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Quizzes > High School Quizzes > Social Studies

Economics Final Review Practice Test

Review essential topics with our exam answer guide

Difficulty: Moderate
Grade: Grade 12
Study OutcomesCheat Sheet
Colorful paper art promoting Ace Your Economics Final, a comprehensive college-level economics quiz.

What is scarcity in economics?
A condition where limited resources are available to meet unlimited wants.
An abundance of resources meeting all human needs.
A situation where resources are equally distributed to everyone.
A state where production always exceeds consumption.
Scarcity is the fundamental economic problem where available resources are limited while human wants are virtually unlimited. This concept underpins many economic decisions, forcing individuals and societies to make choices about resource allocation.
Which of the following best defines opportunity cost?
The value of the next best alternative foregone when a decision is made.
The total amount of money spent on a particular choice.
The benefits received regardless of the decision taken.
The additional cost incurred after a decision is made.
Opportunity cost measures the value of the next best alternative when making a decision. It is a key concept in economics, helping to illustrate the sacrifices made when choosing one option over another.
What does the law of demand state?
As the price increases, the quantity demanded decreases.
As the price increases, the quantity demanded increases.
Price and quantity demanded have no relationship.
Higher prices always lead to better quality products.
The law of demand establishes an inverse relationship between price and quantity demanded, meaning consumers will purchase less of a good when its price rises. This principle is fundamental in understanding market behavior.
What is the primary focus of microeconomics?
The behavior and decision-making of individual households and firms.
The overall performance of the entire economy.
Government spending and tax policies.
Global trade dynamics.
Microeconomics examines the actions of individual agents such as households and firms, analyzing how they allocate limited resources. It focuses on specific market mechanisms and decision-making processes.
In basic economic terms, what is meant by 'resources'?
Inputs used to produce goods and services, like land, labor, and capital.
The finished goods available in the market.
Only the natural elements found in the environment.
Money exclusively used for transactions.
Resources refer to the factors of production that are used to create goods and services. They include natural resources, labor, and capital, each playing a crucial role in the manufacturing and service sectors.
What effect does an increase in consumer income have on the demand curve for a normal good?
It shifts the demand curve to the right.
It shifts the demand curve to the left.
It causes a movement along the demand curve.
It has no effect on the demand curve.
For normal goods, an increase in consumer income leads to a higher demand as consumers can afford to buy more, shifting the demand curve rightward. This change reflects an overall increase in market demand.
How is price elasticity of demand calculated?
Percentage change in quantity demanded divided by percentage change in price.
Percentage change in price divided by percentage change in quantity demanded.
Total revenue divided by the quantity demanded.
Fixed cost divided by the change in quantity demanded.
Price elasticity of demand measures how much the quantity demanded of a good responds to a change in its price. The correct calculation is the percentage change in quantity demanded over the percentage change in price.
Which scenario best describes a movement along the demand curve?
A change in the price of the good itself.
A change in consumer income.
A shift in consumer tastes.
A change in the prices of related goods.
A movement along the demand curve occurs when there is a change in the price of the good, holding all other factors constant. Other factors like income or tastes cause the demand curve to shift rather than a movement along it.
Why are firms considered price takers in a perfectly competitive market?
Because there are many buyers and sellers, and no single firm can influence the market price.
Because firms collude to set a uniform market price.
Because the government regulates and fixes the market price.
Because a single firm dominates the market.
In a perfectly competitive market, the presence of numerous buyers and sellers means that each firm's individual actions have little impact on the overall market price. Firms must therefore accept the market price as given.
On a production possibilities frontier (PPF), what does a point inside the curve indicate?
Inefficient use of resources.
Efficient use of resources.
An unattainable production level.
Optimal allocation of all resources.
A point inside the production possibilities frontier indicates that an economy is not utilizing all of its resources efficiently. This situation reflects underproduction and wasted potential.
Which of the following best illustrates a positive externality?
An individual's education benefits society through enhanced productivity.
Factory pollution that affects community health.
Overuse of common resources leading to depletion.
A tariff that increases domestic prices.
A positive externality occurs when an individual's actions have beneficial spillover effects on others. Education not only aids the individual but also increases societal productivity, exemplifying this concept.
What does fiscal policy mainly involve?
Government decisions on taxation and spending.
Regulation of the money supply by a central bank.
Setting interest rates for the economy.
Controlling the balance of trade.
Fiscal policy refers to the use of government spending and taxation to influence the economy. It plays a key role in managing economic fluctuations and directing public resources.
Imposing a price ceiling below the equilibrium price typically results in:
A shortage in the market due to increased quantity demanded.
A surplus because producers supply more than consumers demand.
No change in the market, as equilibrium is maintained.
An increase in product quality.
A binding price ceiling set below the equilibrium price prevents the market from clearing, resulting in a shortage. Consumers demand more at the lower price while producers are unwilling to supply enough, leading to an imbalance.
What does the theory of comparative advantage suggest?
Countries should specialize in producing goods for which they have a lower opportunity cost.
Countries should produce only goods they can manufacture most efficiently.
Trade is beneficial only when one nation is absolutely more efficient.
Comparative advantage is not relevant in modern economies.
The theory of comparative advantage advises that even if a country is less efficient overall, it should still specialize in goods where it loses the least. Specialization on lower opportunity cost products enhances global trade benefits.
Marginal cost is best defined as:
The additional cost incurred from producing one extra unit.
The average cost of producing each unit.
The total cost divided by the number of units produced.
The fixed cost of production.
Marginal cost measures the increase in total cost that arises from producing one additional unit of output. Understanding marginal cost is crucial for firms when deciding how much to produce to maximize profit.
If an economy experiences stagflation, it is simultaneously facing:
High inflation and high unemployment.
Low inflation and low unemployment.
High inflation and low unemployment.
Low inflation and high unemployment.
Stagflation is a challenging economic condition characterized by stagnant growth, high unemployment, and high inflation. Policymakers find it particularly difficult because measures to reduce inflation can worsen unemployment rates.
When a subsidy is provided to producers, the supply curve will most likely:
Shift to the right, leading to a lower equilibrium price.
Shift to the left, resulting in a higher equilibrium price.
Remain unchanged because subsidies do not affect supply.
Move along the supply curve without any shift.
A subsidy reduces production costs for firms, encouraging them to produce more at any given price. This increased production shifts the entire supply curve to the right, which generally lowers the market equilibrium price.
In a monopoly market, why is the marginal revenue curve typically steeper than the demand curve?
Because selling additional units requires lowering the price on all units, reducing extra revenue earned.
Because monopolists have no incentive to increase sales.
Because the demand curve is vertical for monopolies.
Because marginal revenue always equals total revenue in a monopoly.
A monopolist must lower the price to sell more units, meaning that the additional revenue gained from selling one more unit is less than the price. This results in a marginal revenue curve that is steeper than the demand curve.
The concept of deadweight loss refers to:
The loss of economic efficiency when market equilibrium is disturbed by factors such as taxes or price controls.
A decrease in government revenue due to lower tax rates.
The decline in profits that firms experience during economic downturns.
Reduced consumer spending in a saturated market.
Deadweight loss is the measure of lost total surplus when market transactions are reduced due to inefficiencies like taxes, subsidies, or price controls. It represents the loss of economic welfare in a market that is not operating at equilibrium.
In the long run, under perfect competition, what happens to a firm's economic profit?
Firms earn zero economic profit due to free entry and exit in the market.
Firms earn increasing profit as their market power grows.
Firms continuously earn positive economic profit because competition is limited.
Firms suffer losses to maintain market share.
In the long run within a perfectly competitive market, free entry and exit drive economic profits to zero. This outcome occurs as any short-term profits attract new entrants, increasing supply until only normal profit remains.
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Study Outcomes

