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Question 1. Which term describes the condition that resources are limited while wants are unlimited? A) Efficiency B) Scarcity C) Inflation D) Surplus Answer: B Explanation: Scarcity means there are not enough resources to satisfy all human wants, forcing choices. Question 2. The cost of the next best alternative that must be given up when a choice is made is called: A) Fixed cost B) Variable cost C) Opportunity cost D) Sunk cost Answer: C Explanation: Opportunity cost measures the value of the foregone alternative. Question 3. A product that can be touched, seen, and stored is a: A) Service B) Good C) Utility D) Capital Answer: B Explanation: Goods are tangible items, whereas services are intangible activities. Question 4. Which factor of production is classified as “human resources”? A) Land
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B) Labor C) Capital D) Entrepreneurship Answer: B Explanation: Labor refers to the effort and skills contributed by people. Question 5. The addition of value through making a product available where consumers want it is known as: A) Form utility B) Place utility C) Time utility D) Possession utility Answer: B Explanation: Place utility is created by moving a product to a location convenient for buyers. Question 6. According to the law of demand, when the price of a good rises, the quantity demanded will: A) Increase B) Decrease C) Remain unchanged D) Become unpredictable Answer: B Explanation: Higher prices discourage buyers, leading to a lower quantity demanded. Question 7. The law of supply states that, ceteris paribus, an increase in price will cause producers to: A) Supply less B) Supply more C) Keep supply constant
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Explanation: Lower costs enable producers to supply more at each price, shifting supply rightward. Question 11. Price elasticity of demand measures: A) How quantity demanded responds to income changes B) How quantity demanded responds to price changes C) How price responds to changes in supply D) How supply responds to changes in technology Answer: B Explanation: Elasticity quantifies the responsiveness of demand to price variations. Question 12. A product with many close substitutes typically has: A) Inelastic demand B) Elastic demand C) Unitary elasticity D) Perfectly inelastic demand Answer: B Explanation: Availability of substitutes makes consumers more sensitive to price changes. Question 13. In a traditional economy, economic decisions are primarily based on: A) Government directives B) Market signals C) Customs and traditions D) Technological innovation Answer: C Explanation: Traditional economies rely on long-standing cultural practices. Question 14. Which system features central planning of all production and distribution?
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A) Market economy B) Mixed economy C) Command economy D) Traditional economy Answer: C Explanation: In a command economy, the government decides what, how, and for whom to produce. Question 15. The primary characteristic of a market economy is: A) Government ownership of resources B) Consumer sovereignty and private ownership C) Fixed production quotas D) Absence of competition Answer: B Explanation: Market economies rely on individuals and firms making decisions based on price signals. Question 16. A mixed economy combines: A) Only private sector activity B) Only public sector activity C) Market forces with government regulation D) Traditional customs with command planning Answer: C Explanation: Most nations blend free-market mechanisms with governmental oversight. Question 17. Perfect competition is characterized by: A) One seller with a unique product B) Many sellers with identical products and free entry C) A few large sellers that collude
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A) Ignoring ethical standards B) Diversifying products and markets C) Relying on a single supplier D) Avoiding competition Answer: B Explanation: Diversification spreads risk across different revenue streams. Question 22. Gross Domestic Product (GDP) measures: A) Total government spending only B) The market value of all final goods and services produced within a country in a year C) Net exports plus imports D) The sum of all wages paid to workers Answer: B Explanation: GDP captures the total value of final production within a nation's borders. Question 23. Which component is NOT part of the expenditure approach to calculating GDP? A) Consumption (C) B) Investment (I) C) Government spending (G) D) Transfer payments (T) Answer: D Explanation: Transfer payments are not payments for goods or services and are excluded. Question 24. The Consumer Price Index (CPI) is used to measure: A) Unemployment rate B) Inflation by tracking price changes of a basket of goods C) GDP growth
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D) Trade balance Answer: B Explanation: CPI reflects the average price change of goods and services purchased by consumers. Question 25. If the unemployment rate falls while the labor force remains unchanged, this indicates: A) More people are entering the labor force B) More people are leaving the labor force C) More people are finding jobs D) A rise in part-time work only Answer: C Explanation: A lower unemployment rate means a greater proportion of the labor force is employed. Question 26. The phase of the business cycle where economic activity is at its highest point is called the: A) Trough B) Expansion C) Peak D) Recession Answer: C Explanation: The peak marks the transition from expansion to contraction. Question 27. Productivity is best defined as: A) The number of workers employed B) The ratio of total output to total input C) The amount of money spent on advertising D) The level of consumer confidence Answer: B Explanation: Higher productivity means more output per unit of input.
