An Advance Level Test: What's Your Economic IQ?

Scarcity refers to the condition that arises when there are limited resources available in society, but people have unlimited wants and desires. This means that there are not enough resources to produce all the goods and services that people would like to have. As a result, individuals and societies must make choices and trade-offs, giving up some things in order to obtain others. Scarcity is a fundamental concept in economics, as it drives the need for allocation and decision-making in the face of limited resources.

Economics is the study of how individuals and societies make choices to allocate scarce resources in order to satisfy their unlimited wants. This definition captures the core concept of economics, which is the understanding of how people make decisions and use limited resources to fulfill their needs and desires. By studying economics, we can gain insights into various economic indicators such as employment, gross domestic product, inflation, economic growth, and income distribution.

Equilibrium refers to a state where prices are relatively stable. In this situation, there is a balance between the supply and demand for goods or services, resulting in a stable price level. It means that there are no significant fluctuations or sudden changes in prices, indicating a state of equilibrium in the market.

A merger is a process where two or more businesses come together to form a single firm. This can be seen as a strategic move to increase market share, gain access to new technologies or resources, or achieve economies of scale. By combining their operations, the merging companies aim to create a stronger entity that can compete more effectively in the market.

The correct answer is land, capital, labor, entrepreneurs. These are the four factors of production that are essential in the creation of goods and services. Land refers to natural resources, capital includes physical and financial assets used in production, labor involves the human effort and skills, and entrepreneurs are the individuals who combine these factors to create and manage businesses.

Microeconomics is the branch of economics that focuses on the behavior and decision making of individual units, such as households, firms, and markets. It analyzes how these units make choices regarding resource allocation, production, consumption, and pricing. Microeconomics examines the interactions between supply and demand, market equilibrium, market failures, and the effects of government interventions on individual units. It provides insights into the functioning of specific industries and markets, as well as the behavior of consumers and producers. By understanding the behavior of small units, microeconomics helps in understanding the overall functioning of the economy.

The SEC, or Securities and Exchange Commission, is a government agency responsible for regulating and overseeing the securities industry in the United States. It aims to protect investors, maintain fair and efficient markets, and facilitate capital formation. The SEC ensures that companies provide accurate and timely information to the public when offering securities, and it also enforces securities laws to prevent fraud and manipulation in the market.

Macroeconomics is the branch of economics that focuses on the economy as a whole. It examines the overall performance, structure, behavior, and decision-making of an economy, including factors such as inflation, unemployment, national income, and economic growth. It analyzes the aggregate behavior of households, businesses, and government entities and their impact on the overall economic activity and policies. Macroeconomics aims to understand and predict the behavior of the economy as a whole, rather than focusing on individual units or specific markets.

The correct answer is Federal Open Market Committee. The FOMC is a committee within the Federal Reserve System that is responsible for making decisions on monetary policy in the United States. It consists of members from the Federal Reserve Board and regional Federal Reserve Bank presidents. The FOMC meets regularly to discuss economic conditions and determine the appropriate course of action to achieve the Federal Reserve's dual mandate of maximum employment and price stability. They have the power to set interest rates and implement other monetary policy tools to influence the economy.

The three basic economic questions are "What, how, whom." These questions refer to what goods and services should be produced, how they should be produced, and for whom they should be produced. The question "what" addresses the allocation of resources and the types of goods and services that are needed. "How" focuses on the methods and techniques used in production, while "whom" pertains to the distribution of goods and services to specific individuals or groups in society.

The correct answer is Land - rent, labor - wages, capital - interest, entrepreneurs - profit. This answer correctly identifies the payments for the factors of production. Land is typically rented out and earns rent, labor is paid wages for their work, capital earns interest as a return on investment, and entrepreneurs earn profit for taking on the risk of starting and managing a business.

PPF stands for Production Possibilities Frontier, which is a graphical representation of the different combinations of two goods that can be produced in an economy given its resources and technology. It shows the maximum output that can be achieved when all resources are fully utilized. The correct answer is Production Possibilities Frontier.

Opportunity cost refers to the concept of giving up one option in order to choose another. It is the value of the next best alternative that is forgone when a decision is made. In other words, when we choose to pursue a particular opportunity, we have to give up the benefits or opportunities that could have been gained from the next best alternative. This concept helps in understanding the trade-offs and the value of the choices we make in our daily lives and in business decision-making.

A nation can achieve growth on the PPF by either having more resources or increased productivity. Having more resources means that the nation has access to a greater quantity of inputs, such as labor, capital, or natural resources, which can be used to produce more goods and services. Increased productivity, on the other hand, refers to the ability to produce more output with the same amount of inputs. This can be achieved through technological advancements, improved production techniques, or better utilization of resources. Both factors contribute to the nation's ability to produce more and shift its production possibilities frontier outward, indicating economic growth.

A horizontal merger refers to the joining of two or more firms that produce the same kind of product. This type of merger allows the companies involved to combine their resources, increase market share, and potentially reduce competition. By joining forces, these firms can benefit from economies of scale, streamline operations, and potentially increase their bargaining power with suppliers and customers. Overall, a horizontal merger is a strategic move to strengthen market position and gain a competitive advantage in the industry.

