Economics Unit 1 Practice Test!
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Looking for a helpful Economics unit 1 practice test? Here is a quiz for you. The study of economics covers the topic of finance and the many ways in which it can be distributed, with the production, transport, and consumption of goods and services being the main culprit. It’s an incredibly intriguing realm of social science, and in the following practice test, we’ll see just how much you know about the topic. Think you can get all of the questions correct?
- 1.
What does the term capital mean?
- A.
Money that is spent by companies to produce goods
- B.
Resources that are made and used to make other good and services
- C.
The place where the company is located
- D.
None of these
Correct Answer
B. Resources that are made and used to make other good and servicesExplanation
The term "capital" refers to resources that are created and utilized in the production of goods and services. It includes physical assets such as machinery, equipment, and buildings, as well as financial assets like money and investments. Capital is essential for businesses to operate and expand their production capabilities. It is distinct from money spent by companies to produce goods, as capital encompasses a broader range of resources. The location of the company or none of the options provided are not accurate definitions of capital.Rate this question:
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- 2.
Which example of limited amounts of the following would lead to a shortage?
- A.
Labor that is available because workers are employed at another business
- B.
Food that is available because no one wants to buy it
- C.
Both A & B
- D.
Food that is available because of a trucker's strike
Correct Answer
D. Food that is available because of a trucker's strikeExplanation
If there is a shortage of food due to a trucker's strike, it means that the food is not reaching its intended destination or market. The limited amount of food available cannot meet the demand of consumers, resulting in a shortage. The strike disrupts the transportation of food, causing a scarcity in the market and leading to a shortage.Rate this question:
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- 3.
Which of the following would show an efficient economy?
- A.
Resources are used to make the most goods and services possible.
- B.
Uses the least costly amount of resources available
- C.
Has a small number of people who do not work
- D.
Has a large number of people who do not work
Correct Answer
A. Resources are used to make the most goods and services possible.Explanation
An efficient economy is one that utilizes its resources effectively and produces the maximum amount of goods and services. This means that the available resources are used optimally to generate the highest possible output. By doing so, the economy can meet the demands of its population and ensure a high standard of living. This answer aligns with the concept of efficiency in resource allocation and production.Rate this question:
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- 4.
What leads to the fact that all goods and services are scarce?
- A.
Some goods and services have a higher cost than others.
- B.
Needs and wants determine what is valuable.
- C.
All resources are scarce.
- D.
Some resources are scarce.
Correct Answer
C. All resources are scarce.Explanation
All goods and services are scarce because all resources are scarce. This means that there is a limited supply of resources such as land, labor, and capital, which are used to produce goods and services. Because these resources are limited, it is not possible to produce an unlimited amount of goods and services to satisfy everyone's wants and needs. Therefore, scarcity exists and leads to the fact that all goods and services are limited in supply.Rate this question:
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- 5.
What does the term guns and butter mean?
- A.
How the military is supported by the government
- B.
Whether or not a country spends its money on public services or the military
- C.
How the economy is run by food production and domestic spending
- D.
None of these
Correct Answer
B. Whether or not a country spends its money on public services or the militaryExplanation
The term "guns and butter" refers to the trade-off between military spending (guns) and spending on public services (butter). It represents the decision a country has to make regarding how it allocates its financial resources, either towards investing in its military or towards providing public services such as healthcare, education, and infrastructure. This concept highlights the competing priorities and limited resources that governments face when making budgetary decisions.Rate this question:
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- 6.
A production possibilities graph looks at which of the following?
- A.
The opportunity cost of a decision
- B.
Factors of production
- C.
Increasing costs over a time period
- D.
None of these
Correct Answer
A. The opportunity cost of a decisionExplanation
A production possibilities graph looks at the opportunity cost of a decision. This means that it analyzes the trade-offs and sacrifices that need to be made when choosing one option over another. The graph visually represents the different combinations of goods or services that can be produced given limited resources, and shows how choosing more of one good requires giving up some of another good. By examining the opportunity cost, the graph helps decision-makers understand the consequences of their choices and make more informed decisions.Rate this question:
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- 7.
What are the factors of production?
- A.
The trade offs that companies make with consumers
- B.
The amount of good we take in versus the amount that we send out
- C.
The machines used to produce all goods
- D.
The resources used to produce all goods
Correct Answer
D. The resources used to produce all goodsExplanation
The factors of production refer to the resources that are used in the production process of goods and services. These resources include land, labor, capital, and entrepreneurship. Land refers to all natural resources such as forests and minerals. Labor refers to the human effort and skills involved in production. Capital refers to the physical tools, machinery, and infrastructure used in production. Entrepreneurship refers to the innovation, risk-taking, and management skills required to organize the other factors of production. These factors are essential in the production process and contribute to the creation of all goods and services.Rate this question:
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- 8.
Why does the frontier of a production possibilities curve when graphed?
- A.
The highest amount of output of good and services
- B.
How technologically sound the economy is
- C.
The higher costs which leads to less output
- D.
