Economics Final Test

Which of the following describes the benefits of specialization in a free market? a. Specialization leads to higher prices. b. Specialization leads to decreased competition among producers. c. Specialization leads to lower overall output. d. Specialization leads to efficient use of capital, land, and labor.

. Specialization leads to efficient use of capital, land, and labor.

What is the defining characteristic of a free market system? a. Economic Freedom b. Economic Security c. Economic Growth d. Economic Efficiency

Economic Freedom

How does improved technology allow the economy to operate more efficiently? a) It helps to make better use of the nation's limited resources. b) It ensures that all of the nation's resources will be used c) It enables people to work fewer hours. d) It ensures that all of the nation's workers are employed.

a) It helps to make better use of the nation's limited resources.

How might government water-pollution regulations serve the public interest? a) by ensuring that water does not contain toxins that could endanger people b) by restricting the watering of laws during a drought c) by keeping waterways open for the transport of goods d) by limiting the amount of water a business could use

a) by ensuring that water does not contain toxins that could endanger people

Suppose Congress passed a bill funding research into alternative sources of energy. What best describes this government action? a) promoting innovation and invention to help maintain technological advantage b) seeking gains in knowledge about the national economy c) seeking to prevent sudden, drastic shifts in prices d) monitoring and regulating banks and other financial institutions a) promoting innovation and invention to help maintain technological advantage What economic measure

a) promoting innovation and invention to help maintain technological advantage

Why do government experts track the business cycle? a) to try to predict what will happen to the U.S. economy b) to help maintain competitive balance between businesses c) to provide a record of what has gone wrong in the past d) to give the government a competitive advantage over businesses

a) to try to predict what will happen to the U.S. economy

What is the main rule to adhere to when investing in stocks? a. "Buy low, sell high" b. "One man's trash is another man's treasure" c. "It's not worth winning if you can't win big" d. "Buy early, buy often"

a. "Buy low, sell high"

Due to the coronavirus pandemic and the relating governmental measures implemented to manage the public health risks related to the COVID-19 virus, which phase of the business cycle (pictured above) are we most likely in? a. Contraction b. Peak c. Expansion d. Trough

a. Contraction

Which of the following is the best argument in favor of free trade? a. Countries with the fewest trade barriers have the highest standard of living b. Free trade allows a country to impose sanctions on a trading partner c. Countries with the fewest trade barriers are members of trade organizations d. Free trade protects a country's infant industries

a. Countries with the fewest trade barriers have the highest standard of living

Which of the following in NOT characteristic of a centrally planned economy? a. Each collective or factory sets its own goals b. The central government makes all economic decisions c. The central government owns all land and capital d. Each person is assigned a job

a. Each collective or factory sets its own goals

A company builds a factory in a small town, creating hundreds of jobs and generating much-needed revenue for local businesses. However, it is later discovered that the business disposed of its chemical waste products by spraying them on the ground. It will cost the community millions of dollars to clean up this dumping site. This unforeseen "side effect" is an example of a(n): a. Negative Externality b. Market Failure c. Positive Externality d. Deadweight Loss

a. Negative Externality

Why does a free market economy result in the availability of a wide variety of goods and services? a. because producers have incentives to meet consumers' desires for variety b. because the government tells producers what to make c. because markets reward producers who can produce a large variety of products d. because consumers have incentives to meet producers' desires

a. because producers have incentives to meet consumers' desires for variety

In a free market system, the concept of consumer sovereignty means that a. consumers have the power to decide through their actions what goods and services get produced. b. producers are in an ongoing struggle with consumers over control of the marketplace. c. government must intervene to ensure fair competition between consumers and producers. d. consumers are not bound to accept the positive incentives offered by producers.

a. consumers have the power to decide through their actions what goods and services get produced.

An economy that maximizes its scarce resources and can deliver the right goods in the right quantity to the right people at the right price has achieved? a. efficiency b. freedom c. security d. equity

a. efficiency

Which basic economic goal is most easily achieved in a traditional economy? a. equity b. innovation c. growth d. efficiency

a. equity

Which of the following is a benefit that a business is likely to attain from purchasing new equipment? a. increased productivity b. better entrepreneurial knowledge c. fewer natural resources required d. lower costs

a. increased productivity

Police protection and national defense are examples of what government role in the circular flow model? a. producing goods and services from factors purchased in the factor market b. making purchases of land, labor, and capital in the product market c. contributing to the monetary flow between households and firms in the factor market d. hindering the physical flow of factors between households and firms in the product market

