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IVY SOFTWARE - FUNDAMENTALS OF ECONOMICS EXAM
QUESTIONS WITH COMPLETE SOLUTIONS GUARANTEED
PASS BRAND NEW 2025
A government imposed and legally enforced minimum market price. a. price ceiling b. surplus c. economic burden d. price floor - ANSWER>>>d. price floor The ___________________ of any life activity is the cost of what you give up to partake in that activity. Among a comparison of individuals, businesses or countries, the one who has the lowest opportunity cost of an activity has a comparative advantage in that activity. a. opportunity cost b. comparative advantage c. factors of production d. entrepreneurial ability - ANSWER>>>a. opportunity cost All the productive resources of the earth may be put in one of the following four categories: land, labor, capital, and entrepreneurial ability. In limited supply, so they must be allocated among members of society. a. comparative advantage b. entrepreneurial ability c. opportunity cost
d. factors of production - ANSWER>>>d. factors of production Includes all natural resources that are used to produce goods & services a. land b. labor c. capital d. entrepreneurial ability - ANSWER>>>a. land Includes work time and work effort that people devote to producing goods and services a. land b. entrepreneurial ability c. labor d. capital - ANSWER>>>c. labor Includes all tools, instruments, machines, buildings, and other constructions that have been produced in the past that businesses now use to produce goods and services a. capital b. labor c. land d. entrepreneurial ability - ANSWER>>>a. capital Includes all human resources that organize the other factors of production. Entrepreneurs come up with new ideas about what and how to produce, make business decisions, and bear risks that arise from these decisions a. entrepreneurial ability c. capital b. labor d. land - ANSWER>>>a. entrepreneurial ability The ________ mechanism is one way that society chooses to allocate scarce resources. The market prices of each factor of
b. Opportunity cost c. Production possibilities frontier d. Comparative advantage - ANSWER>>>c. Production possibilities frontier The ability of an individual or group to carry out a particular economic activity (such as making a specific product) more efficiently than another activity; the one who has the lowest opportunity cost of an activity. a. entrepreneurial ability b. comparative advantage c. opportunity cost d. absolute advantage - ANSWER>>>b. comparative advantage True/False: When an economy fully uses its factors of production, then it ends up at a location inside the production possibilities frontier - ANSWER>>>False: it ends up at a location inside the production possibilities frontier if it does not fully use its factors of production True/False: When an economy does not fully use its factors of production, then it ends up at a location inside the production possibilities front - ANSWER>>>True True/False: If an economy ends up at a location outside the production possibilities front, the economy has not fully and efficiently used its factors of production. - ANSWER>>>True; this economy does NOT have enough factors of production to produce any bundle beyond its production possibilities frontier. True/False: as an economy experiences increasing opportunity cost as they increase one goods production. - ANSWER>>>True
The law of __________________ is the concept that as you continue to increase production of one good, the opportunity cost of producing that next unit increases. This comes about as you reallocate resources to produce one good that was better suited to produce the original good. a. absolute advantage b. entrepreneurial ability c. increasing opportunity cost d. comparative advantage - ANSWER>>>c. increasing opportunity cost The ability of an individual or group to carry out a particular economic activity more efficiently than another individual or group; one has the lowest absolute production cost relative to those with whom they are compared. a. increasing opportunity cost b. comparative advantage c. constant opportunity cost d. absolute advantage - ANSWER>>>d. absolute advantage When the opportunity cost of a good remains constant as output of the good increases. a. constant opportunity cost b. increasing opportunity cost c. comparative advantage d. decreasing opportunity cost - ANSWER>>>a. constant opportunity cost The concept of ______________ states that when comparing producers, the one with the lowest opportunity cost in the production of some good or service has a _____________ in that good or service. a. entrepreneurial ability
True/False: to have an absolute advantage in something means that you have the lowest absolute production cost relative to those with whom you are compared. - ANSWER>>>True The market price of land is called: a. wage b. interest c. profit d. rent - ANSWER>>>d. rent Kim can the house in 1 hour, it takes Mike 6 hours and Jazzie 2 hours. Kim earns $100/hr, Mike $50/hr and Jazzie $45/hr. Who has an absolute advantage in cleaning the house? a. Kim b. Mike c. Jazzie - ANSWER>>>a. Kim Kim can clean the house the fastest Kim can the house in 1 hour, it takes Mike 6 hours and Jazzie 2 hours. Kim earns $100/hr, Mike $50/hr and Jazzie $45/hr. Who has a comparative advantage? a. Kim b. Mike c. Jazzie - ANSWER>>>c. Jazzie To fully clean the house, it would cost Kim $100, Mike $300 and Jazzie $90. Jazzie has the lowest opportunity cost and thus has the comparative advantage. A graph that shows the combinations of two goods that the economy can produce given the available scarce resources and available technology is called a a. demand curve b. supply curve c. Edgeworth box
