Question 1

Which of the following best describes the assumption economists make about rationality?

Accepted Answer

People use all available information to achieve their goals and weigh costs and benefits to make the best decision.

Question 2

A company decides to invest in advertising after seeing a drop in sales. This is an example of which economic principle?

Accepted Answer

People respond to economic incentives.

Question 3

Which of the following is an example of an unintended consequence of a government policy?

Accepted Answer

A price ceiling on rent leads to a shortage of available apartments.

Question 4

What does it mean to make decisions 'at the margin'?

Accepted Answer

Making decisions by comparing the additional benefits and additional costs of a small change.

Question 5

If the opportunity cost of attending college for one year is $20,000, what does this represent?

Accepted Answer

The value of the next best alternative forgone.

Question 6

Suppose the demand for a product is given by $Q^d = a - bP$. If the price increases, what happens to the quantity demanded?

Accepted Answer

Quantity demanded decreases.

Question 7

Which of the following is NOT a characteristic of a market economy?

Accepted Answer

Government determines the allocation of resources.

Question 8

Why are market economies generally considered more efficient than centrally planned economies?

Accepted Answer

Because voluntary exchange leads to mutually beneficial outcomes.

Question 9

Which of the following best illustrates the concept of opportunity cost?

Accepted Answer

Choosing to work overtime instead of attending a concert.

Question 10

A country imposes tariffs on imported goods. What is a likely consequence?

Accepted Answer

Domestic producers may benefit from reduced foreign competition.

Question 11

Which equation represents the law of demand?

Accepted Answer

$Q^d = a - bP$

Question 12

In a market economy, who primarily determines the allocation of resources?

Accepted Answer

Individuals and firms interacting in markets.

Question 13

Which of the following is a reason why people may not always act rationally in economic decisions?

Accepted Answer

They may be influenced by emotions or lack information.

Question 14

What is the main difference between market economies and centrally planned economies?

Accepted Answer

Market economies rely on voluntary exchange, while centrally planned economies rely on government allocation of resources.

Question 15

Which of the following is an example of a marginal decision?

Accepted Answer

Deciding whether to work one extra hour.

Question 16

If a government sets a price ceiling below the equilibrium price, what is the likely result?

Accepted Answer

A shortage of goods.

Question 17

Which of the following is a benefit of trade between countries?

Accepted Answer

It allows countries to specialize and benefit from comparative advantage.

Question 18

Which statement about equity in economics is correct?

Accepted Answer

Equity refers to the fairness of economic outcomes.

Question 19

A government decides to subsidize electric cars. What is the most likely economic incentive created by this policy?

Accepted Answer

Consumers will buy more electric cars due to lower prices.

Question 20

Which of the following is NOT a function of prices in a market economy?

Accepted Answer

Determining the allocation of resources by government decree.

Basic Principles of Economics: Foundations and Applications

Study Guide - Practice Questions