Economics True/False questions (all chapters)

True/False: To obtain needed goods, people in command economies often buy and sell through black markets.

True

True/False: When state planners in a command economy underestimate or overestimate the demand for various goods, shortages and surpluses usually result.

True

True/False: When too much money is in circulation, the general result is inflation.

True

True/False: The Perfect Competition market model normally results in firms (sellers) that are price takers.

True. Because in Perfect Competition there are many undifferentiated products, sellers generally have to accept the market price. It is unlikely consumers will want to pay more for their product, which is pretty much exactly like all other sellers' product.

True/False: When the price of a good decreases, the quantity supplied of that good will generally also decrease.

True. Although consumers may want more of the good at the new, reduced price, producers will have less of an incentive to make the good, since they won't make as much money from it.

True/False: Sarah can type 50 words or process 5 phone calls per minute. Lori can type 80 words or process 4 phone calls per minute. Sarah has what economists would call an "absolute advantage" in this work situation.

False. Sarah would only have an absolute advantage if she were faster at both tasks. She has a comparative advantage in the processing of phone calls, however.

True/False: By using mass production, Henry Ford was able to reduce the total cost of production.

False; Ford was able to reduce the AVERAGE cost of production. Since he built huge factories & assembly lines, his total cost increased. However, since he could produce so many more automobiles, the average cost of each automobile decreased.

True/False: A population increase will likely change the quantity demanded of a good.

False; Quantity demanded changes based on a change in price of a good. If the population in an area increases, it will likely change the DEMAND for a good -- the whole demand curve will shift to the right (increase).

True/False: According to Marxist ideology, the proletariat must be overthrown.

False; according to Marxist ideology, it is the BOURGEOIS which must be overthrown.

True/False: An effective advertising campaign for a product would cause a change in quantity demanded.

False; an effective advertising campaign would change the demand for a product. Quantity demanded changes based on a change in price. Demand for a product changes because of another change -- whether it's better advertising, product design changes, a coronavirus pandemic, etc.

True/False: The resources of the largest industrial and commercial firms are unlimited.

False; even the largest companies have limited resources.

True/False: If the price of a good rises, consumers will generally increase the amount they buy.

False; generally consumers will buy less of a good as the price rises (except for a product which has inelastic demand, such as life-saving medications)

True/False: The demand for inferior goods is directly related to consumers' incomes.

False; it is inversely related (meaning it is affected in the opposite way). That means, when income increases, demand for inferior goods decreases. An example is dried beans -- when income increases, we tend to buy fewer beans & more meat.

True/False: Carl Menger stressed the importance of separating work into individualized tasks, an idea known as division of labor.

False; it was Adam Smith who emphasized this principle.

True/False: Marx saw socialism as a "necessary evil" in the transition from feudalism to Communism.

False; it was CAPITALISM that Marx saw as the "necessary evil"

True/False: The gloomy predictions of some economists have caused economics to sometimes be called "the dismal discipline."

False; it's sometimes referred to as "the dismal SCIENCE," however.

True/False: The subject of government's role in an economy is part of the field of microeconomics.

False; microeconomics deals with the choices made by individuals, households & businesses affect the economy. Macroeconomics deals with national and international economies -- about large-scale choices and public (government) policies

True/False: In a free market society, the majority of economic choices are made by the public sector.

False; that would be true in a command economy. However, in a free market economy, the majority of choices would be made by the private sector (individuals/households/businesses). Public sector = government.

True/False: The CPI (Consumer Price Index) compares prices to a business cycle, which is arbitrarily set to 100 percent.

False; the CPI compares prices to a BASE PERIOD, which has been arbitrarily set to 100 percent.

True/False: During the 1930s, the United States was taken off the silver standard, a measure that enabled government to fund more public projects.

False; the United States was taken off the GOLD standard in the 1930s

True/False: The availability of most natural resources has decreased during the past century.

False; the availability of most natural resources has actually INCREASED over the past century.

True/False: When an economy reaches the peak of its expansion, it is immediately followed by trough.

False; the next phase after peak would be a recession.

True/False: The percentage of people employed by federal, state, and local governments has decreased since the 1930s.

False; the percentage of people employed by governments has greatly increased in that time frame.

True/False: The difference in value of goods that a country sells abroad compared to those it purchases from other countries is called a purchasing balance.

False; this is called a trade balance.

True/False: One of the main dangers of Communism is its deceptiveness, a quality which allows it to creep into an economy without people realizing what is happening.

False; this statement is not really true about Communism. Communism require large, easily noticed changes in society. However, this statement would be true if it were about SOCIALISM. Socialism requires small changes, often over time, that aren't as easily noticed. Socialism can morph over time into Communism.

True/False: The Balkan Revolution began the rise of Communism.

False; this was the BOLSHEVIK Revolution

True/False: The availability of substitutes is a major reason why the demand for most goods is inelastic.

False; this would be a reason for the demand of most goods being ELASTIC. If there were NO reasonable substitutes available, that might make the demand for the good inelastic.

True/False: With the use of division of labor, the efficiency of production is generally decreased.

False; usually division of labor INCREASES efficiency.

True/False: Throughout history, many governments have deflated their currencies by adding lead, copper, and iron to gold and silver coins.

False; we would call this DEBASING currency, not DEFLATING currency.

True/False: If David can mow 10 laws or rake 6 yards in the same time it takes Peter to mow 6 lawns or rake 5 yards, David has a comparative advantage.

False; we would say that David has an absolute advantage. He can perform both tasks more quickly than Peter.

True/False: The US money supply is managed by the Treasury Department.

False; while the Treasury Department is responsible for printing money, the Federal Reserve system manages the supply of this money in circulation.

True/False: A prosperous economy depends upon industriousness, the trait of doing quality work in an efficient manner.

True

True/False: According to economists, the factors of production are scarce.

True

True/False: All people are said to be consumers, but only some are producers.

True

True/False: Cost-push inflation occurs when businesses increase their prices to compensate for rising production costs.

True

True/False: During the Cold War, East Berlin was under the rule of Soviet Russia.

True

True/False: Marx viewed capitalism as a stepping stone between feudalism and a socialist ideal.

True

True/False: Material prosperity depends upon moral convictions and behavior.

True

True/False: State capitalism is a system in which the government controls most of the capital.

True

True/False: Bilateral trade agreements respect national sovereignty and allow countries to consider their national and moral interests.

True; MULTILATERAL trade agreements, however, do not. Because more than 2 countries are involved in multilateral agreements, countries involved can end up surrendering much of their national sovereignty to other countries who have signed the agreement.

True/False: A regulated (government-mandated) price level set above the normal equilibrium price is considered a price floor.

True; it's a limit on how low a producer may drop the price of its product. A price floor is ONLY put in place by government if the current equilibrium price is below the government-desired "price floor." Otherwise, there would be no reason to set a "floor."

True/False: Price is the factor that causes a change in quantity supplied or quantity demanded in an existing supply or demand.

True; it's price -- rather than other factors -- that changes quantity supplied or demanded.

True/False: When the price of a good falls, the quantity supplied will generally decrease.

True; producers have less incentive to make the good if the sales price is lower.

True/False: A demand curve slopes downward and to the right.

True; this is because quantity is displayed on the horizontal axis and price on the vertical axis. As price increases, quantity demanded is lower. As price decreases, quantity demanded will be greater.