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Final Exam Study Check for Understanding
1. The resources used to make all goods and services are the
a. production possibilities.
c. production trade-offs.
b. factors of production.
d. opportunity costs.
2. Why are all goods and services scarce?
a. Some goods cost more than others.
b. All resources are scarce.
c.
Some things are needs and others are wants.
d. Some people want to have more goods than others.
3. What is the opportunity cost of a decision?
a. the series of alternative decisions that could have been made
b. the best possible way the question could have been decided
c.
the different ways that a different person might have made the
decision
d. the most desirable alternative given up for the decision
4. The physical capital used by a woodworker to make furniture would include
a. saws and drills.
c. hard work and time.
b. wood and glue.
d. a workshop and money.
5. What could cause a production possibilities curve to move down and to the
left?
a. A nation loses land after being defeated in a war.
b. A baby boom 20 years ago resulted in a large number of
young adults in the population today.
c.
An increase in the use of computer technology speeds up
production.
d. Thousands of investors from overseas invest money in a
nation’s economy.
6. Human capital includes
a. the salary paid to an accountant.
b. a taxi driver’s knowledge of the city streets.
c.
the machinery used to weave cloth.
d. the equipment used by a doctor to cure a patient.
7. What incentive motivates a manufacturer to sell a product?
a. making profits on sales
c. pleasing the consumer
b. putting others out of
d. popularity of the product
business
8. You are an entrepreneur with an innovative idea for a new business. In which
kind of economy would you have the most opportunity to try to achieve
success?
a. market economy
c. traditional economy
b. command economy
d. socialist economy
9. What is a positive externality?
a. a way to generate trade that will benefit people who are from
other countries
b. an economic side effect that generates unexpected benefits
c.
a cash flow that will benefit both the government and the
businesses who interact with it
d. an extra payment to welfare recipients
10. Which of the following is NOT an example of a public good?
a. shopping malls
c. highways
b. national parks
d. municipal libraries
11.
a.
b.
12.
What is the term for the total value of all goods and services produced in a
particular economy?
net worth
c. gross domestic product
open market value
d. standard of living
a.
b.
You read an article in a news magazine that explains how the economy
expanded for several years, then went into a period of contraction. What
was the subject of this article?
the gross domestic product c. the business cycle
microeconomics
d. voluntary exchange
13.
a.
b.
c.
d.
What determines the price and the quantity produced of most goods?
the consumer’s perception of necessity
the interaction of supply and demand
the availability of substitutes for the goods
the quality of the goods that are produced
14.
a.
b.
c.
d.
What is a basic principle of the law of demand?
The higher the price, the more people will want the good.
Everyone has a limited income that they will spend.
When a good’s price is lower, people will buy more of it.
Services are of interest in the same way that goods are.
15. When prices rise, which of the following happens to income?
a. It goes down.
c. It rises to meet prices.
b. It buys less.
d. It is used to buy different
things.
16. Which of the following is a fixed cost for a store?
a. short-term workers
c. advertising
b. rent
d. inventory
17.
Which of the following events could cause the demand curve for sports
magazines to shift to the right?
a. The publisher cuts the price of an issue from $3.95 to $2.50.
b. The price of an issue of a popular computer game magazine
rises from $2.95 to $3.95.
c.
Consumer incomes have increased.
d. Consumer incomes, especially those of sports fans, have
decreased.
18. What does it mean when the demand for a product is inelastic?
a. People will not buy any of the product when the price goes up.
b. A price increase does not have a significant impact on buying
habits.
c.
Customers are sensitive to the price of the product.
d. There are very few satisfactory substitutes for the product.
19. If the supply of a good is inelastic,
a. producers will not change their quantity supplied by much if
the market price doubles.
b. a small increase in price will lead producers to sharply
increase their quantity supplied.
c.
producers have diminishing marginal returns of labor.
d. producers will increase their quantity supplied in response to
sharp drops in the market price.
20.
a.
b.
When buyers will purchase exactly as much as sellers are willing to sell,
what is the condition that has been reached?
supply and demand
c. equilibrium
excess demand
d. price floor
21. According to Figure 6.2, in this market, a price of $1.00 would be
a. the equilibrium price.
c. a price ceiling.
b. a price floor.
d. a subsidy.
22.
a.
b.
23.
a.
b.
If the government set a price of $2.00 a slice, how many slices of pizza
will be sold each day, according to Figure 6.2?
none
c. 200
150
d. 250
The price of a slice of pizza is $2.50. At the end of the day, how many
unsold slices of pizza will be left, according to Figure 6.2?
none
c. 100
50
d. 200
24. On which kinds of goods do governments generally place price ceilings?
a. those that are cheap but could become more expensive
without the ceiling
b. those that are not necessary but have become customary
c.
those that are essential and cheap
d. those that are essential but too expensive for some
consumers
25. Rent control is a type of
a. price ceiling.
b. price floor.
c.
d.
rationing.
surplus.
