Economics MCQs with Answers
Which of the
following is not a factor of production?
a. Land
b. Labor
c. Capital
d. Consumption
Answer: d. Consumption
What is the
difference between a change in quantity demanded and a change in demand?
a. A change in quantity demanded is caused by a change in
price, while a change in demand is caused by a change in one or more of the
determinants of demand.
b. A change in quantity demanded is caused by a change in
income, while a change in demand is caused by a change in price.
c. A change in quantity demanded is caused by a change in
tastes and preferences, while a change in demand is caused by a change in
technology.
d. A change in quantity demanded is caused by a change in
government policy, while a change in demand is caused by a change in social customs.
Answer: a. A change in quantity demanded is caused by a
change in price, while a change in demand is caused by a change in one or more
of the determinants of demand.
Which of the
following is a characteristic of a perfectly competitive market?
a. A large number of buyers and sellers
b. Differentiated products
c. Entry and exit barriers
d. Price-setting power for individual firms
Answer: a. A large number of buyers and sellers
Which of the
following is an example of a public good?
a. A pair of shoes
b. A private tutor
c. A public park
d. A television
Answer: c. A public park
What is the
difference between a progressive tax and a regressive tax?
a. A progressive tax is based on the ability to pay, while a
regressive tax is the same for everyone.
b. A progressive tax is the same for everyone, while a
regressive tax is based on the ability to pay.
c. A progressive tax is a tax on income, while a regressive
tax is a tax on consumption.
d. A progressive tax is a tax on consumption, while a
regressive tax is a tax on income.
Answer: a. A progressive tax is based on the ability to pay,
while a regressive tax is the same for everyone.
Which of the
following is an example of a price floor?
a. A minimum wage
b. A maximum rent
c. A sales tax
d. A subsidy
Answer: a. A minimum wage
What is the
difference between economic growth and economic development?
a. Economic growth is an increase in real GDP, while
economic development is an increase in the standard of living.
b. Economic growth is an increase in the standard of living,
while economic development is an increase in real GDP.
c. Economic growth is an increase in consumption, while
economic development is an increase in investment.
d. Economic growth is an increase in investment, while
economic development is an increase in consumption.
Answer: a. Economic growth is an increase in real GDP, while
economic development is an increase in the standard of living.
Which of the
following is an example of a positive externality?
a. Pollution from a factory
b. Traffic congestion
c. Education
d. Noise pollution
Answer: c. Education
Which of the
following is an example of a monopolistic competition market?
a. A local restaurant
b. A monopoly
c. A perfectly competitive market
d. A cartel
Answer: a. A local restaurant
Which of the
following is an example of a command economy?
a. The United States
b. Japan
c. China
d. Sweden
Answer: c. China
What is the
difference between a subsidy and a tax?
a. A subsidy is a payment made by the government to
producers, while a tax is a payment made by consumers to the government.
b. A subsidy is a payment made by consumers to the
government, while a tax is a payment made by the government to producers.
c. A subsidy is a payment made by the government to
consumers, while a tax is a payment made by producers to the government.
d. A subsidy is a payment made by producers to the
government, while a tax is a payment made by the government to consumers.
Answer: a. A subsidy is a payment made by the government to
producers, while a tax is a payment made by consumers to the government.
Which of the
following is an example of a capital good?
a. A factory building
b. A loaf of bread
c. A pair of shoes
d. A car
Answer: a. A factory building
What is the
difference between a recession and a depression?
a. A recession is a short-term economic downturn, while a
depression is a long-term economic downturn.
b. A recession is a long-term economic downturn, while a
depression is a short-term economic downturn.
c. A recession is characterized by falling real GDP, while a
depression is characterized by high unemployment.
d. A recession is characterized by high unemployment, while
a depression is characterized by falling real GDP.
Answer: a. A recession is a short-term economic downturn,
while a depression is a long-term economic downturn.
What is the
difference between nominal GDP and real GDP?
a. Nominal GDP is adjusted for inflation, while real GDP is
not.
b. Real GDP is adjusted for inflation, while nominal GDP is
not.
c. Nominal GDP measures the value of all final goods and
services produced in a given year, while real GDP measures the value of all
final goods and services produced in a given year adjusted for changes in the
price level.
d. Real GDP measures the value of all final goods and
services produced in a given year, while nominal GDP measures the value of all
intermediate goods and services produced in a given year.
Answer: b. Real GDP is adjusted for inflation, while nominal
GDP is not.
Which of the
following is an example of a comparative advantage?
a. A country that can produce all goods more efficiently
than another country.
b. A country that can produce some goods more efficiently
than another country.
c. A country that can produce only one good efficiently.
d. A country that cannot produce any goods efficiently.
Answer: b. A country that can produce some goods more
efficiently than another country.
What is the
difference between a quota and a tariff?
a. A quota is a tax on imports, while a tariff is a limit on
the quantity of imports.
b. A quota is a limit on the quantity of imports, while a
tariff is a tax on imports.
c. A quota is a limit on the quantity of exports, while a
tariff is a tax on exports.
d. A quota is a tax on exports, while a tariff is a limit on
the quantity of exports.
Answer: b. A quota is a limit on the quantity of imports,
while a tariff is a tax on imports.
Which of the
following is an example of a fiscal policy?
a. The Federal Reserve changing interest rates.
b. The government increasing spending on infrastructure.
c. A company investing in research and development.
d. An individual saving money in a bank account.
Answer: b. The government increasing spending on
infrastructure.
What is the law of
demand?
a. The higher the price, the lower the quantity demanded.
b. The lower the price, the lower the quantity demanded.
c. The higher the price, the higher the quantity demanded.
d. The lower the price, the higher the quantity demanded.
Answer: d. The lower the price, the higher the quantity
demanded.
Which of the following
is an example of a market economy?
a. Cuba
b. North Korea
c. United States
d. Venezuela
Answer: c. United States
Which of the
following is an example of a public good?
a. A hamburger
b. A movie ticket
c. National defense
d. A private school education
Answer: c. National defense
What is the
difference between a fixed cost and a variable cost?
a. A fixed cost varies with the level of output, while a
variable cost does not.
b. A fixed cost is the cost of inputs that do not change
with the level of output, while a variable cost is the cost of inputs that do
change with the level of output.
c. A fixed cost is the cost of inputs that change with the
level of output, while a variable cost is the cost of inputs that do not change
with the level of output.
d. A fixed cost and a variable cost are the same thing.
