Title: Economic Environment
Course: Question Banks

Q: Which of the following items is not scarce?
- money
- land
- coal
- air
A: air

Q: What will we never do in a world of scarcity?
- Eliminate the need for choices or tradeoffs.
- Satisfy all basic human needs.
- Get rid of unemployment.
- Meet all of society’s wants.
A: Meet all of society’s wants.

Q: The economic term “scarcity” describes which of the following conditions?
- The quality of the air that we breathe.
- The number of slices of pizza remaining on the buffet at a local pizzeria.
- Libraries are publicly funded.
- Global oil reserves are limited.
A: Global oil reserves are limited.

Q: Because of our limited money, time, and effort, we are best off when we allocate those things:
- by choosing what society as a whole would want.
- with the objective of maximizing opportunity costs.
- with the goal of minimizing total costs.
- by constantly assessing the opportunity costs of our choices.
A: by constantly assessing the opportunity costs of our choices.

Q: In life, we all come to a fork in the path when we need to make a choice, knowing that:
- the opportunity cost of one’s decision should be maximized.
- the impacts of our choices can always be quantified in dollars.
- We can base our choice on other’s actions.
- the correct choice depends upon how much we need to give up.
A: the correct choice depends upon how much we need to give up.

Q: If a county government decided to build parks, then the money and resources would not be available for additional fire fighters. This is an example of:
- production.
- misallocation of resources.
- zero-based budgeting.
- opportunity cost.
A: opportunity cost.

Q: ________ is the way a service or good is produced and divided into a variety of tasks performed by different workers, instead of the same person performing all the tasks.
- opportunity cost
- economics
- production
- division of labor
A: division of labor

Q: What is one of the benefits of specialization in labor?
- It allows workers to understand the overall process of producing a product or service.
- Employees working on a variety of tasks will find that they are better at some than at others.
- Specialization in labor leads to lower employment costs.
- Workers who specialize in certain tasks often learn to produce more quickly and with higher quality.
A: Workers who specialize in certain tasks often learn to produce more quickly and with higher quality.

Q: If a business finds its production is becoming more efficient as it increases production, the organization is experiencing what specialization advantage?
- Geographic specialization
- Division of labor
- Labor efficiency
- Economies of scale
A: Economies of scale

Q: Identify the macroeconomic issue among the following statements.
- The electric bill is higher this month.
- Our family business costs will rise due to higher electric rates.
- The financial impact of unemployment on a community.
- The average cost of producing electricity nationally is rising.
A: The average cost of producing electricity nationally is rising.

Q: An analysis of unemployment rates of the countries in North America since 2008 is an application of:
- microeconomics.
- social economics.
- Fiscal policy.
- macroeconomics.
A: macroeconomics.

Q: The field of economics that focuses on the actions of individual agents within the economy, like households, workers, and businesses is:
- macroeconomics.
- global economics.
- behavioral economics.
- microeconomics.
A: microeconomics.

Q: A microeconomic example may include(s):
- the decrease in Gross Domestic Product (GDP).
- the rate of money supply growth set by the Federal Reserve of the United States.
- the estimated rate of inflation in gas prices over the next ten years.
- the price that a local automobile repair shop will charge for its services.
A: the price that a local automobile repair shop will charge for its services.

Q: Market economies are based on private enterprise, which means
- private companies control the government.
- there is no private property.
- the number of government services is limited.
- economic decision-making happens through markets.
A: economic decision-making happens through markets.

Q: In a planned economy, government determines the prices for goods and services, and:
- businesses determine what goods to produce to maximize profits.
- government allows consumers to influence prices based on demand behavior.
- businesses strive to change government policy.
- government also determines what goods will be produced.
A: government also determines what goods will be produced.

Q: A competitive market is one in which:
- everyone owns the factors of production.
- government makes most decisions about what will be produced.
- all labor is specialized.
- there are a large number of buyers and sellers.
A: there are a large number of buyers and sellers.

Q: A free market is described by which of the following statements?
- Inputs are free to sellers.
- The price of outputs is controlled by the government.
- Consumers have unlimited choices.
- The government does not intervene in any way.
A: The government does not intervene in any way.