26. How do economists define profits?
a. The ability of a company to c. The ability to generate
get subsidies.
revenues
b. The financial gain made in d. Surpluses produced by
transactions
efficient firms.
27. When government expenditures exceed revenues,
a. the government should raise interest rates to fight inflation.
b. the government is forced to borrow money to finance the
deficit.
c.
the government needs to increase imports to finance the
surplus.
d. the government should do nothing.
28.
a.
b.
c.
d.
In response to rising car traffic, demand for bicycles has increased. The
new equilibrium point will show
more bicycles sold, but at a higher price.
fewer bicycles sold, but at a higher price.
more bicycles sold, but at a lower price.
fewer bicycles sold, but at a higher price.
29. What is monopolistic competition?
a. one company selling the identical product under different
names
b. one company selling several different products under different
names
c.
a very few companies selling identical products
d. many companies selling similar but not identical products
30. What is the definition of an oligopoly?
a. one firm producing 95 percent of the output
b. two to four firms producing 70 percent to 80 percent of the
output
c.
eight to ten firms producing 60 percent to 70 percent of the
output
d. eight to ten firms producing 90 percent of the output
31.
a.
b.
c.
d.
What is the definition of a monopoly?
A market structure dominated by 2-4 major firms.
A market structure dominated by one large seller.
A market structure where no firm controls price or market size.
A market structure where the government supplies all buyers
with the product.
32.
a.
b.
c.
d.
If a general partnership fails, who is responsible for the debts?
anyone who works for the partnership
all of the partners
only the most senior general partner
no one
33.
a.
b.
c.
d.
What is a fringe benefit?
a cash payment for casual work
a business other than sales or marketing
a payment other than wages or salaries
an accounting term meaning profits
34.
What are the money and other valuables that belong to a corporation or
partnership called?
liabilities
c. ownership
assets
d. liens
a.
b.
35.
a.
b.
Your running shoes were designed in the United States but assembled in
Asia by a company called RunnerPro. RunnerPro is probably a
general partnership.
c. multinational corporation.
trade association.
d. producer cooperative.
36. What is collective bargaining?
a. union and company representatives meeting to negotiate a
new labor contract
b. an organization of workers representing several different
occupations
c.
an agreement to allow everyone to be part of the labor
negotiating process
d. a situation in which the rights of labor have been set aside
37.
a.
b.
c.
d.
Why is improving worker productivity important?
the standard of living would improve
American imports would increase
collective bargaining would no longer be necessary
budget deficits would fall
38. How are wages for a particular job determined?
a. By advertisements in the newspaper or on line.
b. By the equilibrium between the supply and demand for
workers for that job.
c.
By the amount of inflation in the economy.
d. By the Federal Wage and Hour Department.
39. The equilibrium wage for doctors is high because the
a. demand for doctors equals the supply.
b. supply of doctors is relatively low and the demand is relatively
high.
c.
demand for doctors tends to be lower relative to supply.
d. supply of doctors is relatively high and the demand is
relatively low.
40.
a.
b.
c.
d.
The label in your jeans says that they were made in a Latin American
country. This is probably because the jeans manufacturing company
wanted to locate its plant
closer to raw materials.
where labor was plentiful and therefore cheaper.
in a warmer climate.
in a region with less technology.
41. Which of the following is an example of a barter system?
a. Instead of paying cash for a computer, you use a credit card.
b. Instead of paying the full amount for a car, you pay 10 percent
in cash and pay for the rest in monthly installments.
c.
Instead of paying rent, you clean the house for the owner.
d. Instead of paying for a purchase in Mexico in pesos, you use
dollars from the United States.
42.
a.
b.
c.
d.
What is the purpose of the Federal Deposit Insurance Corporation
(FDIC)?
to make sure that banks do not fail
to make sure that customers do not lose money if a bank fails
to make sure that banks charge a fair amount of interest on
loans
to make sure that the government has enough gold to cover
its expenses
43. When you invest in a mutual fund,
a. your money is invested in a variety of insurance policies.
b. you have easier access to your money than in a savings
account.
c.
your money is invested in a variety of stocks and bonds.
d. you are guaranteed a fixed return on your investment.
44.
a.
b.
A stock that reinvests its earnings in the business instead of paying
regular dividends is called
an income stock.
c. preferred stock.
common stock.
d. a growth stock.
45. An example of a durable good would be
a. a car.
c. a box of cereal.
b. a paperback book.
d. a pack of baseball cards.
46. The lowest point in an economic contraction is called
a. a peak.
c. a recession.
b. a trough.
d. a depression.
47. GDP expressed in constant, or unchanging, prices is called
a. real GDP.
c. nominal GDP.
b. price level.
d. net national product.