Answer: b. A fixed cost is the cost of inputs that do not
change with the level of output, while a variable cost is the cost of inputs
that do change with the level of output.
What is the
difference between a monopoly and an oligopoly?
a. A monopoly is a market with many firms, while an
oligopoly is a market with one firm.
b. A monopoly is a market with one firm, while an oligopoly
is a market with many firms.
c. A monopoly is a market with no barriers to entry, while
an oligopoly is a market with many barriers to entry.
d. A monopoly is a market with many buyers, while an
oligopoly is a market with one buyer.
Answer: b. A monopoly is a market with one firm, while an
oligopoly is a market with many firms.
What is the
difference between a stock and a bond?
a. A stock is a loan to a company, while a bond represents
partial ownership in a company.
b. A stock represents partial ownership in a company, while
a bond is a loan to a company.
c. A stock and a bond are the same thing.
d. A stock represents partial ownership in a company, while
a bond represents partial ownership in a government.
Answer: b. A stock represents partial ownership in a
company, while a bond is a loan to a company.
Which of the following
is an example of a fiscal deficit?
a. The government spends less than it collects in taxes.
b. The government spends more than it collects in taxes.
c. The government has a balanced budget.
d. The government collects no taxes.
Answer: b. The government spends more than it collects in
taxes.
What is the
difference between a tariff and a quota?
a. A tariff is a limit on the amount of a product that can
be imported, while a quota is a tax on imported products.
b. A tariff is a tax on imported products, while a quota is
a limit on the amount of a product that can be imported.
c. A tariff and a quota are the same thing.
d. A tariff is a tax on exported products, while a quota is
a limit on the amount of a product that can be exported.
Answer: b. A tariff is a tax on imported products, while a
quota is a limit on the amount of a product that can be imported.
Which of the
following is an example of a non-excludable good?
a. A private jet
b. A swimming pool in a private residence
c. National parks
d. A ticket to a concert
Answer: c. National parks
Which of the
following is an example of a positive externality?
a. Pollution
b. A dog barking loudly at night
c. A homeowner adding a fence to their property
d. A beekeeper producing honey, which helps pollinate nearby
crops
Answer: d. A beekeeper producing honey, which helps
pollinate nearby crops
What is the
difference between a recession and a depression?
a. A recession is a shorter and less severe downturn in the
economy, while a depression is a longer and more severe downturn.
b. A recession is a longer and more severe downturn in the
economy, while a depression is a shorter and less severe downturn.
c. A recession and a depression are the same thing.
d. A recession is a downturn in the economy that occurs only
in certain sectors, while a depression is a downturn that occurs across the
entire economy.
Answer: a. A recession is a shorter and less severe downturn
in the economy, while a depression is a longer and more severe downturn.
Which of the following
is an example of a perfectly competitive market?
a. The market for diamonds
b. The market for oil
c. The market for wheat
d. The market for electric cars
Answer: c. The market for wheat
What is the
difference between a progressive tax and a regressive tax?
a. A progressive tax is a tax that takes a larger percentage
of income from low-income individuals than from high-income individuals, while
a regressive tax takes a larger percentage of income from high-income
individuals than from low-income individuals.
b. A progressive tax is a tax that takes a larger percentage
of income from high-income individuals than from low-income individuals, while
a regressive tax takes a larger percentage of income from low-income
individuals than from high-income individuals.
c. A progressive tax and a regressive tax are the same
thing.
d. A progressive tax is a tax on spending, while a
regressive tax is a tax on income.
Answer: b. A progressive tax is a tax that takes a larger
percentage of income from high-income individuals than from low-income
individuals, while a regressive tax takes a larger percentage of income from
low-income individuals than from high-income individuals.
Which of the
following is an example of a trade surplus?
a. The value of a country’s imports exceeds the value of its
exports.
b. The value of a country’s exports exceeds the value of its
imports.
c. The value of a country’s imports and exports are equal.
d. A country does not engage in international trade.
Answer: b. The value of a country’s exports exceeds the
value of its imports.
Which of the
following is an example of a factor of production?
a. A chair in a factory
b. A finished product on a store shelf
c. A worker assembling a product
d. A customer purchasing a product
Answer: c. A worker assembling a product
What is the
difference between a command economy and a market economy?
a. In a command economy, the government makes all economic
decisions, while in a market economy, individuals and businesses make economic
decisions.
b. In a market economy, the government makes all economic
decisions, while in a command economy, individuals and businesses make economic
decisions.
c. A command economy and a market economy are the same
thing.
d. In a command economy, economic decisions are made by a
small group of wealthy individuals, while in a market economy, economic
decisions are made by the general public.
Answer: a. In a command economy, the government makes all
economic decisions, while in a market economy, individuals and businesses make
economic decisions.
Which of the
following is an example of an oligopoly?
a. The market for gasoline
b. The market for wheat
c. The market for smartphones
d. The market for potatoes
Answer: c. The market for smartphones
Which of the
following is an example of a public good?
a. A private swimming pool
b. A movie theater
c. A public park
d. A private beach
Answer: c. A public park
What is the
difference between a budget deficit and a national debt?
a. A budget deficit is the amount by which government
spending exceeds government revenue in a given year, while a national debt is
the total amount of money a government owes to its creditors.
b. A budget deficit is the total amount of money a
government owes to its creditors, while a national debt is the amount by which
government spending exceeds government revenue in a given year.
c. A budget deficit and a national debt are the same thing.
d. A budget deficit is the total amount of money a
government owes to its citizens, while a national debt is the amount by which government
revenue exceeds government spending in a given year.
Answer: a. A budget deficit is the amount by which
government spending exceeds government revenue in a given year, while a
national debt is the total amount of money a government owes to its creditors.
Which of the
following is an example of price elasticity of demand?
a. A 10% increase in the price of a product leads to a 5%
decrease in quantity demanded.
b. A 10% increase in the price of a product leads to a 10%
decrease in quantity demanded.
c. A 10% increase in the price of a product leads to a 20%
increase in quantity demanded.
d. A 10% increase in the price of a product leads to a 10%
increase in quantity demanded.