a. producing goods and services from factors purchased in the factor market

Where in the circular flow model does a new car on display in an auto dealer's showroom belong? a. product market, physical flow b. factor market, monetary flow c. product market, monetary flow d. factor market, physical flow

a. product market, physical flow

What is the term used to describe a temporary low supply of a good or service? a. shortage b. want c. scarcity d. need

a. shortage

Which is an example of why the U.S. government makes transfer payments? a. to support retired people b. to limit economic freedom c. to create a command economy d. to suppress the factor market

a. to support retired people

According to the circular flow model of a market economy, firms buy factors of production from households, then a. use these factors to produce goods and services b. sell factors of production to households c. use these factors to eliminate competition d. sell free markets to household

a. use these factors to produce goods and services

Which of the following is an example of the profit motive as an incentive? a) A consumer engages in a voluntary exchange. b) A business owner expands a factory to make more goods. c) A producer starts a benefits program for workers. d) A shopper chooses a product because of its low price.

b) A business owner expands a factory to make more goods.

If the economy were in the contracting phase of the business cycle, how might that affect your ability to find work? a) It might be easier to find work because businesses would have fewer workers to choose from. b) It might be more difficult to find work because businesses would be less likely to hire new employees. c) It would have no effect on finding work. d) It might be easier to find work because businesses would be more likely to hire new employees.

b) It might be more difficult to find work because businesses would be less likely to hire new employees.

Why would a federal government decision to increase spending be a matter of macroeconomic policy? a) Macroeconomics concerns the overall performance of the government. b) Macroeconomics concerns the overall performance of the economy. c) Macroeconomics concerns the performance of households. d) Macroeconomics concerns the performance of small businesses.

b) Macroeconomics concerns the overall performance of the economy.

If a student volunteers at a food pantry on Fridays after school, which of the following might be a negative externality? a) The student might make some new friends. b) The student's parents have to drive him or her to the food pantry. c) The student might learn a new skill. d) The student might decide to volunteer two days a week.

b) The student's parents have to drive him or her to the food pantry.

Which of the following examples best demonstrates the concept of scarcity? (HINT: What is the difference between scarcity and shortage?) a. The US places an embargo on Venezuela, negatively affecting our oil supply b. A forest becomes barren and desolate due to "clear-cutting" by local lumber companies c. The Apple store runs out of iPhones right before Christmas d. Hurricane Matthew hits the Atlantic Coast, causing businesses significant damage and distress

b. A forest becomes barren and desolate due to "clear-cutting" by local lumber companies

Which one of the following examples would be counted in the Gross Domestic Product calculation? a. Medical supplies produced in 2016 and stored in a Virginia warehouse for use in 2020 b. Barbeque grills constructed in Ohio and sold across the American midwest c. Engines assembled for Ford Motor Company to put in their 2020 Mustang d. Cell phones manufactured by California-based Apple, Inc. in their Chinese manufacturing facility

b. Barbeque grills constructed in Ohio and sold across the American midwest

Why is there scarcity even in an affluent country like the United States? a. Entrepreneurs are scarce and companies need leaders. b. Resources are limited but wants are unlimited c. Some people are poor while others are wealthy d. Want are limited but needs are unlimited

b. Resources are limited but wants are unlimited

Which of the following BEST illustrates the involvement of the U.S. government in the marketplace today? a. the government takes over an industry in order to control production b. The government requires manufacturers to issue warnings that come with new microwave ovens c. The government hires new worker to help deliver government service to the public d. The government encourages formation of consumer and business interest groups

b. The government requires manufacturers to issue warnings that come with new microwave ovens

Why are entrepreneurs important to the economy? a. They desire profits b. They promote economic growth c. They have talent and imagination d. They are willing to take risks

b. They promote economic growth

How do self-interest and competition affect free markets? a. They work together to keep prices high. b. They work together to regulate supply, demand, and prices. c. They represent the opposing interests of consumers and producers. d. They help level the playing field between efficient and inefficient producers.

b. They work together to regulate supply, demand, and prices.

Governments have often become involved in market-based economies in order to a. preserve the traditional economy. b. address various limits of the free market system. c. reduce disruptive innovation. d. address shortcomings of central planning.

b. address various limits of the free market system.