A price floor refers to the lowest legal price that can be paid for a good or service. This means that no one can legally sell the good or service for a price lower than the price floor. It is typically set by the government in order to protect producers and ensure they receive a minimum level of income. By setting a price floor, the government aims to prevent prices from falling too low and potentially harming producers in the market.

The law of supply states that as the price of a good or service increases, suppliers will be motivated to offer more of it for sale in the market. Conversely, as the price decreases, suppliers will be inclined to offer less of it for sale. This is because higher prices incentivize suppliers to increase production and allocate more resources to produce the good or service, while lower prices may lead to reduced profitability and a decrease in supply.

Laissez Faire refers to the philosophy that government should not interfere with business activity. This means that the government should allow businesses to operate freely without unnecessary regulations or interventions. This approach promotes economic freedom and believes that the market forces should be the primary driver of economic growth and development. By not interfering with business activity, it is believed that businesses can thrive and innovate, leading to overall economic prosperity.

The points along the frontier represent the maximum combination of output that can be achieved if all resources are fully employed. This means that at these points, the economy is operating at its highest level of efficiency, utilizing all available resources to produce the maximum amount of goods and services possible. Any point inside the frontier would represent an underutilization of resources, while any point outside the frontier would be unattainable given the current level of resources.

Shortage refers to a situation where the quantity demanded exceeds the quantity supplied at a specific price. This means that there is an insufficient amount of a product or service available to meet the demand from consumers. In such cases, there may be a scarcity or lack of availability, leading to unfulfilled customer needs. This can result in increased prices, market imbalances, and potential challenges for businesses in meeting the demand adequately.

Surplus refers to a situation in which the quantity supplied is greater than the quantity demanded at a given price. This means that there is an excess supply of a particular product or service in the market, resulting in a surplus. In such a situation, suppliers may struggle to sell their entire inventory, leading to a decrease in prices to encourage more demand.

Marginal costs refer to the additional cost incurred in producing one additional unit of production. This concept helps businesses determine the feasibility of producing more units by comparing the additional cost with the potential revenue generated. By understanding the marginal costs, companies can make informed decisions about production levels and pricing strategies to maximize profitability.

Inflation refers to a rise in the general level of prices over time. When there is inflation, the cost of goods, clothing, and shelter increases. As a result, workers need more money to afford these items, leading to a higher cost of living.

The correct answer is Progressive, proportional, regressive. These three types of taxes refer to the different ways in which taxes are levied on individuals or businesses. Progressive taxes are based on the taxpayer's ability to pay, so as income increases, the tax rate also increases. Proportional taxes, also known as flat taxes, are a fixed percentage of income regardless of the individual's income level. Regressive taxes, on the other hand, take a larger percentage of income from lower-income individuals compared to higher-income individuals.

The correct answer is Proprietorship, partnership, corporation. These are the three main types of businesses. A proprietorship is a business owned and operated by one person. A partnership is a business owned and operated by two or more individuals. A corporation is a legal entity that is separate from its owners and is owned by shareholders.

A price ceiling refers to a maximum legal price that can be charged for a product. This means that the price cannot exceed a certain limit set by the government or regulatory authority. The purpose of a price ceiling is to prevent prices from rising too high and to ensure affordability for consumers. It is often implemented in situations where there is a concern about price gouging or when the government wants to protect consumers from exploitation in certain markets.

The correct answer is A and B. Capital refers to both the tools and equipment used in the production of goods, as well as the machinery and factories used in the production of goods. Both of these elements are essential for the production process and contribute to the overall capital of a business or economy.

This definition of an entrepreneur accurately describes someone who takes risks and seeks profits by introducing something new using existing resources. Entrepreneurs are known for their ability to identify opportunities, take calculated risks, and innovate in order to create value and generate profits. They often bring new ideas, products, or services to the market, utilizing existing resources in a unique and innovative way. Their ultimate goal is to create a successful venture and earn profits, making this answer the correct choice.

Ben Bernanke is the correct answer because he served as the chairman of the Federal Reserve (FED) from 2006 to 2014. He played a crucial role in navigating the United States through the 2008 financial crisis and implementing policies to stimulate economic growth. Bernanke's expertise in economics and his leadership at the FED made him a key figure in shaping the country's monetary policy during his tenure.

"Tight money" policy refers to a situation where the central bank, such as the FED, restricts the growth of the money supply. This is done by implementing measures like increasing interest rates, reducing the availability of credit, and tightening monetary policy. When the money supply is restricted, it becomes more difficult for individuals and businesses to borrow money, leading to higher interest rates. This is because the demand for credit exceeds the available supply, causing the cost of borrowing to increase. Therefore, the correct answer is that the FED restricts the growth of the money supply, which drives interest rates up.