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D) Domestic production levels Answer: B Explanation: Quotas set quantitative limits on imports. Question 32. When the U.S. dollar strengthens against the euro, American exporters will: A) Find it easier to sell abroad B) Face higher foreign demand C) Experience reduced competitiveness abroad D) See no change in demand Answer: C Explanation: A stronger dollar makes U.S. goods more expensive for foreign buyers. Question 33. Globalization primarily refers to: A) The isolation of national economies B) Increasing interdependence and integration of world markets C) The elimination of all trade barriers D) The adoption of a single global currency Answer: B Explanation: Globalization is the process of deeper economic, cultural, and political connections across nations. Question 34. Which of the following is a function of the Federal Reserve? A) Setting federal income tax rates B) Regulating interstate commerce C) Conducting monetary policy to influence money supply and interest rates D) Issuing trade embargoes Answer: C Explanation: The Fed uses tools like open-market operations to manage monetary conditions.
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Question 35. Expansionary fiscal policy involves: A) Raising taxes and cutting government spending B) Lowering taxes and increasing government spending C) Increasing interest rates D) Reducing the money supply Answer: B Explanation: Cutting taxes and boosting spending stimulate aggregate demand. Question 36. Which agency is primarily responsible for protecting consumers from unsafe food and drugs? A) EPA B) FTC C) FDA D) OSHA Answer: C Explanation: The Food and Drug Administration regulates food safety, pharmaceuticals, and medical devices. Question 37. The principle of consumer sovereignty means that: A) Producers dictate what consumers buy B) Consumers determine what goods are produced through their purchasing choices C) The government decides consumer preferences D) Only essential goods are offered in the market Answer: B Explanation: In a market economy, consumer demand guides production decisions. Question 38. The term “price ceiling” refers to: A) The minimum price a seller can charge B) The maximum legal price that can be charged for a good
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Explanation: Individual pursuit of profit unintentionally benefits society as a whole. Question 42. Which of the following best illustrates “time utility”? A) Offering a product in a convenient location B) Providing a product in a season when demand is high C) Giving a discount for early payment D) Adding a warranty to a product Answer: B Explanation: Time utility adds value by making a product available when it is needed. Question 43. In the short run, at least one factor of production is: A) Variable B) Fixed C) Fully adjustable D) Unused Answer: B Explanation: Short-run analysis assumes some inputs (e.g., plant size) cannot be changed. Question 44. “Sunk costs” are: A) Costs that can be recovered after production B) Costs that have already been incurred and cannot be recovered C) Variable costs that change with output D) Fixed costs that vary with time Answer: B Explanation: Sunk costs should not affect future economic decisions because they are irreversible. Question 45. The “law of diminishing marginal returns” states that:
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A) As more of a variable input is added, total output eventually decreases B) Adding more of a variable input eventually yields smaller increases in output C) Fixed inputs become variable over time D) Marginal cost always declines with output Answer: B Explanation: After a certain point, each additional unit of input adds less to total output. Question 46. A “price taker” is a firm that: A) Sets the market price B) Accepts the market price as given C) Can influence market supply D) Operates in a monopoly Answer: B Explanation: In perfect competition, firms have no power to affect price. Question 47. Which of the following is an example of a “negative externality”? A) A homeowner’s garden beautifying a neighborhood B) Pollution from a factory affecting nearby residents’ health C) A new technology that raises industry productivity D) A scholarship that improves student education Answer: B Explanation: Negative externalities impose costs on third parties not involved in the transaction. Question 48. The “circular flow diagram” illustrates: A) The movement of goods only B) The interaction between households and firms in markets for goods and factors C) Government budgeting processes D) International trade balances
