Introduction & Basics of Economics

1. Economics is the study of:

Answer: The allocation of scarce resources to fulfill unlimited wants and needs.

2. The fundamental problem of economics is:

Answer: b) How to allocate unlimited resources to satisfy unlimited wants.

3. Opportunity cost is best defined as:

Answer: c) The highest-valued alternative forgone when a decision is made.

4. Which of the following is a microeconomic question?

Answer: c) How do consumers’ preferences affect the demand for a specific product?

5. Macroeconomics primarily focuses on:

Answer: c) The overall performance of the economy.

6. In economics, “ceteris paribus” means:

Answer: a) “All things considered.”

7. Which of the following statements best represents the concept of “utility” in economics?

Answer: c) Utility refers to the satisfaction or happiness derived from consuming goods and services.

8. “Guns or butter” is a classic economic example used to illustrate the concept of:

Answer: b) Opportunity cost

9. Which of the following is NOT a factor of production in economics?

Answer: c) Money

10. The study of how individuals and societies make choices about the production, consumption, and distribution of goods and services is known as:

Answer: c) Economics

11. Which of the following best describes the law of demand?

Answer: d) As the price of a good decreases, the quantity demanded increases.

12. The measure of responsiveness of quantity demanded to a change in price is known as:

Answer: a) Elasticity of demand

13. When price and quantity demanded have a direct relationship, the demand curve is:

Answer: a) Upward-sloping

14. A government-imposed maximum price that is below the equilibrium price is called:

Answer: b) Price ceiling

15. The total revenue of a firm is calculated as:

Answer: a) Price multiplied by quantity sold

16. In the short run, a firm in a perfectly competitive market will shut down if price falls below:

Answer: a) Average variable cost

17. The Consumer Price Index (CPI) measures changes in the prices of a basket of goods and services purchased by:

Answer: c) Consumers

18. Fiscal policy refers to the use of government spending and taxation to:

Answer: b) Stabilize the economy

19. The natural rate of unemployment is:

Answer: a) The unemployment rate that exists when the economy is operating at full employment.

20. When the actual inflation rate is lower than expected inflation, who benefits the most?

Answer: a) Borrowers

21. The Phillips curve shows the relationship between:

Answer: a) Inflation and unemployment

22. The central bank’s primary tool for conducting monetary policy is:

Answer: b) Open market operations

23. The Lorenz curve is used to illustrate:

Answer: b) The income distribution in an economy.

24. The term “comparative advantage” is used to describe a situation in which a country can produce a good at a lower:

Answer: a) Opportunity cost than other countries.

25. Which of the following is NOT a function of money in an economy?

Answer: c) Unit of production

26. The concept of “time value of money” suggests that:

Answer: c) Money invested today will always be worth more than the same amount received in the future.

27. Which of the following statements about economic systems is correct?

Answer: d) In a traditional economy, resources are allocated based on customs and traditions.

28. Gross Domestic Product (GDP) is a measure of:

Answer: b) The total value of all goods and services produced within a country’s borders in a given period.

29. Which of the following is NOT a component of GDP?

Answer: d) Trade balance

30. The circular flow model of the economy shows:

Answer: d) All of the above.

31. In the circular flow model, the market where businesses sell goods and services to households is known as the:

Answer: a) Product market

32. In the circular flow model, the market where households sell their labor and other factors of production to businesses is known as the:

Answer: b) Factor market

33. Economic growth is measured by the:

Answer: c) Increase in the level of real GDP over time.

34. Economic indicators, such as GDP, unemployment rate, and inflation rate, are used to:

Answer: b) Evaluate government policies and economic performance.

35. The natural rate of unemployment is the level of unemployment that occurs when:

Answer: b) The economy is at full employment and operating at its potential output.

36. The unemployment rate is calculated as the number of unemployed individuals:

Answer: b) Divided by the number of people in the labor force.

37. Structural unemployment occurs when:

Answer: c) There is a mismatch between the skills of job seekers and the skills demanded by employers.

38. The Phillips curve illustrates the inverse relationship between:

Answer: a) Inflation and unemployment.

39. Stagflation refers to a situation where an economy experiences:

Answer: a) High inflation and high unemployment simultaneously.

40. The Federal Reserve uses monetary policy to:

Answer: b) Regulate the money supply and influence interest rates to stabilize the economy.

41. Market equilibrium occurs when:

Answer: c) The quantity demanded equals the quantity supplied.

42. A price ceiling is a government-imposed maximum price set:

Answer: b) Below the equilibrium price.

43. If the price of a good is above the equilibrium price, there will be a:

Answer: c) Shortage, and the price will increase.

44. The main goal of a firm operating in a market economy is to:

Answer: c) Maximize profit.

45. Which of the following market structures is characterized by a single seller and significant barriers to entry?

Answer: d) Monopoly

46. Monopolistic competition is characterized by:

Answer: c) Many sellers offering differentiated products.

47. In a perfectly competitive market, firms are:

Answer: b) Price takers

48. The Laffer curve illustrates the relationship between tax rates and:

Answer: c) Tax revenue

49. Game theory is a branch of economics that studies:

Answer: c) The strategic interactions between decision-makers in various situations.

50. In a simultaneous-move game, players make decisions:

Answer: b) At the same time without knowing the others’ choices.