  1. Understand fundamental microeconomic and macroeconomic principles.
  2. Analyze supply and demand dynamics in various market structures.
  3. Evaluate the effects of fiscal and monetary policies on economic performance.
  4. Apply economic theories to interpret real-world phenomena.
  5. Identify areas of strength and opportunities for improvement in core economic concepts.

Econ Final Review & Answer Key Cheat Sheet

  1. Understand Supply and Demand - Dive into how prices ebb and flow when supply meets demand at the market equilibrium. Imagine a seesaw: more supply pushes prices down, while more demand sends them sky-high. Mastering this gives you a superpower to predict price swings. Study Guide
  2. Master Elasticity Concepts - Discover how sensitive buyers and sellers are to price changes. Price elasticity tells you whether a small price drop sparks a shopping frenzy or barely makes a ripple. This skill helps you forecast revenue and consumer reactions like a pro. Study Guide
  3. Explore Market Structures - From perfect competition's countless rivals to a single firm monopoly flexing its price muscle, each structure shapes business decisions differently. Learn why Coke and Pepsi behave unlike a local farmers' market stall. These insights let you spot real-world examples everywhere. Study Guide
  4. Analyze Macroeconomic Indicators - GDP, inflation, and unemployment might sound like buzzwords, but they're your dashboard gauges for economic health. Track GDP growth to see if an economy is booming, and watch inflation to know if your pocket money will stretch. It's like reading the economy's vital signs! Study Guide
  5. Study Aggregate Demand and Supply - Think of aggregate demand as everyone's shopping list, and aggregate supply as all the goods businesses can muster. Shifts here explain why recessions hit and recoveries begin. It's the big-picture view that ties micro moves to national outcomes. Study Guide
  6. Comprehend Monetary Policy Tools - Central banks play economic conductor with tools like interest rate tweaks and bond-buying symphonies. Lower rates can fuel spending; higher rates can cool an overheating economy. Understanding these moves helps you guess where the financial baton will drop next. Study Guide
  7. Understand Fiscal Policy - Governments wield taxes and spending like a remote control for the economy. More spending can kickstart growth, while tax hikes might tame inflation. Grasping this helps you see why your wallet feels heavier or lighter after a budget announcement. Study Guide
  8. Examine Externalities and Market Failure - Sometimes markets miss the memo on social costs or benefits - think pollution or public parks. Externalities show when private incentives clash with the common good. Learning this reveals why laws and taxes exist to nudge markets back on track. Environmental Economics
  9. Learn about International Trade and Finance - Dive into why nations trade wheat for microchips, guided by comparative advantage. Exchange rates and balance of payments let you decode currency puzzles and global money flows. These concepts turn world markets into your economic playground. Key Economics Concepts
  10. Review Behavioral Economics Principles - Traditional models assume perfect rationality, but real humans are delightfully flawed. Behavioral economics uncovers quirks like loss aversion and herd behavior that steer decisions. Armed with this, you'll ace questions on why people do the unexpected. Behavioral Economics Notes
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