Answer: a. A 10% increase in the price of a product leads to
a 5% decrease in quantity demanded.
What is the
difference between a subsidy and a tax?
a. A subsidy is a payment made by the government to
producers, while a tax is a payment made by producers to the government.
b. A subsidy is a payment made by producers to the government,
while a tax is a payment made by the government to producers.
c. A subsidy and a tax are the same thing.
d. A subsidy is a limit on the amount of a product that can
be produced, while a tax is a limit on the amount of a product that can be sold.
Answer: b. A subsidy is a payment made by producers to the
government, while a tax is a payment made by the government
Which of the
following is true about the relationship between inflation and unemployment in
the long run?
a. There is a direct relationship between inflation and
unemployment in the long run.
b. There is an inverse relationship between inflation and
unemployment in the long run.
c. Inflation and unemployment have no relationship in the
long run.
d. The relationship between inflation and unemployment in
the long run is unpredictable.
Answer: c. Inflation and unemployment have no relationship
in the long run.
What is the
difference between a monopoly and a monopsony?
a. A monopoly is a market in which there is only one buyer,
while a monopsony is a market in which there is only one seller.
b. A monopoly is a market in which there is only one seller,
while a monopsony is a market in which there is only one buyer.
c. A monopoly and a monopsony are the same thing.
d. A monopoly is a market in which there are many buyers and
sellers, while a monopsony is a market in which there are only a few buyers and
sellers.
Answer: b. A monopoly is a market in which there is only one
seller, while a monopsony is a market in which there is only one buyer.
Which of the
following is an example of a positive externality?
a. A factory polluting a nearby river
b. A person buying a car
c. A person getting vaccinated against a disease
d. A person buying a new pair of shoes
Answer: c. A person getting vaccinated against a disease
What is the
difference between a price ceiling and a price floor?
a. A price ceiling is a maximum price that can be charged
for a product, while a price floor is a minimum price that must be paid for a
product.
b. A price ceiling is a minimum price that must be paid for
a product, while a price floor is a maximum price that can be charged for a
product.
c. A price ceiling and a price floor are the same thing.
d. A price ceiling is a limit on the amount of a product
that can be produced, while a price floor is a limit on the amount of a product
that can be sold.
Answer: a. A price ceiling is a maximum price that can be
charged for a product, while a price floor is a minimum price that must be paid
for a product.
What is the
difference between a recession and a depression?
a. A recession is a period of time when the economy is
growing, while a depression is a period of time when the economy is shrinking.
b. A recession is a period of time when the economy is
shrinking, while a depression is a severe and prolonged recession.
c. A recession and a depression are the same thing.
d. A recession is a period of time when there is high
inflation, while a depression is a period of time when there is deflation.
Answer: b. A recession is a period of time when the economy
is shrinking, while a depression is a severe and prolonged recession.
Which of the
following is an example of human capital?
a. A computer in a factory
b. A machine in a factory
c. A worker’s skills and knowledge
d. A worker’s physical strength
Answer: c. A worker’s skills and knowledge
What is the
difference between a primary market and a secondary market?
a. A primary market is where new securities are issued,
while a secondary market is where existing securities are traded.
b. A primary market is where existing securities are traded,
while a secondary market is where new securities are issued.
c. A primary market and a secondary market are the same
thing.
d. A primary market is where stocks are traded, while a
secondary market is where bonds are traded.
Answer: a. A primary market is where new securities are
issued, while a secondary market is where existing securities are traded.
What is the
difference between a stock and a bond?
a. A stock represents ownership in a company, while a bond
represents a loan to a company.
b. A stock represents a loan to a company, while a bond
represents
What is the difference between a trade deficit and a trade
surplus?
a. A trade deficit occurs when a country exports more goods
than it imports, while a trade surplus occurs when a country imports more goods
than it exports.
b. A trade deficit occurs when a country imports more goods
than it exports, while a trade surplus occurs when a country exports more goods
than it imports.
c. A trade deficit and a trade surplus are the same thing.
d. A trade deficit occurs when a country’s total exports and
imports are equal, while a trade surplus occurs when a country’s total exports
and imports are not equal.
Answer: b. A trade deficit occurs when a country imports
more goods than it exports, while a trade surplus occurs when a country exports
more goods than it imports.
Which of the
following is an example of a regressive tax?
a. Sales tax
b. Income tax
c. Property tax
d. Estate tax
Answer: a. Sales tax
What is the
difference between a progressive tax and a proportional tax?
a. A progressive tax is one where the tax rate increases as
income increases, while a proportional tax is one where the tax rate is the
same for everyone.
b. A proportional tax is one where the tax rate increases as
income increases, while a progressive tax is one where the tax rate is the same
for everyone.
c. A progressive tax and a proportional tax are the same
thing.
d. A proportional tax is one where the tax rate decreases as
income increases, while a progressive tax is one where the tax rate increases
as income increases.
Answer: a. A progressive tax is one where the tax rate
increases as income increases, while a proportional tax is one where the tax
rate is the same for everyone.
What is the
difference between a quota and a tariff?
a. A quota is a limit on the quantity of a good that can be
imported, while a tariff is a tax on imported goods.
b. A quota is a tax on imported goods, while a tariff is a
limit on the quantity of a good that can be imported.
c. A quota and a tariff are the same thing.
d. A quota is a limit on the quantity of a good that can be
exported, while a tariff is a tax on exported goods.
Answer: a. A quota is a limit on the quantity of a good that
can be imported, while a tariff is a tax on imported goods.
What is the
difference between monetary policy and fiscal policy?
a. Monetary policy is conducted by the government, while
fiscal policy is conducted by the central bank.
b. Monetary policy involves changes in interest rates and
the money supply, while fiscal policy involves changes in government spending
and taxation.
c. Monetary policy and fiscal policy are the same thing.
d. Monetary policy involves changes in government spending
and taxation, while fiscal policy involves changes in interest rates and the
money supply.
Answer: b. Monetary policy involves changes in interest
rates and the money supply, while fiscal policy involves changes in government
spending and taxation.
What is the
difference between a public good and a private good?
a. A public good is a good that is provided by the
government, while a private good is a good that is provided by a private
company.
b. A public good is a good that is available to everyone,
while a private good is a good that is only available to those who can afford
to pay for it.
c. A public good and a private good are the same thing.
d. A public good is a good that is non-excludable and
non-rival, while a private good is a good that is excludable and rival.
