Economics Practice Test #2

1. Explain how a decrease in total expenditures affects the nation's economy.

A. It causes more expansion.

B. It causes a trade deficit.

C. It causes a recession.

D. It causes more investment.

2. Which statement most accurately explains the effect of competition among local gas stations on the price of gasoline?

A. The demand for gasoline will decrease.

B. The supply of gasoline will increase.

C. The price of gasoline will decrease.

D. The price of gasoline will increase.

3. What is one of the main differences between a monopoly and an oligopoly?

A. An oligopoly is a market controlled by a few firms; monopoly markets are controlled by one firm.

B. There are barriers to entry for firms in a monopolistic but not in oligopolistic markets.

C. An oligopoly is a market situation where there are no close substitutes for the good.

D. Oligopolies face downward sloping demand curves, unlike monopolistic firms.

4. Poor weather causes wheat farmers to yield a small crop. How will this situation most likely impact the price of wheat?

A. The demand for wheat will increase.

B. The price of wheat will increase.

C. The demand for wheat will decline.

D. The price of wheat will decline.

5. Which of the following is part of the resource or factor market?

A. taxes

B. labor

C. education

D. revenue

6. Which of the following is another term for market clearing price?

A. price gouging

B. equilibrium price

C. abundance

D. scarcity

7. When an entrepreneur starts a business, there is a risk that the business will fail. Which of the following best explains why an entrepreneur would want to start a business?

A. The entrepreneur does not have to pay taxes.

B. The entrepreneur hopes to earn a profit.

C. The entrepreneur is better at running a business than other people.

D. The entrepreneur wants to help his or her community.

8. Which of these describes an economic incentive for entrepreneurs?

A. An entrepreneur has an easier time participating in the global market.

B. An entrepreneur has a greater opportunity to share the costs of product.

C. An entrepreneur does not have to share any profits with an employer.

D. An entrepreneur does not have to worry about as much economic risk.

9. Which term explains what happens to the national economy when government spending exceeds revenues?

A. Budget deficit

B. Budget surplus

C. Economic Contraction

D. Economic Expansion

10. The demand for gasoline increases during times when many people go on vacation. This happens in summer and on holidays like Memorial Day. What is the likely effect of this high demand on gasoline prices?

A. The supply of gasoline will increase.

B. The price of gasoline will decrease.

C. The demand for gasoline will decrease.

D. The price of gasoline will increase.

11. Sam, Marie, and Brenda have decided to form a general partnership to sell jewelry. Business is good for a few years, and they each receive 1/3 of the profits. But they are unable to find new customers and have to close their business. At the end, they owe $4000 to their suppliers.

Referring to the paragraph above, which of the following describes a drawback of this type of business organization?

A. Unlimited liability.

B. Double payment of taxes.

C. Excessive regulation.

D. High barriers to entry.

12. Which of the following businesses or industries would be most affected by child labor legislation?

A. a shopping mall

B. a logging company

C. an ad agency

D. an oil refinery

13. Identify a primary way payments flow from U.S. households to the government.

A. exports

B. income

C. goods

D. taxes

14. In Japan, bluefin tuna is considered a delicacy. A single tuna can sell for as high as $60,000 or even $70,000. This illustrates how

A. high demand causes prices to increase.

B. high demand causes prices to decrease.

C. high prices cause demand to decrease.

D. high prices cause supply to increase.

15. Which of the following businesses is most likely a sole proprietorship?

A. Metropolitan Hospital

B. Bob's Lawn Care Service

C. U.S. Megabank

D. Southwestern Oil and Gas Company

16.

What is the main purpose of the above government organizations?

A. They maintain the stability of the economy.

B. They operate as businesses that offer services.

C. They protect the safety of consumers.

D. They raise revenue for the government.

17.

According to the chart, what is the role of consumer spending in the circular flow of economics?

A. Consumer spending impacts production costs of most products.

B. Consumer spending drives demand for goods and services.

C. Consumer spending is only a small part of the flow of economics.

D. Consumer spending is closely linked to the factors of production.

18. The price elasticity of demand refers to the fact that

A. the amount of a good supplied is always equal to the amount demanded.

B. the amount of a good people are willing to buy changes based on its price.

C. people often buy less of a good when its price goes down.

D. people are willing to buy the same amount of a good regardless of its price.

19. A situation where there are a few, large firms and any change in one firm's output or prices will affect the whole market is known as

A. monopolistic competition

B. monopoly

C. pure competition

D. oligopoly

20. Sylvia has started a hair salon and must purchase thousands of dollars in equipment. Sylvia is investing in which type of capital?

A. human capital

B. mental capital

C. mutual capital

D. physical capital

21. In the United States and the world, why are dollars and cents considered to be a reliable form of money?

A. They are backed by the U.S. government.

B. They represent a physical amount of gold.

C. They have a strong historical tradition.

D. They are made of valuable materials.

22. A tropical storm has damaged citrus crops in the South. What is the likely effect of the storm on the cost of oranges?

A. The demand for oranges will decrease.

B. The price of oranges will decrease.

C. The demand for oranges will increase.

D. The price of oranges will increase.

23. Monopolistic competition is a market structure which has many of the aspects of pure competition. What is one difference between a market in monopolistic competition versus pure competition?

A. Firms in monopolistic competition can set prices without losing business.

B. Firms in monopolistic competition are able to collude with other firms to set prices.

C. Firms in monopolistic competition have total control of supply in the market.

D. Firms in monopolistic competition sell similar, but not identical products.

24. Which term is used to describe a situation where most consumers are forced to make decisions based on limited resources?