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Question 52. In a command economy, the price mechanism is: A) Determined by supply and demand B) Irrelevant because the government sets prices C) Flexible and responsive D) Influenced by consumer preferences Answer: B Explanation: Central planners fix prices, reducing the role of market signals. Question 53. Which of the following is NOT a function of money? A) Medium of exchange B) Unit of account C) Store of value D) Production input Answer: D Explanation: Money is not used directly in the production of goods; it serves as exchange, measurement, and store. Question 54. If a country has an absolute advantage in producing both wheat and cloth, it should still specialize according to: A) Comparative advantage B) Absolute advantage only C) Government decree D) Random selection Answer: A Explanation: Even with absolute advantage in all goods, a country gains by specializing where its opportunity cost is lowest. Question 55. The “Phillips Curve” illustrates the inverse relationship between: A) Inflation and unemployment
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B) GDP and imports C) Interest rates and investment D) Savings and consumption Answer: A Explanation: Historically, lower unemployment has been associated with higher inflation, and vice versa. Question 56. An “import quota” is most likely to: A) Increase domestic consumer choice B) Lower domestic prices of imported goods C) Reduce the quantity of a specific imported good D) Encourage foreign investment Answer: C Explanation: Quotas set a limit on the amount that can be imported, restricting supply. Question 57. Which of the following best describes a “monopolistically competitive” market? A) One seller, unique product B) Many sellers, identical products C) Many sellers, differentiated products, low barriers to entry D) Few sellers, collusive pricing Answer: C Explanation: Firms sell similar but not identical products and can enter or exit relatively easily. Question 58. When the Federal Reserve raises the federal funds rate, the likely short-term effect on the economy is: A) Increased borrowing and spending B) Decreased borrowing and reduced aggregate demand C) Higher inflation
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Question 62. Which of the following is NOT a characteristic of a “perfectly inelastic” demand curve? A) Vertical line B) Quantity demanded unchanged regardless of price C) Zero price elasticity D) Highly responsive to price changes Answer: D Explanation: Perfectly inelastic demand does not respond to price changes. Question 63. The “balance of payments” records: A) Only the value of imports B) All international transactions, including trade, services, and capital flows C) Domestic tax collections D) Federal budget surpluses Answer: B Explanation: It summarizes a country’s financial dealings with the rest of the world. Question 64. “Fiscal policy” is primarily executed by: A) The Federal Reserve B) The Department of Commerce C) The legislative and executive branches of government D) Private banks Answer: C Explanation: Congress and the President decide on taxation and spending. Question 65. If a product’s price elasticity of demand is –0.5, the demand is: A) Elastic B) Inelastic C) Unitary elastic
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D) Perfectly elastic Answer: B Explanation: Absolute value less than 1 indicates inelastic demand. Question 66. Which of the following best describes “consumer surplus”? A) The difference between what a consumer pays and the cost of production B) The amount a consumer is willing to pay above the market price C) The total spending on all goods D) The profit earned by producers Answer: B Explanation: Consumer surplus is the extra benefit consumers receive when they pay less than their maximum willingness to pay. Question 67. An “embargo” is a: A) Tax on exported goods B) Complete prohibition of trade with a specific country C) Minimum wage law D) Subsidy for domestic producers Answer: B Explanation: Embargoes block all imports and/or exports with a target nation. Question 68. “Marginal utility” refers to: A) The total satisfaction from all units consumed B) The added satisfaction from consuming one more unit C) The cost of producing an extra unit D) The price of a product at equilibrium Answer: B Explanation: Marginal utility measures the incremental benefit of an additional unit. Question 69. In the long run, a perfectly competitive firm will earn:
