by machine.

Explanation: The machinery is a new technology that would help to increase the supply of coffee, therefore the price would decrease because there would be more coffee available. The technology would allow more beans to picked, making the supply of coffee more plentiful to consumers.

40) In which market type are firms considered "price takers" because they take the price in the market and have no control over setting a price?A) MonopolyC) Perfect Competition

B) OligopolyD) Monopolistic Competition

Explanation: Perfect competition- sometimes called "Pure" competition- has so many firms that no one has a large enough market share to be able to influence price. They are called "price takers."

41)

Which point on the Production Possibilities Curve represents a situation in which resources are not being used effectivelyA) AC) C

B) BD) D

Explanation: C is a point at which neither X nor Y is being produced at a maximal level.

42) The PRIMARY reason that natural monopolies are allowed to exist in areas such as energy production is thatA) it would be too difficult to regulate these industries.C) it is not in the public interest to deregulate the providing of utilities.

B) it is more efficient for society to allow one company to be in control.D) it would create inflationary pressures to allow more than one company to compete.

Explanation: It is more efficient for society to allow one company to be in control. Because of the nature of the process of producing and delivering such goods as electricity, it would not be useful to allow for the usual kind of competition in these areas.

43) Which determinant MIGHT increase supply in the market?A) an increase in the price of complementary goodsC) an increase in the number of consumers in the market

B) an increase in the number of sellers of a productD) an increase in the price of inputs to make the product

Explanation: An increase in the number of sellers of a product might increase supply in the market. An increase in the price of inputs might decrease supply, while both number of consumers and price of complementary goods impact demand.

44)Amy's Coffee has been a fixture in Brownsville for years. Two months ago it dropped the price on all its regular coffees by 15% and experienced a noticeable increase in sales.Which explanation BEST explains the situation that occurred at Amy's Coffee?A) Amy supplied more coffee to her customers.C) The shop was able to produce more coffee at the reduced prices.

B) The price of cups, milk, and sugar all decreased, as well.D) Lower prices caused people to buy coffee at Amy's rather than at her competitors.

Explanation: The correct answer is that lower prices MOST LIKELY caused people to buy coffee at Amy's rather than at her competitors. Price is- obviously- a huge incentive for people. If a product that is considered to be a good value drops in price, people will be more likely to purchase it than before. They'll also be more likely to purchase that product than a similar product, or in this case they'll be more likely to purchase it at Amy's Coffee than at any one of her competitors that also sells coffee.

45) How might a minimum wage law impact the supply and demand of workers?A) It might result in a surplus of supply.C) It might result in lower wages for workers.

B) It might result in a shortage of supply.D) It might result in a lower unemployment rate.

Explanation: A minimum wage law might result in a surplus of supply of workers. At the higher wage, the demand for workers is less than the supply, which might result in a higher unemployment rate.

46) If consumers are willing to pay more for a product, the makers of that product will likely make more of it. This is known asA) a Price Floor.C) the Law of Demand.

B) the Law of Supply.D) Equilibrium Price.

Explanation: The Law of Supply is very important to producers. The more consumers are willing to pay for something, the greater the motivation there is (by the producer) make more: more sales means more money. This is the a fundamental part of a free-market economy.

Use the graph above to answer questions 47) and 48).47) What would be the situation if the price was moved from p2 to p1?A) the price would be too lowC) there would be a surplus of widgets

B) the price would be droppedD) there would be a shortage of widgets

Explanation: If the price of widgets shifted from p2 to p1 (an increase in price) there would be a surplus of widgets. At $4, approximately 12 widgets would be demanded, but nearly 45 would be supplied. In this case, buyers would be sending a clue to the producers that perhaps the price should be dropped.

48)What would be the situation if the price was moved from p2 to p3?A) the price would be raisedC) there would be a surplus of widgets

B) the price would be too highD) there would be a shortage of widgets

Explanation: If the price of widgets shifted from p2 to p3 (a decrease in price) there would be a shortage of widgets. At a price of about $0.80, approximately 46 widgets would be demanded, but about 25 would be supplied. In this case, sellers would be getting a clue that maybe they could be charging more for their product.

49) What is an economic principle that describes a consumer's desire and willingness to pay a price for a specific good or service?A) DemandC) Law of Demand

B) SupplyD) Law of Supply

Explanation: Demand is an economic principle that describes a consumer's desire and willingness to pay a price for a specific good or service. This is the basic definition. The Law of Demand is about how price will affect demand for the consumer.