A. need

B. scarcity

C. inflation

D. want

25. Which of the following best describes "the product market"?

A. where individuals buy stocks in a company

B. where individuals save money for the future.

C. where individuals can purchase goods that they want

D. where individuals are employed to make goods

26.

The supply and demand chart above shows that the supply is greater than the demand when a price floor is established. Which of the following is an example of a price floor?

A. The government sets a minimum wage for all employees.

B. The government sets the price for a gallon of gasoline.

C. A state tells the electric utilities what rates they can charge their customers.

D. A city establishes rent controls in an attempt to have affordable housing.

27. Which of these types of business organizations has only one owner who receives all profits and is responsible for all losses?

A. Business Trust

B. Corporation

C. Partnership

D. Sole proprietor

28. Which government agency is responsible for collecting information about unemployment and inflation?

A. Bureau of Labor Statistics

B. United States Census Bureau

C. Federal Bureau of Investigation

D. Social Security Administration

29.

Which answer best fits the chart describing economic flow?

A. Individuals recycle the products each time.

B. Businesses buy back the products from consumers.

C. Individuals make the products last for a while.

D. The profits are used to buy more resources.

30. Predict how the price of athletic shorts would change if schools banned their use.

A. The price would increase.

B. The price would decrease.

C. The price would fluctuate.

D. The price would stay the same.

31. Which of the following is an advantage of setting up a business as a partnership?

A. The government guarantees that this type of business will not fail.

B. This type of business is the most likely to be profitable.

C. The risks of owning the business are divided among a group of people.

D. This type of business is the easiest to manage.

32. How would a decrease in total expenditures affect the nation's economy?

A. It would cause an expansion.

B. It would cause stagnation.

C. It would cause a trade surplus.

D. It would cause a recession.

33. How do governments play a role in economic flow?

A. They use taxes to provide public goods and services.

B. They provide loans to local businesses.

C. They regulate the prices of goods and services.

D. They regularly invest money in businesses

34. Which of the following describes the situation that occurs when the equilibrium quantity has been reached?

A. There is a surplus.

B. Prices are very high.

C. There is no surplus or shortage.

D. One company has a monopoly.

35. Which of the following would most likely result in an entrepreneur improving the profitability of his or her business?

A. The entrepreneur gets rid of all of his or her employees.

B. The entrepreneur decides to produce fewer products.

C. The entrepreneur gives all employees three more weeks of vacation each year.

D. The entrepreneur comes up with a more efficient way to make products.

36. Which of these would most likely decrease the level of unemployment?

A. an economic recession

B. an economic expansion

C. a strong domestic market

D. a stabilized economy

37. How does government spending contribute to the circular flow of the U.S. economy?

A. It supports businesses by purchasing imports from other countries.

B. It directly supports businesses by providing taxes to households.

C. It supports businesses by purchasing goods and services.

D. It directly supports businesses by collecting taxes from households.

38. Because prices serve as incentives in a market economy, which of the following would be a likely result of a large increase in the price of a good?

A. People would increase their consumption of the good.

B. People would continue to consume the same amount of the good.

C. People would consume less of the good and look for substitutes.

D. People would stop buying the good altogether.

39. Which of the following best describes the ownership of a corporation?

A. It is owned by one person.

B. It is owned by stockholders.

C. It is owned by the government.

D. It is owned by a small group of people.

40. During which phase of the business cycle do we see the highest levels of unemployment?

A. Expansion

B. Peak

C. Contraction

D. Trough

41. Which is an example of circular flow from a business to a household?

A. An individual receives an income.

B. An individual rents his or her capital.

C. An individual buys stocks.

D. An individual pays taxes.

42. What is the likely effect of competition among Internet service providers on the price of services?

A. The price of services will increase.

B. The price of services will decrease.

C. The demand for services will decrease.

D. The demand for services will increase.

43. Which of these statements is true about corporations in the United States?

A. Shareholders must get approval to sell their stock.

B. Corporations exist only for as long as original members live.

C. They are legal entities with the right to own property.

D. Corporate members hold liability for corporate losses.

44. IRAs and 401K plans both involve

A. ownership of a corporation.

B. investing for retirement.

C. disability benefits.

D. government agencies.

45. Which of these best describes why money is an effective medium of exchange?

A. Money has practical uses other than spending.

B. Nearly everyone will accept money as payment.

C. Money allows people to negotiate instead of paying a set price.

D. Every person has access to about the same amount of money.

46. Which best explains the law of demand?

A. As the amount of a good increases, the price that consumers are willing to pay decreases.

B. As the amount of a good increases, the price that consumers are willing to pay increases.

C. As the price of a good decreases, the amount that consumers are willing to purchase decreases.

D. As the price of a good decreases, the amount that consumers are willing to purchase increases.

47. Which statement most accurately describes a monopoly?

A. a market with many buyers but only one seller

B. a market with many sellers but only one buyer

C. a market controlled by a small number of producers

D. a market in which two commercial companies merge

48. A popular new video game is released in limited supply. How will the limited supply most likely impact sales of the video game?

A. People will manufacture their own video games.

B. It will decrease the price of the video game.

C. People will lose interest in the video game.

D. It will increase the price of the video game.

49.

What is the relationship shown in the chart?

A. There is a one-way relationship between households and businesses.

B. Businesses are solely responsible for all the major inputs for households.

C. Households are responsible for all the goods and services of businesses.

D. There is a shared relationship between households and businesses.

50.

Which year most likely had the least expensive corn prices?

A. 2003

B. 2001

C. 2002

D. 2004