How raw sound the economy is
Correct Answer
C. The higher costs which leads to less outputExplanation
The correct answer is "The higher costs which leads to less output". This answer suggests that the frontier of a production possibilities curve is determined by the higher costs of production, which in turn leads to a decrease in output. This implies that as costs increase, the economy becomes less efficient in producing goods and services, resulting in a decrease in the maximum potential output represented by the production possibilities curve.Rate this question:
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- 9.
Why do we use production possibilities graphs?
- A.
Allows us to look at different ways of using our resources
- B.
To increase the economy's output of goods
- C.
To show how unproductive workers are being
- D.
To show how productive workers are being
Correct Answer
A. Allows us to look at different ways of using our resourcesExplanation
Production possibilities graphs are used to visually represent the different combinations of goods that can be produced with limited resources. By plotting different points on the graph, we can see the trade-offs involved in producing one good over another. This allows us to analyze and compare various production possibilities and make informed decisions on how to allocate our resources most efficiently.Rate this question:
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- 10.
What do we call it when businesses are struggling to gain consumer's business?
- A.
Trade-off
- B.
Incentive
- C.
Competition
- D.
Burnout
Correct Answer
C. CompetitionExplanation
When businesses are struggling to gain consumer's business, it is referred to as competition. Competition occurs when multiple businesses are vying for the same customers and are trying to outperform each other in order to attract and retain consumers. In this scenario, businesses may employ various strategies such as offering competitive prices, improving product quality, or enhancing customer service to gain an edge over their rivals.Rate this question:
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- 11.
What does the term efficiency mean?
- A.
Making the most of one good for consumers
- B.
Using resources to reach the maximum amount of output possible
- C.
Making the most money possible on a good or service
- D.
None of these
Correct Answer
B. Using resources to reach the maximum amount of output possibleExplanation
The term efficiency refers to the utilization of resources in order to achieve the highest possible output. It involves optimizing the use of resources such as time, money, and materials to minimize waste and maximize productivity. By focusing on efficiency, organizations can enhance their performance, reduce costs, and increase their overall productivity.Rate this question:
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- 12.
If you built a brand new store for your business what would that be an example of?
- A.
Physical capital
- B.
Technology
- C.
Human capital
- D.
None of these
Correct Answer
A. Physical capitalExplanation
Building a brand new store for a business is an example of physical capital. Physical capital refers to the tangible assets that a business owns, such as buildings, equipment, and machinery. In this case, the store is a physical asset that the business has invested in to support its operations and generate revenue.Rate this question:
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- 13.
Which of the following is not a key economic question?
- A.
What good and services should be produced?
- B.
Who consumes these goods and services?
- C.
How should it be ensured that goods and services are paid for?
- D.
How good and services should be produced?
Correct Answer
C. How should it be ensured that goods and services are paid for?Explanation
The question "How should it be ensured that goods and services are paid for?" is not a key economic question because it pertains to the issue of payment and financial transactions, which is more related to the field of finance rather than economics. The key economic questions revolve around the allocation of resources, such as what to produce, who consumes it, and how to produce it.Rate this question:
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- 14.
What type of economy would China be characterized as?
- A.
Mixed, but closer to a free market
- B.
Mixed, but closer to centrally planned
- C.
Socialism
- D.
None of these
Correct Answer
B. Mixed, but closer to centrally plannedExplanation
China would be characterized as a mixed economy, but closer to centrally planned. This is because China combines elements of a free market economy with extensive government control and planning. While there are some market forces at play, the government still maintains significant control over key sectors of the economy, such as state-owned enterprises and strategic industries. Additionally, the government sets economic goals and implements various policies to guide and regulate economic activities, indicating a closer alignment with centrally planned economies.Rate this question:
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- 15.
What is one advantage of a free market?
- A.
It can help encourage growth
- B.
It is very easy to regulate and make changes
- C.
It protects the poor and less fortunate
- D.
It can help to decrease inflation
Correct Answer
A. It can help encourage growthExplanation
A free market can help encourage growth because it allows for competition and innovation. In a free market, businesses have the freedom to set their own prices and make their own decisions, which can lead to increased efficiency and productivity. This competition can drive businesses to improve their products and services, leading to economic growth. Additionally, a free market allows for the entry of new businesses, which can stimulate growth and create job opportunities.Rate this question:
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- 16.
What does the term opportunity cost mean?
- A.
All of the different decisions that could be made
- B.
The best way that someone can decide a question
- C.
Both A & B
- D.
The most desirable alternative that is given up for a decision
Correct Answer
D. The most desirable alternative that is given up for a decisionExplanation
The term opportunity cost refers to the most desirable alternative that is given up when making a decision. It represents the value of the next best alternative that is forgone in order to choose a particular option. In other words, it is the cost of choosing one option over another, taking into account the benefits that could have been gained from the foregone alternative. This concept helps individuals and businesses evaluate the potential benefits and drawbacks of different choices and make more informed decisions.Rate this question:
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- 17.
What is a benefit of specialization for the economy?
- A.
Gets rid of unemployment
- B.
Leads to more competition
- C.
Helps to make it more efficient
- D.