d. production possibilities frontier - ANSWER>>>d. production possibilities frontier. If corn producer A is more productive relative to corn producer B, then economists say that corn producer A a. has an absolute advantage in the production of corn b. has a comparative advantage in the production of corn c. is the bigger corn producer d. is smaller than corn producer B - ANSWER>>>a. has an absolute advantage in the production of corn The main concept demonstrated in the production possibilities frontier is a. Comparative advantage b. Profit maximization c. Opportunity cost d. Absolute advantage - ANSWER>>>c. Opportunity cost Assume a production possibilities frontier for pickup trucks and big Mac hamburgers. The economy is producing 60 big Mac hamburgers and 50 pickup trucks (point 60, 50). What is the opportunity cost of producing an additional 20 big Mac hamburgers (point 80, 30)? a. Zero pickup trucks b. Two pickup trucks c. Five pickup trucks d. 20 pickup trucks e. None of the above - ANSWER>>>d. 20 pickup trucks Assume a production possibilities frontier for pickup trucks and big Mac hamburgers. The economy is producing 20 big Mac hamburgers and 65 pickup trucks (point 20, 65). What is the
c. demand curve d. demand function - ANSWER>>>c. demand curve True/False: There are more independent variables other than price. Some of the more influential variables are the prices of complementary goods and the prices of substitute goods. - ANSWER>>>True An item used in conjunction with another good or service. Usually has little to no value when consumed alone, but when combined with another good or service, it adds to the overall value of the offering. a. demand function b. complementary goods c. substitute goods d. law of demand - ANSWER>>>b. complementary goods A product or service that consumers see as essentially the same or similar-enough to another product. Provide choices and alternatives for consumers while creating competition and lower prices in the marketplace. a. law of demand b. demand function c. complementary goods d. substitute goods - ANSWER>>>d. substitute goods A good that experiences an increase in demand due to a rise in consumers' income. a. substitute good b. normal good c. complementary good d. inferior good - ANSWER>>>b. normal good
A good whose demand drops when people's incomes rise. This occurs when a good has more costly substitutes that see an increase in demand as incomes and the economy improve. Some of the reasons behind this shift may include quality or a change to a consumer's socio-economic status. a. substitute good b. normal good c. complementary good d. inferior good - ANSWER>>>d. inferior good How different prices effect the demand for a product or service. Appears as a straight line when graphed, and manufacturers are interested in maximizing revenues and use the function to help establish the most profitable production yield. a. demand schedule b. demand function c. demand curve d. law of demand - ANSWER>>>b. demand function True/False: Unlike Sarah's quantity demanded of wine, which is a number, her demand for wine is a set of numbers. It is a relationship that reveals how many bottles of wine she demands at each and every price of wine. - ANSWER>>>True True/False: Ceteris paribus is a Latin phrase that means other things equal - ANSWER>>>True True/False: When the ceteris paribus assumption is imposed, every independent variable except the price is held constant. - ANSWER>>>True
ANSWER>>>False, they shift only to the the south-west or northeast. A measure of the relationship between a percentage change in the market price of product and a consequential percentage change in the quantity demanded of a product. a. market demand curve b. market demand schedule c. price elasticity of demand d. cross price elasticity of demand - ANSWER>>>c. price elasticity of demand If the price elasticity of demand coefficient < 1, then the demand curve is ______________ around the prices analyzed. a. inelastic b. elastic c. unit elastic - ANSWER>>>a. inelastic; Consumers do not radically change their quantity demanded when the market price changes. If the price elasticity of demand coefficient > 1, then the demand curve is ______________ around the prices analyzed. a. inelastic b. elastic c. unit elastic - ANSWER>>>b. elastic; Consumers significantly change their quantity demanded when the market price changes. If the price elasticity of demand coefficient = 1, then the demand curve is ______________ around the prices analyzed. a. inelastic b. elastic
c. unit elastic - ANSWER>>>c. unit elastic; A change in price will cause an equal proportional change in quantity demanded. Put simply unitary elastic describes a demand or supply that is perfectly responsive to price changes by the same percentage. When calculating the coefficient of the cross price elasticity, if the resulting value is a negative number, then the goods are: a. complements b. substitutes - ANSWER>>>a. complements When calculating the coefficient of the cross price elasticity, if the resulting value is a positive number, then the goods are: a. complements b. substitutes - ANSWER>>>b. substitutes A measure of the relationship between a percentage change in income and a consequential percentage change in the quantity demanded of a product. a. price elasticity of demand b. income elasticity of demand c. supply schedule d. supply curve - ANSWER>>>b. income elasticity of demand; If the outcome is positive, then the good under analysis is a normal good. If the outcome is negative, then the good under analysis is an inferior good. True/False: if the outcome of the income elasticity of demand coefficient is positive, then the good under analysis is an inferior good. - ANSWER>>>False; it would be a normal good. True/False: if the outcome of the income elasticity of demand
