Multiple Choice
1. In a market economy, resources are allocated by:
The centralized decisions of the government
The decentralized decisions of many firms and households as they interact in markets for goods and services
The centralized decisions of workers' unions and local governments
Either supply or demand, but not demand and supply simultaneously
2. The study of how households and firms make decisions and how they interact in specific markets is called:
The invisible hand
Circular Flow of Income
Production Possibilities Frontier
Microeconomics
3. An oncoming hurricane is announced on the evening news. The next morning, many customers go to the stores to buy plywood, but lumber yard owners had already doubled the price of plywood. Although not very happy, customers still buy the plywood. Which graph best explains this story?
Graph A
Graph B
Graph C
Graph D
There is not enough information to answer.
4. To develop economic models, economists make assumptions. The purpose of this is:
To include as many aspects of reality as possible
To develop a universal macroeconomic theory
To simplify reality, so the models can help us see the most important aspects.
None of the above
5. The people in the village are happy. Their incomes have risen and the shops in town are filled with new, imported goods.
Graph A
Graph B
Graph C
Graph D
There is not enough information to answer the question.
6. The people in the village are unhappy. The shops are mostly empty and the few items available are very expensive.
Graph A
Graph B
Graph C
Graph D
There is not enough information to answer the question.
7. The people in the village remember the good old days, when tourists came to visit and the place seemed to be alive day and night. Now, there is very little to do, although land and locally produced food are inexpensive.
Graph A
Graph B
Graph C
Graph D
There is not enough information to answer the question.
8. The ability to produce a good at a lower opportunity cost than another producer is called:
Substitution effect
Externality
Comparative Advantage
Absolute Advantage
9. Gasoline has doubled in price over the past couple years. Which graph best depicts the markets for bicycles, scooters, and other alternative modes of transportation?
Graph A
Graph B
Graph C
Graph D
There is not enough information to answer the question.
10. Solar panels, windmills, and biodiesel generators are cheaper and almost as efficient for office buildings to produce the electricity that they need for themselves. Which graph depicts the market for existing utility companies?
Graph A
Graph B
Graph C
Graph D
There is not enough information to answer the question.
11. Whatever must be given up to obtain something is called:
Externality
Comparative Advantage
Opportunity Cost
Specialization
12. The price of gasoline has more than doubled in the past couple years. Which graph applies to this story?
Graph A
Graph B
Graph C
Graph D
There is not enough information to answer the question.
13. Housing prices have begun to drop. New home construction has stopped and fewer run-down houses are being repaired.
Graph A
Graph B
Graph C
Graph D
There is not enough information to answer the question.
14. Increases in price are always caused by an increase in demand.
True
False
15. All other things being equal, an increase in demand always leads to an increase in equilibrium price. If prices are not allowed to rise to the new equilibrium, there will be shortages.
True
False
16. All other things being equal, if there is a significant reduction in supply, it is possible to keep prices at their original level without causing shortages through anti-gouging legislation.
True
False
17. When suppliers charge unfair prices, government can intervene to bring prices back to their fair levels.
True
False
18. Economics studies ______.
How society manages its scarce resources
Social Welfare
Ethical use of resources
Protection of workers' rights
19. When doing research, Economists:
follow the scientific method: observation, theory, and more observation
cannot use experiments, as they are often done in areas like Physics and Chemistry
have to use whatever data the world happens to give them
all of the above.
20. When consumers expect the price of a product to be higher in the future, what graph illustrates their reaction today?
graph A
graph B
graph C
graph D
there is not enough information to specifiy any graph