Decreases competition
Correct Answer
C. Helps to make it more efficientExplanation
Specialization helps to make the economy more efficient by allowing individuals and businesses to focus on producing goods or services in which they have a comparative advantage. When individuals specialize in a particular task or skill, they can become more proficient and productive, leading to increased output and overall economic growth. Additionally, specialization allows for economies of scale and the division of labor, which further enhances efficiency by reducing costs and improving productivity.Rate this question:
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- 18.
Which of the statements below is a characteristic of a centrally planned economy?
- A.
Government makes all economic decisions
- B.
Each factory sets it own goals
- C.
Each person gets to choose their own job
- D.
None of these
Correct Answer
A. Government makes all economic decisionsExplanation
A centrally planned economy is characterized by the government having control over all economic decisions. In this type of economy, the government determines what goods and services will be produced, how they will be produced, and how they will be distributed. The government also sets prices and wages, and owns and controls the means of production. This centralized decision-making allows for a more coordinated and controlled economy, but it can also limit individual freedoms and innovation. Therefore, the statement "Government makes all economic decisions" is a characteristic of a centrally planned economy.Rate this question:
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- 19.
Who was a free market philosopher?
- A.
Vladimir Lenin
- B.
Karl Marx
- C.
Adam Smith
- D.
None of these
Correct Answer
C. Adam SmithExplanation
Adam Smith was a free market philosopher because he was a key figure in the development of classical economics and advocated for the principles of free markets and capitalism. He believed that individuals pursuing their own self-interest in an open and competitive market would lead to overall economic prosperity and societal well-being. Smith's influential work, "The Wealth of Nations," laid the foundation for modern free market economic theory and is considered a cornerstone of capitalist philosophy.Rate this question:
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- 20.
What term means an economic side effect that generates unexpected benefits?
- A.
Sovereignty
- B.
Positive externality
- C.
Socialism
- D.
None of these
Correct Answer
B. Positive externalityExplanation
A positive externality refers to the unintended positive consequences that occur as a result of an economic activity. These benefits are often experienced by individuals or society as a whole, beyond the original participants. For example, when a company builds a new park near a residential area, the residents not only have access to the park but also experience an increase in property value. This generates unexpected benefits that are not directly accounted for in the original economic activity.Rate this question:
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- 21.
Which of the following is not a public good?
- A.
National park
- B.
Restaurant
- C.
Museum
- D.
Road
Correct Answer
B. RestaurantExplanation
A restaurant is not a public good because it is a privately owned establishment that provides services in exchange for payment. Public goods, on the other hand, are non-excludable and non-rivalrous, meaning that they are available to all individuals in a society and one person's use of the good does not diminish its availability to others. National parks, museums, and roads are examples of public goods as they are accessible to everyone and their use by one person does not prevent others from using them.Rate this question:
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- 22.
What is the incentive for manufactuers selling a product?
- A.
Trying to be the most popular store
- B.
Trying to make the customer as happy as possible
- C.
Trying to eliminating competition
- D.
Making a profit for what they sell
Correct Answer
D. Making a profit for what they sellExplanation
Manufacturers have the incentive to make a profit for what they sell because they are in business to generate revenue and sustain their operations. Making a profit allows them to cover their expenses, invest in research and development, improve their products, and expand their business. Without making a profit, manufacturers would not be able to survive in the market and continue providing their products to customers. Therefore, the primary motivation for manufacturers selling a product is to generate a profit.Rate this question:
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- 23.
Which of the following would you expect a safety net from the government to help with?
- A.
Low income
- B.
Natural disasters
- C.
Car Accident
- D.
Mental illness
Correct Answer
B. Natural disastersExplanation
A safety net from the government is expected to help with natural disasters because they are unpredictable events that can cause significant damage and loss. Natural disasters such as hurricanes, earthquakes, floods, and wildfires can result in the displacement of people, destruction of homes and infrastructure, and loss of livelihoods. In such situations, the government provides assistance and support to affected individuals and communities through emergency response efforts, financial aid, temporary housing, and other resources to help them recover and rebuild their lives.Rate this question:
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- 24.
In what type of economy does the government make all of the decisions?
- A.
Centrally planned
- B.
Socialist
- C.
Laissez faire
- D.
None of these
Correct Answer
A. Centrally plannedExplanation
In a centrally planned economy, the government has complete control over the decisions regarding production, distribution, and resource allocation. They determine what goods and services are produced, how they are produced, and who receives them. This type of economy is characterized by state ownership of industries and a lack of private property rights. The government sets the prices, wages, and quotas, and there is limited individual freedom and competition.Rate this question:
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- 25.
What is the benefit that is provided by Social Security?
- A.
Medical care for the poor
- B.
Cash payments to injured workers
- C.
Money for when elderly retire
- D.
None of these
Correct Answer
C. Money for when elderly retireExplanation
Social Security provides financial support for elderly individuals when they retire. It is a government program that ensures a steady income for retired individuals who have contributed to the system throughout their working years. This benefit helps to ensure a stable and comfortable retirement for the elderly, allowing them to meet their financial needs and maintain a certain standard of living.Rate this question:
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Nov 16, 2023Quiz Edited by
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Sep 14, 2012Quiz Created by
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