True/False: the supply curve is a positively sloped line. - ANSWER>>>True True/False: the demand curve is a positively sloped line. - ANSWER>>>False; negatively sloped True/False: the demand curve is a negatively sloped line. - ANSWER>>>True True/False: If the price of a good increases, then ceteris paribus the quantity supplied will increase. The reverse is also true. If the price decreases, then ceteris paribus the quantity supplied will also decrease. - ANSWER>>>True True/False: If the price of a good decreases, then ceteris paribus the quantity supplied will increase. The reverse is also true. If the price increases, then ceteris paribus the quantity supplied will decrease. - ANSWER>>>False A fundamental principle of economics which states that, all other factors being equal, as the price of a good or service increases, the quantity of goods or services that suppliers offer will increase, and vice versa. It says that as the price of an item goes up, suppliers will attempt to maximize their profits by increasing the quantity offered for sale. a. Law of supply b. Quantity supplied c. Market supply d. Elasticity of supply - ANSWER>>>a. Law of supply True/False: The supply curve moves only when an independent variable other than the price of wine changes. Supply curves move only to the south-west or north-east because of a change in
an independent variable. - ANSWER>>>False; these are the directions the demand curve moves, the supply curve moves north-west or to the south-east True/False: The supply curve moves only when an independent variable other than the price of wine changes. Supply curves move only to the north-west or to the south-east because of a change in an independent variable. - ANSWER>>>True The _____________ shows the combined quantity supplied of goods at different prices; the sum of all individual supply curves. a. law of supply b. demand curve c. market supply schedule d. market supply curve - ANSWER>>>d. market supply curve shows how the supply changes when the price is increased or decreased. It is a table that lists the quantity supplied for a good or service that suppliers throughout the whole economy are willing and able to supply at all possible prices. a. market supply curve b. market supply schedule c. demand curve d. law of supply - ANSWER>>>b. market supply schedule True/False: As the number of sellers in the market increases, ceteris paribus, the market supply curve shifts to the south-east. And if the number of sellers in the market decreases, ceteris paribus, the market supply curve shifts to the north-west. - ANSWER>>>True
True/False: For all comparative-static problems, perform the following three steps when an independent variable does change:
- Determine whether the demand curve or the supply curve will be affected.
- Determine the direction in which the affected curve will shift. (demand curves shift north-east or the south-west and supply curves shift south-east or the north-west)
- Compare the equilibrium price and equilibrium quantity before and after the change. Price and quantity may increase, decrease, remain unchanged, or be ambiguous because all three (an increase, a decrease, or no change) options are possible. - ANSWER>>>True True/False: The effect of a price increase of a substitute good (an independent variable): the demand curve shifts north-east; the equilibrium price increases and the quantity demanded in the market increases. - ANSWER>>>True True/False: The effect of a price increase of a substitute good (an independent variable): the demand curve shifts south-west; the equilibrium price decreases and the quantity demanded in the market decreases. - ANSWER>>>False; shifts north-east; the equilibrium price increases and the quantity demanded in the market increases. True/False: The effect of a price increase of a complement good (an independent variable): the demand curve shifts south-west; the equilibrium price decreases and the quantity demanded in the market decreases. - ANSWER>>>True True/False: The effect of a price increase of a complement good (an independent variable): the demand curve shifts north-east;
the equilibrium price increases and the quantity demanded in the market increases. - ANSWER>>>False; shifts south-west; the equilibrium price decreases and the quantity demanded in the market decreases. True/False: The effect of a decrease in income in the economy of a normal good (independent variable): the demand curve shifts to the north-east; the equilibrium price increases and the quantity demanded in the market increases. - ANSWER>>>False; curve shifts to the south-west; the equilibrium price decreases and the quantity demanded in the market decreases. True/False: The effect of a decrease in income in the economy of a normal good (independent variable): the demand curve shifts to the south-west; the equilibrium price decreases and the quantity demanded in the market decreases. - ANSWER>>>True True/False: The effect of a decrease in income in the economy of an inferior good (independent variable): the demand curve shifts to the north-east; the equilibrium price increases and the quantity demanded in the market increases. - ANSWER>>>True True/False: The effect of a decrease in income in the economy of an inferior good (independent variable): the demand curve shifts to the south-west; the equilibrium price decreases and the quantity demanded in the market decreases. - ANSWER>>>False; curve shifts to the north-east; the equilibrium price increases and the quantity demanded in the market increases. True/False: An economic boom can create a relative shortage of workers in the labor market, which causes the price of labor to increase. As the price of labor increases, the market supply curve
