Economics Final Exam Practice Quiz

The basic accounting equation is Assets = Liabilities + Owner's Equity, which underpins the balance sheet. It reflects the relationship between what a company owns and the claims against those assets.

The balance sheet provides a snapshot of a company's assets, liabilities, and equity as of a specific date. It helps users assess the financial position and stability of the business.

Supply refers to the amount of a product that producers are willing and able to sell at different prices. It is a fundamental concept used to understand market dynamics along with demand.

Demand reflects how much of a product consumers are both willing and able to buy at various prices. It plays a key role in determining market price and quantity when combined with supply.

Opportunity cost is the value of what you must give up when choosing one alternative over another. It is a key concept in both economics and decision-making because it highlights the trade-offs involved in every choice.

Accrual accounting records revenues when they are earned and expenses when they are incurred, regardless of cash flow timing. This method provides a more accurate view of a company's financial performance over a period.

The matching principle requires that expenses be recorded in the same period as the revenues they help generate. This practice results in more accurate profit measurement and financial reporting.

Double-entry bookkeeping involves recording equal amounts as debits and credits for every transaction. This system helps maintain the balance of the accounting equation and reduces errors in financial records.

Vertical analysis standardizes the income statement by expressing each line item as a percentage of total sales or revenue. This makes it easier to compare performance over time or across different companies.

Price elasticity of demand gauges how much the quantity demanded of a good responds to changes in its price. This metric is essential for businesses to set prices and forecast revenue under different market conditions.

Marginal cost is the cost of producing one additional unit of output. It plays a crucial role in decision-making, helping managers determine the optimal level of production.

Market equilibrium is achieved when the amount of goods supplied matches the quantity demanded. At this point, the market price stabilizes, leading to an efficient allocation of resources.

The Consumer Price Index (CPI) tracks the price changes of a basket of consumer goods and services over time. It is widely regarded as the standard measure for assessing inflation levels.

An income statement summarizes the financial performance of a company by reporting revenues, expenses, and net income over a set period. It provides insight into the company's operational efficiency.

Liquidity measures how quickly and easily assets can be converted into cash without significant loss of value. It is a critical indicator of a company's ability to meet short-term obligations.

Depreciation allocates the cost of tangible assets over their useful lives, gradually reducing their book value on the balance sheet. This process helps accurately represent asset value and expense recognition over time.

Essential medications tend to have few substitutes and are crucial for consumers, making their demand relatively insensitive to price changes. This inelastic demand means that even with price increases, consumers will continue to purchase them.

An impairment loss occurs when an asset's carrying value exceeds its recoverable amount, necessitating a write-down. This adjustment ensures that the asset's book value is not overstated on the balance sheet.

The current ratio compares a company's current assets to its current liabilities, serving as a measure of its ability to cover short-term obligations. A higher current ratio signals better short-term financial health.

A price ceiling imposed below the equilibrium price generally results in a shortage, as the lower price increases demand while discouraging supply. This imbalance creates market inefficiencies and competition for the limited available goods.