How does innovation promote economic growth? a. by reinforcing traditional values in a society b. by introducing new goods and services that create new markets c. by ensuring people's freedom to make their own choices d. by rewarding the development of efficient technology

b. by introducing new goods and services that create new markets

A government hiring freeze would directly impact what aspect of the circular flow model of a mixed economy? a. businesses b. factor market c. product market d. transfer payments

b. factor market

China's economy is considered more mixed than North Korea's because China a. recently took control of Hong Kong. b. has freer markets. c. has traditionally relied on central planning. d. was the first to adopt communism.

b. has freer markets.

Someone taking a course in Web design is affecting what factor of production? a. physical capital b. human capital c. land d. entrepreneurship

b. human capital

What did Karl Marx believe about capitalism? a. that it was the source of all value b. that it led to exploitation of workers c. that it distributed wealth fairly in society d. that it was the inevitable product of socialism

b. that it led to exploitation of workers

Why do markets exist? a. to allow people to earn money b. to allow people to exchange goods and services c. to concentrate the productive efforts of individuals d. to increase profits for business owners

b. to allow people to exchange goods and services

How is a society's economic system defined? a. by how it answers the three basic economic questions b. by the resources it used to produce goods and services c. by the decisions it makes about who consumes goods and services d. by the trade-offs it accepts in order to produce goods and services

by how it answers the three basic economic questions

What is one reason that local law enforcement is considered a public good? a) Individual citizens pay directly for it. b) Private firms make a profit from producing it. c) Everyone in the community benefits from it. d) Nobody in the community has to pay for it.

c) Everyone in the community benefits from it.

Which of the following explains why a city fireworks display on the Fourth of July is provided as a public good? a) Fireworks are a scarce resource. b) Fireworks displays usually take place in a public area. c) Nonpayers cannot be prevented from seeing the fireworks d) Each consumer pays a fee to see the fireworks

c) Nonpayers cannot be prevented from seeing the fireworks

Which of these might indicate that the national economy is stable? a) Prices for groceries and other daily needs go up from year to year. b) Prices for groceries and other daily needs go down from year to year. c) Prices for groceries and other daily needs stay about the same from year to year. d) Prices for groceries and other daily needs are tightly regulated.

c) Prices for groceries and other daily needs stay about the same from year to year.

Public goods are examples of market failure, because producing these goods in the free market... a) shows that the free enterprise system cannot distribute resources b) helps entrepreneurs learn how to distribute public resources c) does not allow for the efficient distribution of resources d) encourages private businesses to distribute resources efficiently

c) does not allow for the efficient distribution of resources

What might be the economic benefit of the government providing a public good rather than the private sector? a) decreased cost for the good b) increased taxes needed to provide the good c) greater efficiency in providing the good d) decreased prices for the good

c) greater efficiency in providing the good

The due process clauses of the Constitution... a) give Congress the right to set direct taxes on incomes b) ensure all Americans the opportunity to compete c) protect Americans' private property rights d) eliminate barriers to women in the workplace

c) protect Americans' private property rights

The goal of government welfare programs is to... a) eliminate the income gap between the richest Americans and the poorest b) maintain a poverty threshold that matches the median income c) raise the standard of living of certain less-fortunate members of society d) eliminate the dependence of people on the welfare system

c) raise the standard of living of certain less-fortunate members of society

What is meant by the term "equilibrium"? a. A point on the graph where a product is no longer inelastic and is now elastic b. A point on the graph at which quantity supply is greater than quantity demanded c. A point on the graph at which quantity supply is equal to quantity demanded d. A point on the graph at which quantity demanded is greater than quantity supply

c. A point on the graph at which quantity supply is equal to quantity demanded

What is an argument that some analysts use to criticize government regulation? a. It endangers safety. b. It promotes competition. c. It results in inefficiency. d. It provides security.

c. It results in inefficiency.

A sales clerk represents which factor of production? a. Entrepreneur b. Capital c. Labor d. Land

c. Labor

What are the three factors of production? a. Needs, wants, choices b. Workers, management, entrepreneurs c. Land, labor, capital d. Human capital, physical capital, intellectual capital

c. Land, labor, capital

An American citizen, Dave, receives his $1200 stimulus check from the U.S. government. He decides to go out and buy a brand new iPhone 11 Pro. Because Dave chose to spend his money on a new cell phone, he can no longer spend it on a vacation with his friends to Florida, his rent payment for the month of June, or new Smart TV from Best Buy. In this example, the vacation, rent payment, and new TV are all examples of: a. A "Guns or Butter" Decision b. Substitute Goods (or Services) c. Opportunity Cost d. Negative Externality

c. Opportunity Cost

Which of the following is an explanation of what Adam Smith called the "invisible hand" of the marketplace? a. Advertising causes consumers to desire products that they otherwise would not want. b. Government regulations influence the decisions of consumers and producers in the market. c. Self-interest, competition, and incentives promote smoothly running markets. d. Unforeseen events disturb supplies of goods and services and affect prices in the marketplace.

c. Self-interest, competition, and incentives promote smoothly running markets.