What is the formula
for calculating GDP?
a. GDP = C + G + I + NX
b. GDP = C + S + I + NX
c. GDP = Y + C + I + G
d. GDP = Y + C + I – G
Answer: a. GDP = C + G + I + NX
Which of the
following is a type of unemployment that results from workers being between
jobs or having left the labor force for personal reasons?
a. Structural unemployment
b. Frictional unemployment
c. Cyclical unemployment
d. Seasonal unemployment
Answer: b. Frictional unemployment
Which of the
following is a measure of the responsiveness of quantity demanded to a change
in price?
a. Income elasticity of demand
b. Cross-price elasticity of demand
c. Price elasticity of demand
d. Price elasticity of supply
Answer: c. Price elasticity of demand
Which of the
following is a measure of the responsiveness of quantity supplied to a change
in price?
a. Income elasticity of demand
b. Cross-price elasticity of demand
c. Price elasticity of demand
d. Price elasticity of supply
Answer: d. Price elasticity of supply
Which of the
following is an example of a price floor?
a. A minimum wage law
b. A rent control law
c. A tax on a good
d. A subsidy for a good
What is the formula
for calculating GDP?
a. GDP = C + I + G + NX
b. GDP = C + S + I + NX
c. GDP = Y + C + G
d. GDP = C + I + G
Answer: a. GDP = C + I + G + NX
What is the difference between monetary policy and fiscal
policy?
a. Monetary policy is the government’s use of taxes and
spending to influence the economy, while fiscal policy is the central bank’s
control of the money supply.
b. Monetary policy is the central bank’s control of the
money supply, while fiscal policy is the government’s use of taxes and spending
to influence the economy.
c. Monetary policy and fiscal policy are the same thing.
d. Monetary policy is the government’s control of the money supply,
while fiscal policy is the central bank’s use of interest rates to influence
the economy.
Answer: b. Monetary policy is the central bank’s control of
the money supply, while fiscal policy is the government’s use of taxes and
spending to influence the economy.
What is the difference between a fixed exchange rate and a
floating exchange rate?
a. A fixed exchange rate is set by the market, while a
floating exchange rate is set by the government.
b. A fixed exchange rate is set by the government, while a
floating exchange rate is set by the market.
c. A fixed exchange rate and a floating exchange rate are
the same thing.
d. A fixed exchange rate is a rate at which a currency can
be exchanged for gold, while a floating exchange rate is a rate determined by
supply and demand.
Answer: b. A fixed exchange rate is set by the government,
while a floating exchange rate is set by the market.
What is the difference between an expansionary monetary
policy and a contractionary monetary policy?
a. An expansionary monetary policy involves increasing
interest rates, while a contractionary monetary policy involves decreasing
interest rates.
b. An expansionary monetary policy involves increasing the
money supply, while a contractionary monetary policy involves decreasing the
money supply.
c. An expansionary monetary policy and a contractionary
monetary policy are the same thing.
d. An expansionary monetary policy involves decreasing the
money supply, while a contractionary monetary policy involves increasing the
money supply.
Answer: b. An expansionary monetary policy involves
increasing the money supply, while a contractionary monetary policy involves
decreasing the money supply.
What is the difference between an oligopoly and a monopoly?
a. In an oligopoly, there are only a few sellers in the
market, while in a monopoly, there is only one seller in the market.
b. In an oligopoly, there are only a few buyers in the
market, while in a monopoly, there is only one buyer in the market.
c. An oligopoly and a monopoly are the same thing.
d. In an oligopoly, the firms in the market are price
takers, while in a monopoly, the firm is a price setter.
Answer: a. In an oligopoly, there are only a few sellers in
the market, while in a monopoly, there is only one seller in the market.
Which of the following is a characteristic of a monopolistic
competition market?
a. There are only a few sellers in the market.
b. The firms in the market are price setters.
c. The products sold by the firms are identical.
d. The firms in the market sell differentiated products.
Answer: d. The firms in the market sell differentiated
products.
Which of the following is not a factor of production?
a) Land
b) Labor
c) Capital
d) Money
Solution: d) Money is not a factor of production. It is a
medium of exchange used to facilitate transactions.
The law of demand states that:
a) As price increases, demand increases
b) As price decreases, demand increases
c) As price increases, demand decreases
d) As price decreases, demand decreases
Solution: b) As price decreases, demand increases. The law
of demand states that there is an inverse relationship between price and
quantity demanded.
A market in which a large number of buyers and sellers
participate and the products sold are similar is known as:
a) Oligopoly
b) Monopoly
c) Perfect competition
d) Monopolistic competition
Solution: c) Perfect competition. In a perfect competition
market, there are a large number of buyers and sellers who sell identical
products, and no single buyer or seller can influence the market price.
A decrease in the supply of a good will lead to:
a) An increase in price and quantity demanded
b) A decrease in price and quantity demanded
c) An increase in price and decrease in quantity demanded
d) A decrease in price and increase in quantity demanded
Solution: c) An increase in price and decrease in quantity
demanded. When the supply of a good decreases, the equilibrium price will
increase, and the equilibrium quantity will decrease.
Inelastic demand means that:
a) A change in price has no effect on quantity demanded
b) A change in price has a small effect on quantity demanded
c) A change in price has a large effect on quantity demanded
d) Quantity demanded is infinitely responsive to price
changes
Solution: b) A change in price has a small effect on
quantity demanded. Inelastic demand means that the percentage change in
quantity demanded is less than the percentage change in price.
The opportunity cost of a decision is:
a) The monetary cost of the decision
b) The time required to make the decision
c) The value of the next best alternative forgone
d) The benefit of the decision
Solution: c) The value of the next best alternative forgone.
Opportunity cost refers to the value of the next best alternative that must be
given up to pursue a certain action.
Which of the following is an example of a public good?
a) Cable television
b) Private security
c) Street lighting
d) Movie theater
Solution: c) Street lighting. Public goods are
non-excludable and non-rivalrous goods that are provided by the government or
public sector.
Which of the following is not a component of Gross Domestic
Product (GDP)?
a) Personal consumption expenditure
b) Government spending
c) Imports
d) Interest income
Solution: c) Imports. Imports are not a component of GDP
because they are already accounted for in other components such as personal
consumption expenditure or government spending.