48. In a typical business cycle, what stage immediately follows a peak?
a. contraction
c. trough
b. expansion
d. growth
49.
a.
b.
When Alison, a college math professor, leaves her job at a small rural
college and starts looking for a job at large urban university, she is
frictionally unemployed.
c. cyclically unemployed.
structurally unemployed.
d. a discouraged worker.
50. Which of the following is most likely to be worried about high inflation?
a. A unionized factory worker c. a doctor with a suburban
practice
b. a shopkeeper
d. a retired couple on a fixed
income
51. If Bob loses his job at the GM plant because car manufacturing is slow
due to a downturn in the economy, you can conclude that he is
a. cyclically unemployed.
c. structurally unemployed.
b. seasonally unemployed.
d. frictionally unemployed.
52.
a.
b.
Your store receipt says that you paid a 7.5% sales tax on sports
equipment. This sales tax is an example of a
proportional tax.
c. regressive tax.
progressive tax.
d. income tax.
53. Your pay stub deducts money for FICA. What does this mean?
a. Money is being withheld to fund Social Security and Medicare.
b. Money is being withheld for federal, state, and city taxes.
c.
Money is being withheld for personal exemptions and
deductions.
d. Money is being withheld for excise and estate taxes.
54.
a.
b.
c.
d.
55.
a.
b.
c.
d.
What happens to the money that your employer withholds from your
paycheck?
Your employer holds it until you leave your job and then
returns it to you.
Your employer returns to you at the end of the year so that
you can pay your federal taxes.
Your employer holds it in case you damage his property.
Your employer sends it to the federal government to help pay
your income tax bill.
An example of expansionary fiscal policy would be
cutting taxes.
cutting government spending.
cutting production of consumer goods.
cutting prices of consumer goods.
56.
a.
b.
c.
d.
An example of contractionary fiscal policy would be
cutting taxes.
decreasing government spending.
increasing production of consumer goods.
expanding the government’s role in regulating private industry.
57.
a.
b.
c.
d.
The purpose of expansionary fiscal policy is to
increase output.
prevent hyperinflation.
slow the growth of the GDP.
increase the separation between government and private
industry.
58.
a.
b.
c.
d.
What is the cost of money?
the smoothing out of fluctuations in the market
the economy’s use of open market operations
the price of the interest rate
the bank’s use of money creation
59. What does the Consumer Price Index measure?
a. the willingness and ability of consumers to purchase goods
and services
b. the economy’s total output (GDP)
c.
the price of money, or the interest rate
d. the rate of inflation
60.
a.
b.
61.
a.
b.
How could the Federal Reserve encourage banks to lend out more of their
reserves?
reduce the discount rate
c. increase the prime rate
raise the required amount d. reduce the money supply
of reserve
What type of policy does the Federal Reserve use to counteract an
expansion that is causing inflation and high interest rates?
fiscal policy
c. easy money policy
tight money policy
d. policy lags
62. What type of policy does the Fed use to counteract a contraction?
a. fiscal policy
c. easy money policy
b. tight money policy
d. policy lags
63. What is one possible short-term effect of an easy money policy?
a. decreasing inflation
c. a contracting money supply
b. higher interest rates
d. increased investment
spending
64.
a.
b.
c.
d.
65.
a.
b.
66.
Which of these situations is most likely to cause the Fed to introduce a
tight money supply?
A recession has reduced aggregate demand and increased
unemployment.
The federal government passes a new budget with a large
deficit.
The economy is prosperous with relatively low inflation and
low unemployment.
The economy is expanding quickly and inflation is a concern.
Which of the following instruments is NOT used by the Federal Reserve to
change the money supply?
the discount rate
c. the federal tax code
the required reserve ratio
d. open market operations
a.
b.
When a nation imports more than it exports, economists say it has which
of the following?
a trade surplus
c. a trade deficit
a balance of trade
d. a national difference
67.
a.
b.
c.
d.
What happens when a nation’s currency depreciates?
Its products become more expensive to other nations.
Its trade increases.
Its products become cheaper to other nations.
Its trade decreases.
68.
Ecuador has a comparative advantage in the production of bananas over
the United States. Which of the following statements is true?
Ecuador also has an absolute advantage in the production of
bananas.
The United States has an absolute advantage in the
production of bananas.
Ecuador can produce bananas at a lower opportunity cost
than the United States.
The United States cannot produce bananas.
a.
b.
c.
d.
69.
a.
b.
The United States placed a limit on the number of cars that can be
brought into the country for sale. This is an example of
an import quota.
c. a customs duty.
a tariff.
d. a voluntary export restraint.
70. Brain drain is
a. the tendency of workers in less developed countries to reject
new technologies.
b. the tendency of educated people to leave less developed
countries build careers in developed countries.
c.
the impact of poverty on the productivity of workers in less
developed countries.
d. the impact of malnutrition on education and productivity in less
developed countries.