50)Input costs (Rising costs and technology)SubsidiesTaxes and RegulationsFuture expectation of prices

These would change WHAT part of the market?A) SupplyC) Law of Supply

B) DemandD) Law of Demand

Explanation: Supply is affected by many things. These things could be the number of suppliers, government actions, input costs, and global events.

51)IncomeConsumer ExpectationsPopulationConsumer TastesComplements and SubstitutesThese would change what part of the market?A) SupplyC) Law of Supply

B) DemandD) Law of Demand

Explanation: Demand is affected by many things. These things could be a change income, consumer expectations, population, consumer tastes, and complements & substitutes.

52) _______ have inelastic demand since a change in price would not change the quantity demanded.A) LuxuriesC) Large supply of substitutes

B) Life necessities or needsD) Large supply of complements

Explanation: Life necessities or needs are inelastic demand because anything necessary for life, such as medicine, will be purchased no matter the change in price.

53)Which type of business organization has the advantage of specialization, but the disadvantage of unlimited liability?A) oligopolyC) S-Corporation

B) corporationD) partnership

Explanation: Like sole proprietorships, partnerships have "unlimited liability " when it comes to being responsible ("liable") for their debts. But unlike a sole proprietorship, partnerships do have the benefit of allowing for greater specialization since there is more than one owner.

54) What is the name of the point at which supply and demand intersect?A) plateauC) equilibrium

B) scarcityD) profit margin

Explanation: When supply and demand are balanced, equilibrium is attained. When demand is greater than supply, scarcity and inflation begin to occur. When supply is greater than demand, prices drop and profit decreases.

55)

What economic concept does this graph BEST illustrate?A) ScarcityC) Law of Demand

B) ProductivityD) Law of Supply

Explanation:The graph best illustrates the law of demand. The graph shows that the price of a product affects how many people are willing to purchase it.

56) While supply is based on the willingness of producers to supply a good or service, demand is MOST LIKELY based onA) the needs of governments.C) the price of a good or service.

B) the ease of a product's use.D) the availability of complementary goods.

Explanation:The price of a good or service is the biggest factor listed in determining demand. In economics, the definition of demand is the willingness of a consumer to purchase a product at a given price.

57)James works at an automobile factory. Every day he goes to work and inspects the machines at the factory to make sure they are running smoothly. At the end of the every week, James is paid by his boss, Bill, for his good work. James takes his paycheck to the bank every Friday and deposits most of it, but keeps a little bit of spending money. He then takes his wife, Julie, out for dinner, using the leftover money from his paycheck.According to the circular flow of economics, which market is James participating in with his boss, Bill?A) Supply MarketC) Product MarketB) Factor MarketD) Demand Market

Explanation: The "Factor Market" is the correct answer. James goes to work and is paid by Bill. James is providing labor, one of the Factors of Production, to Bill in exchange for money.

58) A volcano erupts in Hawaii that destroys or severely damages many of the pineapple orchards located there. What will be the effect on price and quantity of pineapples sold?A) price will fall and quantity will fallC) price will rise and quantity will fall

B) price will fall and quantity will riseD) price will rise and quantity will also rise

Explanation: The eruption of the volcano significantly reduces the number of pineapples. Since the number of pineapples is now lower, the price will rise and quantity will fall.

59) How does price serve as an incentive in a market economy?A) Buyers demand more at higher prices.C) Buyers purchase more at lower prices.

B) Buyers purchase less at lower prices.D) Buyers purchase more at higher prices.

Explanation: Buyers purchase more at lower prices. This is a basic principle of the Law of Demand in that the lower price is the incentive to buy at that low price.

60)Most teenagers desire the newest and most up-to-date smartphone on the market. When the new phone comes onto the market, the new phone's price is significantly higher and the price of the older version of the same phone will drop noticeably.What is the incentive to produce newer versions of smartphones for cell phone companies?A) the risk of losing money in creating the newest versionC) the risk of competition from both versions of the smartphone

B) the chance at high profits in selling the newest versionD) there is no incentive from the production side of the economy

Explanation: The chance at high profits in selling the newest version is the incentive for all innovation. The rising price of the newest version, with newer technology and faster service, will create a demand of its own. That quest for profit will keep innovation and will be the incentive for more and better phones in the future.

GOOD LUCK!