Which of the following is a type of unemployment that occurs
when there is a mismatch between the skills of workers and the requirements of
the job market?
a) Cyclical unemployment
b) Frictional unemployment
c) Structural unemployment
d) Seasonal unemployment
Solution: c) Structural unemployment. Structural
unemployment occurs when there is a mismatch between the skills of workers and
the requirements of the job market.
Which of the following is an example of a regressive tax?
a) Income tax
b) Sales tax
c) Property tax
d) Corporate tax
Solution: b) Sales tax. A regressive tax is a tax where the
effective tax rate decreases as income increases, which means that low-income
earners pay a higher percentage of their income in taxes than high-income
earners. Sales tax is an example of a regressive tax because it is a fixed
percentage of the sale price and does not take into account the income level of
the buyer.
A budget deficit occurs when:
a) Government revenues exceed government expenditures
b) Government expenditures exceed government revenues
c) Tax revenues exceed non-tax revenues
d) Non-tax revenues exceed tax revenues
Solution: b) Government expenditures exceed government
revenues. A budget deficit occurs when the government spends more money than it
earns through taxes and other sources of revenue.
The circular flow of income model shows:
a) The flow of goods and services between households and
firms
b) The flow of money between households and firms
c) The flow of both goods and money between households and
firms
d) The flow of goods and services between households and the
government
Solution: c) The flow of both goods and money between households
and firms. The circular flow of income model shows how households and firms
interact in the economy through the exchange of goods and services for money.
The term “marginal” refers to:
a) The total amount
b) The additional amount
c) The average amount
d) The fixed amount
Solution: b) The additional amount. The term
“marginal” refers to the additional amount of a good or service that
is produced or consumed.
The term “elasticity” refers to:
a) The responsiveness of quantity demanded to changes in
price
b) The responsiveness of quantity supplied to changes in
price
c) The responsiveness of price to changes in quantity
demanded
d) The responsiveness of price to changes in quantity
supplied
Solution: a) The responsiveness of quantity demanded to changes
in price. Elasticity measures the degree of responsiveness of the quantity
demanded or supplied to changes in price or income.
The reserve requirement is the:
a) Interest rate set by the central bank
b) Amount of money banks must hold in reserve
c) Maximum amount of money banks can lend out
d) Minimum amount of money banks can lend out
Solution: b) Amount of money banks must hold in reserve. The
reserve requirement is the percentage of deposits that banks must hold in
reserve, which they cannot lend out.
The term “monetary policy” refers to:
a) The use of government spending to influence the economy
b) The use of taxes to influence the economy
c) The use of interest rates and money supply to influence
the economy
d) The use of regulations to influence the economy
Solution: c) The use of interest rates and money supply to
influence the economy. Monetary policy refers to the actions taken by the
central bank to influence the economy through changes in interest rates, money
supply, and other monetary variables.
The term “fiscal policy” refers to:
a) The use of government spending to influence the economy
b) The use of taxes to influence the economy
c) The use of interest rates and money supply to influence
the economy
d) The use of regulations to influence the economy
Solution: a) The use of government spending to influence the
economy. Fiscal policy refers to the use of government spending and taxation to
influence the economy.
A market where there is only one seller and no close
substitutes is called:
a) A perfect competition market
b) A monopolistic competition market
c) A monopoly market
d) An oligopoly market
Solution: c) A monopoly market. In a monopoly market, there
is only one seller and no close substitutes for the product being sold.
Which of the following is a characteristic of a perfectly
competitive market?
a) Many buyers and many sellers
b) Barriers to entry
c) Homogeneous products
d) Market power
Solution: c) Homogeneous products. In a perfectly
competitive market, the products sold by different sellers are identical or
homogeneous.
The law of supply states that:
a) As the price of a good increases, the quantity supplied
decreases
b) As the price of a good decreases, the quantity supplied
decreases
c) As the price of a good increases, the quantity supplied
increases
d) As the price of a good decreases, the quantity supplied
increases
Solution: c) As the price of a good increases, the quantity
supplied increases. The law of supply states that there is a direct
relationship between the price of a good and the quantity supplied, all else
being equal.
The law of demand states that:
a) As the price of a good increases, the quantity demanded
decreases
b) As the price of a good decreases, the quantity demanded
decreases
c) As the price of a good increases, the quantity demanded
increases
d) As the price of a good decreases, the quantity demanded
increases
Solution: a) As the price of a good increases, the quantity
demanded decreases. The law of demand states that there is an inverse
relationship between the price of a good and the quantity demanded, all else
being equal.
Which of the following is an example of a positive
externality?
a) Pollution
b) Noise pollution
c) Education
d) Traffic congestion
Solution: c) Education. A positive externality is a benefit
that is enjoyed by third parties as a result of an economic transaction.
Education is an example of a positive externality because it benefits not only
the individual who receives it but also society as a whole.
The difference between a good’s total revenue and its total
cost is called:
a) Profit
b) Revenue
c) Cost
d) Markup
Solution: a) Profit. Profit is the difference between a
good’s total revenue and its total cost.
Which of the following is an example of a price ceiling?
a) Rent control
b) Minimum wage
c) Sales tax
d) Subsidies
Solution: a) Rent control. A price ceiling is a legal
maximum price that can be charged for a good or service. Rent control is an
example of a price ceiling.
Which of the following is an example of a price floor?
a) Rent control
b) Minimum wage
c) Sales tax
d) Subsidies
Solution: b) Minimum wage. A price floor is a legal minimum
price that can be charged for a good or service. Minimum wage is an example of
a price floor.
Which of the following is an example of a non-price barrier
to entry?
a) Patent protection
b) Government regulation
c) High start-up costs
d) All of the above
Solution: d) All of the above. Non-price barriers to entry
include factors that make it difficult or expensive for new firms to enter a
market, such as patent protection, government regulation, and high start-up
costs.
In a market economy, the allocation of resources is
primarily determined by:
a) The government
b) The price mechanism
c) Consumer preferences
d) The producer surplus
Solution: b) The price mechanism. In a market economy, the
allocation of resources is primarily determined by the price mechanism, which
is the interaction of buyers and sellers in a market.