Q: Which country has characteristics of a command economy?
- United States
- Singapore
- Morocco
- Russia
A: Russia

Q: When higher prices result in a lower quantity demanded, economists call this relationship:
- the demand curve.
- price and demand model.
- the law of quantity.
- the law of demand.
A: the law of demand.

Q: According to the law of demand, assuming other factors are held constant:
- as the price of milk increases, the quantity of milk demanded will increase.
- as the demand for milk increases, the price of milk will remain unchanged.
- as the demand for milk decreases the price of milk will remain unchanged.
- as the price of milk decreases, the quantity of milk demanded will increase.
A: as the price of milk decreases, the quantity of milk demanded will increase.

Q: The law of demand states that as the price of a good decreases:
- less of it is produced.
- suppliers wish to sell more of it.
- the quality will also decrease.
- buyers desire to purchase more of it.
A: buyers desire to purchase more of it.

Q: A demand curve shows the graphical relationship between quantity demanded and:
- quantity produced.
- costs.
- quality.
- price.
A: price.

Q: The downward slope of a demand curve illustrates the pattern that as ________ decreases, ________ increases.
- price : quantity supplied
- quantity supplied : quantity demanded
- quantity demanded : quality
- price : quantity demanded
A: price : quantity demanded

Q: When quantity demanded decreases in response to a change in price:
- the demand curve shifts to the right.
- the demand curve shifts to the left.
- there is a vertical shift in the demand curve.
- there is a movement from one point to another along the demand curve.
A: there is a movement from one point to another along the demand curve.

Q: What would cause the demand curve to shift?
- Consumer incomes remain unchanged.
- The price of the good increases.
- Government policies.
- Population grows in a particular market area.
A: Population grows in a particular market area.

Q: Complete the following sentence: If people think that the price of televisions will decrease in the near future, that belief may cause a(n):
- increase in the supply of televisions today.
- increase in the price of televisions today.
- decrease in the supply of televisions today.
- decrease in the demand for televisions today.
A: decrease in the demand for televisions today.

Q: If an increase in the price of Nike shoes increases the demand for Adidas shoes, this means that:
- Nike shoes and Adidas shoes are inferior goods.
- C Nike shoes and Adidas shoes are normal goods.
- Nike shoes and Adidas shoes are luxury goods.
- Nike shoes and Adidas shoes are substitutes.
A: Nike shoes and Adidas shoes are substitutes.

Q: Economists refer to the relationship that a higher price leads to a higher quantity supplied as the:
- market equilibrium.
- price and supply model.
- law of quality.
- law of supply.
A: law of supply.

Q: When ________, business firms will collectively supply a lower quantity of output at any given price, and the supply curve will shift to the left.
- prices decrease
- there is a population decrease
- production decreases
- costs of production increase
A: costs of production increase

Q: According to the law of supply, assuming other factors are held constant:
- as the price of milk increases, the quantity of milk supplied will decrease.
- as the supply for milk increases, the price of milk will also increase.
- as the demand for milk decreases, the price of milk will also decrease.
- as the price of milk decreases, the quantity of milk supplied will decrease.
A: as the price of milk decreases, the quantity of milk supplied will decrease.

Q: A decrease in the quantity supplied can be the result from:
- a decrease in supply.
- increased demand.
- decrease in demand.
- a decrease in price.
A: a decrease in price.

Q: The relationship between the price in a market and the amount that producers collectively make available for sale, is referred to as:
- equilibrium quantity.
- quantity supplied.
- production quantity.
- supply.
A: supply.

Q: A supply curve is a graphical illustration of the relationship between price and:
- demand.
- quantity demanded.
- supply.
- quantity supplied.
A: quantity supplied.

Q: In general, supply curves slope:
- downward from left to right.
- upward from right to left.
- There is in standard slope.
- upward from left to right.
A: upward from left to right.

Q: Suppose Congress passes legislation that offers subsidies to orange farmers. The impact on the market for orange juice will be a rightward shift of:
- the demand curve.
- both the supply and demand curves.
- both the profit and loss curves.
- the supply curve.
A: the supply curve.