Which of the following people would be considered an entrepreneur? a. a computer programmer at Apple b. a receptionist at a doctors' office c. an artist selling his or her work on Etsy d. a contestant on the gameshow "Who Wants to Be a Millionaire?"

c. an artist selling his or her work on Etsy

Key advantages of free market economic systems include a. rising prices, specialization, negative incentives, and multiple markets. b. online markets, producer sovereignty, self-interested consumers, and low prices. c. economic efficiency, economic freedom, economic growth, and variety of goods. d. positive incentives, negative incentives, specialized consumers, and efficient labor.

c. economic efficiency, economic freedom, economic growth, and variety of goods.

Who makes most basic decisions in a centrally planned economy? a. investors b. consumers c. government d. market forces

c. government

Which of the following is typical of a centrally planned economy? a. competition among producers b. consumer sovereignty c. government control d. private property

c. government control

Government involvement in a modern economy is generally defended because a. the marketplace always meets the needs and wants of society's members. b. the marketplace has many incentives to create public works such as parks. c. governments are more able than firms to meet some needs and wants of society. d. free market principles do not encourage economic growth.

c. governments are more able than firms to meet some needs and wants of society.

What role does competition among producers play in a free market? a. it allows firms to produce what consumers want while increasing prices. b. if forces consumers to pay high price for what they want c. it causes firms to produce what consumers want while moderating prices d. it encourages firms to produce goods consumers would never demand on their own

c. it causes firms to produce what consumers want while moderating prices

When consumers choose not to purchase a good, what is one likely response by the producer of that good? a. keep the price of the good at the current level b. raise the price of the good c. lower the price of the good d. return the price of the good to an earlier level

c. lower the price of the good

Private property ownership and some government regulation of the economy are basic characteristics of which economic system? a. command economy b. free enterprise system c. mixed economy d. traditional economy

c. mixed economy

Which of the following is an example of a positive externality resulting from an outdoor band concert? a) A pair of endangered birds leave their nest in a nearby tree when the concert starts b) A pizza parlor closes early because all of its customers are at the concert c) A traffic jam occurs as drivers hunt for parking spots near the concert d) An elderly woman in her apartment hears a song that she liked as a child

d) An elderly woman in her apartment hears a song that she liked as a child

How is the gross domestic product used to monitor the business cycle? a) GDP indicates whether a city's economy is expanding or contracting. b) GDP indicates whether a business is expanding or contracting. c) GDP indicates whether the world's economy is expanding or contracting. d) GDP indicates whether the nation's economy is expanding or contracting.

d) GDP indicates whether the nation's economy is expanding or contracting.

What is the main economic benefit of public disclosure laws? a) They guarantee that businesses can make legally binding contracts b) They cut into the profits of highly regulated industries c) They protect employees from potential dangers in the workplace d) They ensure that consumers can make informed buying decisions

d) They ensure that consumers can make informed buying decisions

How do patents act as an incentive to technological innovation? a) by protecting unpatented creative works b) by protecting the government's right to patent creative works c) by protecting a business's right to profit from someone else's creativity d) by protecting a patent holder's right to profit from his or her creativity

d) by protecting a patent holder's right to profit from his or her creativity

The due process clauses of the Constitution support the principle that... a) private property can never be taken from an owner b) only through a public trial can government take someone's private property c) no legislature can keep an owner from selling his or her private property d) government can take private property only to meet a public need

d) government can take private property only to meet a public need

The profit motive drives business owners to... a) protect the private property rights of those who consume their goods b) develop incentives for their employees to work fewer hours each week c) see that the principle of open opportunity applies to all Americans d) make sure their firm is operating at its highest level of efficiency

d) make sure their firm is operating at its highest level of efficiency

An entrepreneur can BEST be characterized as someone who... a) seeks to engage in a voluntary exchange b) tries to persuade officials to pass favorable laws c) signals businesses what and how much to produce d) takes risks in order to acquire profits

d) takes risks in order to acquire profits

What is critical in determining whether something is produced as a public good? a) whether the benefits are limited to the poor b) whether the government needs to use tax money to provide it c) whether the market has the resources to provide it d) whether the benefits to society are greater than the total cost