Which of the following is a measure of a country’s economic
output?
a) Gross domestic product (GDP)
b) Consumer price index (CPI)
c) Unemployment rate
d) Inflation rate
Solution: a) Gross domestic product (GDP). GDP is a measure
of a country’s economic output and represents the total market value of all
final goods and services produced within a country in a given period of time.
Which of the following is an example of a fiscal policy?
a) A change in interest rates by the Federal Reserve
b) A change in government spending on infrastructure
c) A change in the money supply
d) A change in the reserve requirement for banks
Solution: b) A change in government spending on
infrastructure. Fiscal policy refers to the use of government spending and
taxation to influence the economy. A change in government spending on
infrastructure is an example of fiscal policy.
Which of the following is a characteristic of a command
economy?
a) Private property rights
b) Competition among firms
c) Decentralized decision-making
d) Centralized decision-making
Solution: d) Centralized decision-making. In a command
economy, economic decisions are made by a central authority, such as a
government, rather than by individual consumers and firms.
Which of the following is an example of a public good?
a) A private jet
b) A highway
c) A restaurant meal
d) A pair of shoes
Solution: b) A highway. A public good is a good that is
non-excludable and non-rivalrous, meaning that it is difficult to exclude
people from using it and one person’s use of the good does not reduce its
availability to others. A highway is an example of a public good.
Which of the following is an example of a positive income
elasticity of demand?
a) Luxury goods
b) Necessities
c) Inferior goods
d) Substitute goods
Solution: a) Luxury goods. Income elasticity of demand
measures the responsiveness of demand for a good or service to changes in
income. A positive income elasticity of demand means that as income increases,
demand for the good or service also increases. Luxury goods are typically
examples of goods with a positive income elasticity of demand.
Which of the following is a characteristic of monopolistic
competition?
a) Many firms
b) Homogeneous products
c) Low barriers to entry
d) Price takers
Solution: c) Low barriers to entry. Monopolistic competition
is a market structure in which there are many firms selling differentiated
products with low barriers to entry. Firms in monopolistic competition are not
price takers, but rather have some control over the price of their product.
Which of the following is an example of a regressive tax?
a) Income tax
b) Sales tax
c) Property tax
d) Capital gains tax
Solution: b) Sales tax. A regressive tax is one that takes a
larger percentage of income from lower-income earners than from higher-income
earners. Sales tax is an example of a regressive tax because it is applied at a
fixed rate to all purchases, regardless of the income level of the buyer.
Which of the following is a characteristic of a perfectly
competitive market?
a) Many buyers and many sellers
b) Product differentiation
c) Barriers to entry
d) Price setting by individual firms
Solution: a) Many buyers and many sellers. A perfectly
competitive market is a market structure in which there are many buyers and
many sellers, and no single buyer or seller has control over the price of the
product.
Which of the following is an example of a natural monopoly?
a) A cable television provider
b) A restaurant chain
c) A clothing retailer
d) A water utility
Solution: d) A water utility. A natural monopoly is a market
structure in which a single firm can produce the entire output of the market at
a lower cost than any potential competitor. A water utility is an example of a
natural monopoly because it would be prohibitively expensive for multiple firms
to build and maintain water delivery infrastructure.
The law of diminishing marginal utility states that:
a) As the price of a good increases, the quantity demanded
decreases
b) As the quantity of a good consumed increases, the
additional satisfaction derived from each additional unit consumed decreases
c) As the price of a good decreases, the quantity demanded
increases
d) As the quantity of a good produced increases, the
marginal cost of producing each additional unit increases
Solution: b) As the quantity of a good consumed increases,
the additional satisfaction derived from each additional unit consumed
decreases. The law of diminishing marginal utility states that as a consumer
consumes more and more units of a good, the additional satisfaction they derive
from each additional unit consumed decreases.
Which of the following is a characteristic of a monopoly?
a) Many firms
b) Homogeneous products
c) Low barriers to entry
d) Price setters
Solution: d) Price setters. A monopoly is a market structure
in which a single firm controls the entire market for a particular product or
service. Because there are no close substitutes for the product, the firm has
the ability to set the price of the product.
Which of the following is a determinant of demand?
a) The price of the product
b) The cost of production
c) The number of firms in the market
d) The price of related goods
Solution: d) The price of related goods. The price of
related goods, including substitute goods and complementary goods, is a
determinant of demand. Other determinants of demand include consumer income,
consumer tastes and preferences, and consumer expectations.
The difference between a good’s total revenue and its total
variable cost is known as:
a) Profit
b) Total cost
c) Total revenue
d) Fixed cost
Solution: a) Profit. Profit is the difference between a
good’s total revenue and its total variable cost. Fixed costs, on the other
hand, are costs that do not vary with the level of output.
The federal funds rate is the interest rate at which:
a) Banks lend to each other overnight
b) The Federal Reserve lends to banks
c) The Treasury issues bonds
d) The government borrows from foreign countries
Solution: a) Banks lend to each other overnight. The federal
funds rate is the interest rate at which banks lend to each other overnight to
meet their reserve requirements.
Which of the following is an example of an externality?
a) A farmer’s decision to plant a certain crop
b) A consumer’s decision to purchase a new car
c) A manufacturer’s decision to invest in new equipment
d) A factory’s emissions polluting a nearby river
Solution: d) A factory’s emissions polluting a nearby river.
Which of the following is a characteristic of a command
economy?
a) Private ownership of property
b) Market-based allocation of resources
c) Centralized decision-making
d) Profit-maximizing behavior
Solution: c) Centralized decision-making. In a command
economy, the government or a central planning authority makes all the major
economic decisions, including what goods and services to produce, how much to
produce, and at what price.
Which of the following is a measure of a country’s total
output of goods and services?
a) Gross domestic product (GDP)
b) Consumer price index (CPI)
c) Producer price index (PPI)
d) Unemployment rate
Solution: a) Gross domestic product (GDP). GDP is a measure
of a country’s total output of goods and services in a given period of time,
typically a year.
Which of the following is a characteristic of a monopolistic
competition market?
a) Many buyers and many sellers
b) Product differentiation
c) Price setting by individual firms
d) Low barriers to entry
Solution: b) Product differentiation. In a monopolistic
competition market, there are many firms producing similar but not identical
products. These products are differentiated from one another through branding,
marketing, and other means.