Q: If a technology change reduces a company’s production costs, it will:
- increase consumer demand.
- decrease consumer demand.
- shift the supply curve to the left.
- shift the supply curve to the right.
A: shift the supply curve to the right.

Q: When ________, business firms will collectively supply a higher quantity of output at any given price, and the supply curve will shift to the right.
- prices rise
- there is a population increase
- production increases
- costs of production fall
A: costs of production fall

Q: A severe drought has damaged the Washington state apple crop. As a result apple producers will pay more for apples and ultimately consumers will have to pay more for apple juice at the grocery store. The impact on the market for apple juice will cause which of the following to shift to the left?
- the demand curve
- both the supply and demand curves
- the commodities curve
- the supply curve
A: the supply curve

Q: Excess supply occurs when the actual price in some market is ________ the equilibrium price.
- below
- equal to
- unrelated to
- above
A: above

Q: In a market with an upward sloping supply curve and a downward sloping demand curve, when the actual price must be higher than the equilibrium price, there will be:
- excess demand.
- an increase in the price.
- a decrease in the price.
- excess supply.
A: excess supply.

Q: When a market is experiencing a shortage, or “excess demand”:
- the quantity supplied is greater than the quantity demanded.
- suppliers are willing to produce the quantity demanded at the below-equilibrium price
- in the typical warehouse for that item, there will be excess inventory.
- the equilibrium price is higher than the current market price.
A: the equilibrium price is higher than the current market price.

Q: The one unique point in which quantity demanded equals quantity supplied is called:
- market stability.
- supply schedule.
- market rate
- equilibrium.
A: equilibrium.

Q: When the price in some market is above its equilibrium price:
- the quantity supplied is less than the quantity demanded.
- a shortage exists.
- a surplus exists.
A: a surplus exists.

Q: The equilibrium price for Gizmos Puzzle Toys is $12, but Gizmos are currently priced at $10 throughout the market. In the typical store that sells Gizmos, we might expect:
- the box of available Gizmos is always full or overflowing.
- equilibrium has nothing to do with how many Gizmos the store sells.
- Equilibrium will mean the store has a surplus of legos.
- the box of available Gizmos is often empty.
A: the box of available Gizmos is often empty.

Q: The market value of all goods and services produced by the economy in a given year is known as:
- Rate of Inflation.
- Consumer Price Index (CPI).
- Equilibrium Indicator
- Gross Domestic Product (GDP).
A: Gross Domestic Product (GDP).

Q: A business cycle reflects changes in economic activity, as measured by:
- Consumer Price Index (CPI).
- Rate of Unemployment.
- Rate of Services
- Gross Domestic Product (GDP).
A: Gross Domestic Product (GDP).

Q: Which of the following describes a business cycle?
- Inflationary pressures.
- Regular growth rate of consumer spending.
- Structural unemployment increases over time.
- Periods of increasing and decreasing real Gross Domestic Product (GDP).
A: Periods of increasing and decreasing real Gross Domestic Product (GDP).

Q: Businesses are most likely to hire new employees during which stage of the economic cycle?
- contraction
- trough
- peak
- expansion
A: expansion

Q: The point of a business cycle fluctuation during which growth slows, unemployment increases, and pricing pressures subside is called a(n):
- peak.
- expansion.
- trough.
- contraction.
A: contraction.

Q: Which of the following describes a business cycle?
- Inflationary pressures.
- Regular growth rate of consumer spending.
- Irregular division of labor
- Periods of increasing and decreasing real GDP.
A: Periods of increasing and decreasing real GDP.

Q: A business cycle reflects changes in economic activity, particularly real GDP. The phases of a business cycle, in order, are:
- contraction, recession, expansion and boom.
- expansion, trough, contraction and peak.
- trough, expansion, recession and peak.
- expansion, peak, contraction and trough.
A: expansion, peak, contraction and trough.

Q: Rising economic indicators typically signal ________ in the economy.
- recession
- depression
- deflation
- expansion
A: expansion

Q: The unemployment rate generally ________ during contractions and ________ during expansions.
- falls: rises
- rises: rises
- falls: maintains
- rises: falls
A: rises: falls

Q: An extended period of decline with no improving indicators typically signals a ________ in the economy.
- expansion
- recession
- preservation
- depression
A: depression