51. A dominant strategy in game theory refers to a strategy that:

Answer: a) Yields the highest possible payoff for a player, regardless of the other player’s choice.

52. The Nash equilibrium in a game occurs when:

Answer: c) Each player chooses the best strategy given the other player’s choice.

53. The Coase theorem suggests that, in the presence of externalities, private parties can reach an efficient outcome through:

Answer: b) The market system without any government intervention.

54. Public goods are characterized by:

Answer: d) Nonrivalry in consumption and nonexcludability.

55. The “free-rider” problem occurs with public goods because:

Answer: b) People can enjoy the benefits of the good without paying for it.

56. The tragedy of the commons is a situation in which:

Answer: c) Common resources are overused and depleted due to lack of ownership and control.

57. A positive externality occurs when:

Answer: b) An activity generates benefits that are not reflected in the market price.

58. The concept of “comparative advantage” is used to describe a situation in which a country can produce a good at a lower:

Answer: a) Opportunity cost than other countries.

59. Which of the following is NOT a function of money in an economy?

Answer: c) Unit of production

60. The concept of “time value of money” suggests that:

Answer: c) Money invested today will always be worth more than the same amount received in the future.

61. Which of the following statements about economic systems is correct?

Answer: d) In a traditional economy, resources are allocated based on customs and traditions.

62. Gross Domestic Product (GDP) is a measure of:

Answer: b) The total value of all goods and services produced within a country’s borders in a given period.

63. Which of the following is NOT a component of GDP?

Answer: d) Trade balance

64. The circular flow model of the economy shows:

Answer: d) All of the above.

65. In the circular flow model, the market where businesses sell goods and services to households is known as the:

Answer: a) Product market

66. In the circular flow model, the market where households sell their labor and other factors of production to businesses is known as the:

Answer: b) Factor market

67. Economic growth is measured by the:

Answer: c) Increase in the level of real GDP over time.

68. Economic indicators, such as GDP, unemployment rate, and inflation rate, are used to:

Answer: b) Evaluate government policies and economic performance.

69. The natural rate of unemployment is the level of unemployment that occurs when:

Answer: b) The economy is at full employment and operating at its potential output.

70. The unemployment rate is calculated as the number of unemployed individuals:

Answer: b) Divided by the number of people in the labor force.

71. Structural unemployment occurs when:

Answer: c) There is a mismatch between the skills of job seekers and the skills demanded by employers.

72. The Phillips curve illustrates the inverse relationship between:

Answer: a) Inflation and unemployment.

73. Stagflation refers to a situation where an economy experiences:

Answer: a) High inflation and high unemployment simultaneously.

74. The Federal Reserve uses monetary policy to:

Answer: b) Regulate the money supply and influence interest rates to stabilize the economy.

75. Market equilibrium occurs when:

Answer: c) The quantity demanded equals the quantity supplied.

76. A price ceiling is a government-imposed maximum price set:

Answer: b) Below the equilibrium price.

77. If the price of a good is above the equilibrium price, there will be a:

Answer: c) Shortage, and the price will increase.

78. The main goal of a firm operating in a market economy is to:

Answer: c) Maximize profit.

79. Which of the following market structures is characterized by a single seller and significant barriers to entry?

Answer: d) Monopoly

80. Monopolistic competition is characterized by:

Answer: c) Many sellers offering differentiated products.

81. In a perfectly competitive market, firms are:

Answer: b) Price takers

82. The Laffer curve illustrates the relationship between tax rates and:

Answer: c) Tax revenue

83. Game theory is a branch of economics that studies:

Answer: c) The strategic interactions between decision-makers in various situations.

84. In a simultaneous-move game, players make decisions:

Answer: b) At the same time without knowing the others’ choices.

85. A dominant strategy in game theory refers to a strategy that:

Answer: a) Yields the highest possible payoff for a player, regardless of the other player’s choice.

86. The Nash equilibrium in a game occurs when:

Answer: c) Each player chooses the best strategy given the other player’s choice.

87. The Coase theorem suggests that, in the presence of externalities, private parties can reach an efficient outcome through:

Answer: b) The market system without any government intervention.

88. Public goods are characterized by:

Answer: d) Nonrivalry in consumption and nonexcludability.

89. The “free-rider” problem occurs with public goods because:

Answer: b) People can enjoy the benefits of the good without paying for it.

90. The tragedy of the commons is a situation in which:

Answer: c) Common resources are overused and depleted due to lack of ownership and control.

91. A positive externality occurs when:

Answer: b) An activity generates benefits that are not reflected in the market price.

92. The concept of “comparative advantage” is used to describe a situation in which a country can produce a good at a lower:

Answer: a) Opportunity cost than other countries.

93. Which of the following is NOT a function of money in an economy?

Answer: c) Unit of production

94. The concept of “time value of money” suggests that:

Answer: c) Money invested today will always be worth more than the same amount received in the future.

95. Which of the following statements about economic systems is correct?

Answer: d) In a traditional economy, resources are allocated based on customs and traditions.

96. Gross Domestic Product (GDP) is a measure of:

Answer: b) The total value of all goods and services produced within a country’s borders in a given period.

97. Which of the following is NOT a component of GDP?

Answer: d) Trade balance

98. The circular flow model of the economy shows:

Answer: d) All of the above.

99. In the circular flow model, the market where businesses sell goods and services to households is known as the:

Answer: a) Product market