Which of the following is a measure of the responsiveness of
quantity demanded to a change in price?
a) Income elasticity of demand
b) Cross-price elasticity of demand
c) Price elasticity of demand
d) Price elasticity of supply
Solution: c) Price elasticity of demand. Price elasticity of
demand is a measure of the responsiveness of quantity demanded to a change in
price. It is calculated as the percentage change in quantity demanded divided
by the percentage change in price.
Which of the following is an example of a regressive tax?
a) A flat tax on income
b) A progressive tax on income
c) A sales tax on basic necessities like food and clothing
d) A tax on luxury goods
Solution: c) A sales tax on basic necessities like food and
clothing. A regressive tax is one in which the tax burden falls more heavily on
lower-income individuals than on higher-income individuals. A sales tax on
basic necessities like food and clothing is an example of a regressive tax.
The opportunity cost of a decision is:
a) The value of the best alternative forgone
b) The total monetary cost of the decision
c) The value of the decision in relation to the next best
alternative
d) The value of the decision in isolation
Solution: a) The value of the best alternative forgone. The
opportunity cost of a decision is the value of the best alternative forgone as
a result of choosing one option over another.
Which of the following is an example of a public good?
a) A restaurant meal
b) A pair of shoes
c) A city park
d) A movie theater ticket
Solution: c) A city park. A public good is a good or service
that is non-excludable and non-rivalrous, meaning that it is available to
everyone and one person’s use of the good does not diminish another person’s use
of it. A city park is an example of a public good.
Which of the following is a characteristic of a mixed
economy?
a) Government ownership of all productive resources
b) A completely free market with no government intervention
c) A combination of market-based allocation and government
intervention
d) Centralized decision-making by the government
Solution: c) A combination of market-based allocation and
government intervention. A mixed economy is an economic system that combines
elements of both market-based allocation and government
Which of the following is a characteristic of a perfectly
competitive market?
a) Few buyers and many sellers
b) Product differentiation
c) Price setting by individual firms
d) Low barriers to entry
Solution: d) Low barriers to entry. In a perfectly
competitive market, there are many buyers and sellers, no product
differentiation, and no individual firm has the ability to set prices. There
are also low barriers to entry, meaning that new firms can easily enter the
market.
Which of the following is a measure of the rate at which the
general level of prices for goods and services is increasing over time?
a) Gross domestic product (GDP)
b) Consumer price index (CPI)
c) Producer price index (PPI)
d) Unemployment rate
Solution: b) Consumer price index (CPI). The consumer price
index is a measure of the rate at which the general level of prices for goods
and services is increasing over time. It is often used as a measure of
inflation.
Which of the following is an example of a positive
externality?
a) Pollution from a factory that harms nearby residents
b) The cost of a car accident that is borne by the driver
who caused it
c) Vaccinations that protect not only the vaccinated
individual but also others in the community
d) A neighbor’s loud party that disturbs the peace of other
residents
Solution: c) Vaccinations that protect not only the
vaccinated individual but also others in the community. A positive externality
is a benefit that is enjoyed by individuals other than the person who takes the
action that generates the benefit. Vaccinations that protect not only the
vaccinated individual but also others in the community is an example of a
positive externality.
Which of the following is a measure of a country’s total
output of goods and services per person?
a) Gross domestic product (GDP)
b) Gross national product (GNP)
c) Real GDP per capita
d) Nominal GDP per capita
Solution: c) Real GDP per capita. Real GDP per capita is a
measure of a country’s total output of goods and services per person, adjusted
for inflation.
Which of the following is a characteristic of a natural
monopoly?
a) Many buyers and many sellers
b) Product differentiation
c) Price setting by individual firms
d) High barriers to entry
Solution: d) High barriers to entry. A natural monopoly is a
type of monopoly that arises when the costs of production are such that it is
most efficient for a single firm to produce the entire market output. This
typically results in high barriers to entry for potential competitors.
Which of the following is a characteristic of a recession?
a) Rising levels of output, income, and employment
b) Falling levels of output, income, and employment
c) Rising levels of inflation
d) A boom in the housing market
Solution: b) Falling levels of output, income, and
employment. A recession is a period of economic contraction, characterized by
falling levels of output, income, and employment.
Which of the following is a measure of the responsiveness of
quantity supplied to a change in price?
a) Income elasticity of supply
b) Cross-price elasticity of supply
c) Price elasticity of demand
d) Price elasticity of supply
Solution: d) Price elasticity of supply. Price elasticity of
supply is a measure of the responsiveness of quantity supplied to a change in
price. It is calculated as the percentage change in quantity supplied divided
by the percentage change in price.
Which of the following is a measure of the total value of
goods and services produced within a country’s borders in a given time period?
a) Gross domestic product (GDP)
b) Gross national product (GNP)
c) Real GDP
d) Nominal GDP
Solution: a) Gross domestic product (GDP). GDP is a measure
of the total value of goods and services produced within a country’s borders in
a given time period.
Which of the following is a type of market structure in
which there are only a few firms that dominate the market?
a) Perfect competition
b) Monopoly
c) Oligopoly
d) Monopolistic competition
Solution: c) Oligopoly. Oligopoly is a type of market structure
in which there are only a few firms that dominate the market.
Which of the following is a measure of the responsiveness of
quantity demanded to a change in price?
a) Income elasticity of demand
b) Cross-price elasticity of demand
c) Price elasticity of supply
d) Price elasticity of demand
Solution: d) Price elasticity of demand. Price elasticity of
demand is a measure of the responsiveness of quantity demanded to a change in
price. It is calculated as the percentage change in quantity demanded divided
by the percentage change in price.
Which of the following is an example of a public good?
a) A private jet
b) A movie theater
c) National defense
d) A fancy restaurant
Solution: c) National defense. A public good is a good that
is non-excludable and non-rivalrous in consumption, meaning that it is
difficult to exclude anyone from using it and the consumption of one person
does not diminish the amount available for others. National defense is an
example of a public good.
Which of the following is a characteristic of a
monopolistically competitive market?
a) Few buyers and many sellers
b) Homogeneous products
c) Price setting by individual firms
d) High barriers to entry
Solution: c) Price setting by individual firms. In a
monopolistically competitive market, there are many buyers and sellers, but
each firm produces a slightly different product, so there is some product
differentiation. Individual firms have some ability to set prices, but there
are relatively low barriers to entry.