d) whether the benefits to society are greater than the total cost

Oakland County relaxes its regulations on the construction of backyard swimming pools. As a result, the sales and construction of pools increase substantially. Subsequently, the sales of swimsuits also rise. The relationship between swimming pools and swimsuits can be best described as: a. Positive Externalities b. Elastic Goods c. Substitutes d. Compliments

d. Compliments

Which of the following is an argument in favor of protectionism? (Hint: look up the definition of protectionism!) a. It limits free trade b. It lowers the price of goods c. It gives consumers fewer choices d. It helps protect jobs

d. It helps protect jobs

The price of pineapple juice suddenly increases. As a result, Sally begins drinking more apple juice. Apple juice is less expensive, but she likes it just as much as she likes pineapple juice. For Sally, pineapple juice and apple juice are: a. Inferior Goods b. Inelastic Goods c. Compliments d. Substitutes

d. Substitutes

What is the biggest concern citizens have with the existence of monopoly power? a. The market is too unstable due to free and wide-open entry and exit b. The market is too focused on specialization c. The company doesn't employ enough workers d. The market price and/or quantity available may be unfair to consumers

d. The market price and/or quantity available may be unfair to consumers

In response to the present economic shutdown resulting from the Coronavirus pandemic, the U.S. government passed a $6 trillion dollar stimulus package. Of that stimulus, $4 trillion of that is available in the form of "available liquidity" (lending power via the Federal Reserve). With that in mind, how can borrowing money from banks help businesses grow? a. They use the borrowed money to expand and use company profits for CEO bonuses instead b. They buy mutual funds with the loan and re-invest in the market c. They claim higher profits by adding the loan value to their company's worth d. They invest the money to expand their businesses and create jobs

d. They invest the money to expand their businesses and create jobs

All of the following are examples of physical capital EXCEPT: a. The Trump Organization builds a new "Trump Tower" in Washington D.C. b. Chick-Fil-A expands its business operations in five key Midwestern states, including Michigan c. Ford relocates all of its small car production to newly-erected auto plants in Mexico d. Wal-Mart hires 50 new employees at each one of its "superstores" in preparation of increased Holiday season shopping

d. Wal-Mart hires 50 new employees at each one of its "superstores" in preparation of increased Holiday season shopping

What are the three basic economic questions all societies must answer? a. Who gets to produce goods and services, who get to consume them, and who collects the profits? b. Why should goods and services be produce, when should they be produced, and how should they be produced? c. Where should goods and service be produced, who should sell them, and who should get the profits. d. What goods and services should be produced, how should they be produced, and who will consume them?

d. What goods and services should be produced, how should they be produced, and who will consume them?

What is one reason centrally planned economies tend not to be efficient? a. Factories produce too many types of goods b. Decision making is too decentralized to be effective c. Decision-makers do not have enough power d. Workers lack the incentive to work harder

d. Workers lack the incentive to work harder

For which of the following products is consumer demand the MOST elastic: a. Your first pair of shoes b. Your second pair of shoes c. Your third pair of shoes d. Your fourth pair of shoes

d. Your fourth pair of shoes

Which of these would be an alternative use for farmland? a. farm machinery b. skilled labor c. cash d. an amusement park

d. an amusement park

Why might you choose an investment with high risk instead of one with low risk? a. to avoid losing money b. for greater "liquidity" c. to avoid a higher "capital gains" tax rate d. for a higher return on your investment

d. for a higher return on your investment

Which economic goal reflects the desire of individuals to make their own choices about owning property or becoming entrepreneurs? a. security b. efficiency c. equity d. freedom

d. freedom

Which policy change was partly responsible for economic growth in China starting in the 1970s? a. imposing more controls on Chinese farmers b. forcing factory workers to work on farms c. promoting new agricultural products d. giving farmers the chance to own land

d. giving farmers the chance to own land

The distribution of income received in the form of rent, wages or interest is the main factor that determines a. how goods and services are produced b. where goods and service are consumed c. who produces goods and services d. who consumes goods and services

d. who consumes goods and services

Which of these is an example of restrictions that government places on the use of business property? a. corporate income taxes b. regulation of competition c. providing for security d. zoning laws

d. zoning laws

Market failure occurs whenever... a) government builds infrastructure b) goods fail to arrive at a market in a timely fashion c) voluntary exchange in a market fails to result in a sale d) free markets fail to distribute resources efficiently

free markets fail to distribute resources efficiently