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web.groovymark@gmail.com
- December 7, 2024
Question 01
What is the definition of scarcity?
a) The unlimited availability of resources
b) The limited nature of society’s resources
c) The abundance of resources compared to needs
d) The increase of production leading to oversupply
Answer: b) The limited nature of society's resources
Explanation: Scarcity refers to the basic economic problem where resources are limited, but human wants are unlimited.
Question 02
What does opportunity cost represent?
a) The monetary price of a good or service
b) The value of the next best alternative that is forgone
c) The total cost of production
d) The fixed cost of providing a good or service
Answer: b) The value of the next best alternative that is forgone
Explanation: Opportunity cost is what is sacrificed in making one choice over another, highlighting the trade-offs involved in decision-making.
Question 03
What does the law of demand state?
a) As price increases, quantity demanded decreases
b) As price decreases, quantity demanded decreases
c) Price and demand move in the same direction
d) Quantity demanded is constant, regardless of price
Answer: a) As price increases, quantity demanded decreases
Explanation: The law of demand shows an inverse relationship between price and quantity demanded—consumers tend to buy more at lower prices and less at higher prices.
Question 04
What is the primary function of money in an economy?
a) To produce goods and services
b) To act as a medium of exchange
c) To replace the need for goods and services
d) To regulate the availability of resources
Answer: b) To act as a medium of exchange
Explanation: Money facilitates trade by serving as a medium of exchange, making transactions easier and more efficient.
Question 05
What is a mixed economy?
a) An economy that relies solely on government control
b) An economy with a combination of free market and government intervention
c) An economy based on traditional practices
d) An economy that uses only barter as a form of exchange
Answer: b) An economy with a combination of free market and government intervention
Explanation: A mixed economy combines aspects of a free market with some level of government regulation to correct market failures and provide public goods.
Question 06
What is the primary goal of contractionary fiscal policy?
a) To increase government spending
b) To decrease aggregate demand and control inflation
c) To stimulate economic growth
d) To raise consumer confidence
Answer: b) To decrease aggregate demand and control inflation
Explanation: Contractionary fiscal policy is used to reduce inflation by decreasing aggregate demand through reduced government spending or increased taxes.
Question 07
What is a price floor?
a) The maximum price set by the government
b) The minimum legal price at which a good can be sold
c) The lowest price at which demand equals supply
d) The price where quantity supplied exceeds quantity demanded
Answer: b) The minimum legal price at which a good can be sold
Explanation: A price floor is the lowest legal price a product can be sold at, usually set by the government to protect producers.
Question 08
What is the circular flow model?
a) A model showing the flow of resources and products through the economy
b) A model demonstrating the flow of government spending
c) A model showing how goods are transferred between countries
d) A model focusing on the inflation and interest rates
Answer: a) A model showing the flow of resources and products through the economy
Explanation: The circular flow model illustrates how households, businesses, and the government interact in the economy, involving flows of money, goods, and services.
Question 09
What happens in a perfectly competitive market?
a) Firms set their prices freely
b) Many firms sell identical products, and no single firm can influence the market price
c) Only a few firms dominate the market
d) There are high barriers to entry for new firms
Answer: b) Many firms sell identical products, and no single firm can influence the market price
Explanation: In perfect competition, firms are price takers, meaning they must accept the market price because there are many competitors offering identical products.
Question 10
What is an externality?
a) The cost of production
b) A benefit or cost that affects a third party not directly involved in the transaction
c) The cost incurred by consumers when purchasing a product
d) The total cost of exporting goods
Answer: b) A benefit or cost that affects a third party not directly involved in the transaction
Explanation: Externalities occur when a third party experiences a benefit or cost from an economic transaction they are not directly involved in, such as pollution or education.
Question 11
What is a positive economic statement?
a) A statement based on opinions and value judgments
b) A statement that can be tested and validated
c) A statement advocating for a particular policy
d) A statement reflecting social preferences
Answer: b) A statement that can be tested and validated
Explanation: Positive economic statements are objective and based on factual data, making them testable and verifiable.
Question 12
How do price ceilings affect a market?
a) They always increase the quality of goods
b) They can lead to shortages if set below the equilibrium price
c) They ensure that producers maximize profits
d) They decrease the quantity demanded
Answer: b) They can lead to shortages if set below the equilibrium price
Explanation: Price ceilings can cause shortages when set below equilibrium, as the lower price increases demand but discourages supply.
Question 13
What does the production possibilities frontier (PPF) illustrate?
a) The relationship between supply and demand
b) The maximum combinations of goods and services that can be produced given available resources
c) The impact of price changes on the market
d) The relationship between inflation and unemployment
Answer: b) The maximum combinations of goods and services that can be produced given available resources
Explanation: The PPF demonstrates the trade-offs and opportunity costs of producing different combinations of goods within an economy’s resource constraints.
Question 14
What is the definition of GDP (Gross Domestic Product)?
a) The total value of all foreign investments in a country
b) The total value of all goods and services produced within a country’s borders in a given period
c) The value of all exports and imports
d) The total amount of money circulating in an economy
Answer: b) The total value of all goods and services produced within a country's borders in a given period
Explanation: GDP measures the economic output within a country, capturing the value of all goods and services produced in a specific time frame.
Question 15
What is the primary role of financial intermediaries in an economy?
a) To regulate prices in the market
b) To match borrowers with savers
c) To control inflation directly
d) To set interest rates
Answer: b) To match borrowers with savers
Explanation: Financial intermediaries, such as banks, play a key role in facilitating the flow of funds between those who want to save money and those who need to borrow.
Question 16
What is the primary advantage of free trade?
a) Increased regulation of the economy
b) Access to cheaper goods and services
c) Increased control over domestic industries
d) Protection from international competition
Answer: b) Access to cheaper goods and services
Explanation: Free trade allows countries to specialize in producing goods at a lower opportunity cost, which leads to more efficient production and lower prices for consumers.
Question 17
What is an example of cyclical unemployment?
a) A worker loses their job because of automation
b) A worker is unemployed because of a recession
c) A worker quits their job to find a better one
d) A worker is unemployed due to a mismatch of skills
Answer: b) A worker is unemployed because of a recession
Explanation: Cyclical unemployment occurs during economic downturns or recessions when there is not enough demand for goods and services.
Question 18
What is the primary goal of monetary policy?
a) To regulate prices of essential goods
b) To control the money supply and maintain price stability
c) To increase government spending
d) To ensure higher tax revenue
Answer: b) To control the money supply and maintain price stability
Explanation: Monetary policy aims to manage inflation, control interest rates, and regulate the money supply to ensure economic stability.
Question 19
What is an example of a public good?
a) A movie ticket
b) National defense
c) A loaf of bread
d) A private swimming pool
Answer: b) National defense
Explanation: Public goods are non-excludable and non-rivalrous, meaning that individuals cannot be excluded from their use and one person’s use does not reduce availability for others.
Question 20
What is structural unemployment?
a) Unemployment caused by short-term layoffs
b) Unemployment due to economic recessions
c) Unemployment resulting from workers’ skills not matching the jobs available
d) Unemployment caused by changes in consumer demand
Answer: c) Unemployment resulting from workers’ skills not matching the jobs available
Explanation: Structural unemployment occurs when there is a mismatch between the skills of the labor force and the jobs available in the market.