Which of the following is a measure of the rate at which the
total output of a country’s economy is increasing over time?
a) Gross domestic product (GDP)
b) Gross national product (GNP)
c) Real GDP
d) Economic growth rate
Solution: d) Economic growth rate. The economic growth rate
is a measure of the rate at which the total output of a country’s economy is
increasing over time.
Which of the following is a type of unemployment that is
caused by changes in the structure of the economy?
a) Frictional unemployment
b) Cyclical unemployment
c) Seasonal unemployment
d) Structural unemployment
Solution: d) Structural unemployment. Structural
unemployment is a type of unemployment that is caused by changes in the
structure of the economy, such as the decline of certain industries or changes
in technology.
Which of the following is a measure of the level of economic
inequality in a society?
a) The Gini coefficient
b) The poverty rate
c) The unemployment rate
d) The inflation rate
Solution: a) The Gini coefficient. The Gini coefficient is a
measure of the level of economic inequality in a society. It ranges from 0 to
1, with 0 representing perfect equality and 1 representing perfect inequality.
Which of the following is a type of tax in which the average
tax rate decreases as the taxpayer’s income increases?
a) Progressive tax
b) Regressive tax
c) Proportional tax
d) Flat tax
Solution: a) Progressive tax. A progressive tax is a type of
tax in which the average tax rate increases as the taxpayer’s income increases.
Which of the following is an example of a positive
externality?
a) Pollution from a factory
b) Traffic congestion
c) Education
d) Overfishing in a lake
Solution: c) Education. A positive externality is a
beneficial effect that a third party receives as a result of an economic transaction.
Education is an example of a positive externality because it can lead to a more
educated and productive society, which can benefit everyone.
Which of the following is a measure of the average price of
a basket of goods and services consumed by households?
a) Gross domestic product (GDP)
b) Consumer price index (CPI)
c) Producer price index (PPI)
d) Personal consumption expenditure (PCE)
Solution: b) Consumer price index (CPI). The consumer price
index (CPI) is a measure of the average price of a basket of goods and services
consumed by households.
Which of the following is a market structure in which there
are many small firms that produce similar but slightly differentiated products?
a) Perfect competition
b) Monopoly
c) Oligopoly
d) Monopolistic competition
Solution: d) Monopolistic competition. Monopolistic
competition is a market structure in which there are many small firms that
produce similar but slightly differentiated products.
Which of the following is a type of unemployment that is caused
by a downturn in the business cycle?
a) Frictional unemployment
b) Cyclical unemployment
c) Seasonal unemployment
d) Structural unemployment
Solution: b) Cyclical unemployment. Cyclical unemployment is
a type of unemployment that is caused by a downturn in the business cycle.
Which of the following is a measure of the rate at which the
overall level of prices in an economy is increasing over time?
a) Gross domestic product (GDP)
b) Gross national product (GNP)
c) Real GDP
d) Inflation rate
Solution: d) Inflation rate. The inflation rate is a measure
of the rate at which the overall level of prices in an economy is increasing
over time.
Which of the following is a type of market structure in
which there is only one seller that dominates the market?
a) Perfect competition
b) Monopoly
c) Oligopoly
d) Monopolistic competition
Solution: b) Monopoly. A monopoly is a market structure in
which there is only one seller that dominates the market.
Which of the following is a type of tax in which the average
tax rate is the same for all taxpayers, regardless of their income?
a) Progressive tax
b) Regressive tax
c) Proportional tax
d) Flat tax
Solution: c) Proportional tax. A proportional tax is a type
of tax in which the average tax rate is the same for all taxpayers, regardless
of their income.
Which of the following is a type of market failure that
occurs when the market does not allocate resources efficiently?
a) Monopoly
b) Externalities
c) Public goods
d) Natural monopoly
Solution: b) Externalities.
Which of the following is a measure of the value of all
final goods and services produced within a country’s borders in a given period
of time?
a) Gross domestic product (GDP)
b) Gross national product (GNP)
c) Net domestic product (NDP)
d) Net national product (NNP)
Solution: a) Gross domestic product (GDP). GDP is a measure
of the value of all final goods and services produced within a country’s
borders in a given period of time.
Which of the following is a measure of the responsiveness of
the quantity demanded of a good to a change in its price?
a) Income elasticity of demand
b) Cross-price elasticity of demand
c) Price elasticity of demand
d) Price elasticity of supply
Solution: c) Price elasticity of demand. Price elasticity of
demand is a measure of the responsiveness of the quantity demanded of a good to
a change in its price.
Which of the following is a type of market structure in
which there are only a few large firms that dominate the market?
a) Perfect competition
b) Monopoly
c) Oligopoly
d) Monopolistic competition
Solution: c) Oligopoly. Oligopoly is a market structure in
which there are only a few large firms that dominate the market.
Which of the following is a type of unemployment that is
caused by a mismatch between the skills of workers and the requirements of
available jobs?
a) Frictional unemployment
b) Cyclical unemployment
c) Seasonal unemployment
d) Structural unemployment
Solution: d) Structural unemployment. Structural
unemployment is a type of unemployment that is caused by a mismatch between the
skills of workers and the requirements of available jobs.
Which of the following is a type of tax in which the average
tax rate increases as the taxpayer’s income increases, but the marginal tax
rate remains constant?
a) Progressive tax
b) Regressive tax
c) Proportional tax
d) Flat tax
Solution: a) Progressive tax. A progressive tax is a type of
tax in which the average tax rate increases as the taxpayer’s income increases,
but the marginal tax rate remains constant.
Which of the following is a measure of the value of all
final goods and services produced by a country’s citizens, regardless of where
they are located, in a given period of time?
a) Gross domestic product (GDP)
b) Gross national product (GNP)
c) Net domestic product (NDP)
d) Net national product (NNP)
Solution: b) Gross national product (GNP). GNP is a measure
of the value of all final goods and services produced by a country’s citizens,
regardless of where they are located, in a given period of time.
Which of the following is a type of market failure that
occurs when the market fails to provide a good or service because it is
difficult to exclude non-payers from consuming it?
a) Monopoly
b) Externalities
c) Public goods
d) Natural monopoly
Solution: c) Public goods. A public good is a good or
service that is difficult to exclude non-payers from consuming, leading to
market failure.