The goals of the American Free Enterprise include economic freedom, which allows individuals to make their own economic choices; voluntary exchange, which allows individuals to freely trade goods and services; private property rights, which give individuals the right to own and control their property; profit motive, which incentivizes individuals to work hard and innovate; and competition, which encourages efficiency and innovation in the marketplace. These goals are fundamental to the American economic system and promote growth, prosperity, and individual liberty.

A recession is a period during which real GDP declines for 2 quarters in a row, or 6 consecutive months. This means that the overall economic output of a country is shrinking over a sustained period of time. It is marked by a decrease in business activity, rising unemployment rates, and a general slowdown in economic growth.

The Sherman Anti-trust Act was a legislation implemented to safeguard trade and commerce from unfair restrictions and monopolistic practices. It aimed to promote competition and prevent the formation of monopolies that could harm consumers and hinder economic growth. By prohibiting certain business practices that limited competition, such as price-fixing and market allocation, the act aimed to ensure a fair and open marketplace for all participants.

A durable good is a product that is designed to last for a significant period of time when used regularly. It refers to any good that can withstand wear and tear and maintain its functionality for at least three years or more. This definition excludes goods that may last for a shorter duration or are not intended for regular use.

The law of demand states that the quantity demanded of a good or service varies inversely with its price. This means that as the price of a good or service increases, the quantity demanded decreases, and vice versa. This is because consumers tend to buy more of a good or service when it is cheaper, and less when it is more expensive. The law of demand is a fundamental principle in economics and helps to explain how changes in price affect consumer behavior and market equilibrium.

The three functions of money are medium of exchange, measure of value, and store of value. Money serves as a medium of exchange because it is widely accepted as a form of payment for goods and services. It also acts as a measure of value by providing a common unit of measurement for comparing the worth of different goods and services. Additionally, money serves as a store of value by allowing individuals to save and accumulate wealth over time.

The three tools of the FED are open market operations, discount rate, and reserve requirement. Open market operations refer to the buying and selling of government securities to control the money supply. The discount rate is the interest rate at which banks can borrow from the Federal Reserve. The reserve requirement is the percentage of deposits that banks are required to hold as reserves. These tools are used by the FED to influence the economy and manage monetary policy.

The word "utility" refers to the ability or capacity of a good or service to be useful and provide satisfaction to someone. It implies that the good or service has value and can fulfill a need or desire.

The correct answer is Food and Drug Administration. The FDA is a federal agency in the United States responsible for protecting public health by ensuring the safety, efficacy, and security of human and veterinary drugs, biological products, and medical devices. It also regulates the food supply, including food additives, dietary supplements, and cosmetics. The FDA plays a crucial role in conducting inspections, enforcing regulations, and approving new drugs and medical treatments.

A non-durable good refers to any product that has a relatively short lifespan when used regularly. It is not designed to last for more than three years under normal usage conditions. This means that the item will wear out or become unusable within this timeframe. Non-durable goods are typically consumed or replaced frequently, such as food, beverages, clothing, or household products.

The correct answer is "people with all of the efforts, abilities, and skills." This definition accurately describes labor as individuals who possess the necessary qualities and capabilities to perform work effectively. It emphasizes that labor involves not only physical effort but also mental and skill-based contributions.

The correct answer states that entrepreneurs provide the initiative that combines the resources of land, labor, and capital into new products. This means that entrepreneurs are responsible for taking the first step or the initial action to bring together the necessary resources and create new products or services. They are the ones who identify opportunities, take risks, and drive the process of innovation and creation in the business.

The correct answer is Traditional, command, market. Traditional businesses are those that follow long-established practices and customs, often passed down through generations. Command businesses are controlled and regulated by a central authority, such as the government. Market businesses operate in a free-market economy, where supply and demand determine prices and production. These three types of businesses represent different economic systems and approaches to business organization and management.

Elasticity refers to the responsiveness of quantity demanded to a change in price. When a given change in price causes a relatively larger change in quantity demanded, it indicates that the demand is elastic. This means that consumers are highly responsive to price changes, and a small increase in price will result in a significant decrease in quantity demanded. On the other hand, if a given change in price causes a relatively smaller change in quantity demanded, it indicates that the demand is inelastic, meaning that consumers are less responsive to price changes.

The term "inelastic" refers to a situation in which a given change in price causes a relatively smaller change in the quantity demanded. This means that the demand for the product or service is not very responsive to changes in price. In other words, even if the price of the product increases or decreases, the quantity demanded does not change significantly. This could be due to various reasons such as the product being a necessity, having limited substitutes, or having a loyal customer base.

Collusion refers to a formal agreement between two or more parties to set prices or engage in cooperative behavior. This agreement is typically aimed at manipulating the market or gaining an unfair advantage over competitors. It involves a deliberate effort to coordinate actions in order to control prices or restrict competition. The term "collusion" implies a level of secrecy and intentionality, distinguishing it from informal or accidental agreements.

The correct answer is 12. This suggests that there are 12 district banks.

Variable cost refers to the cost that changes in direct proportion to the level of output or production. This means that as the output increases or decreases, the variable cost will also increase or decrease accordingly. It is in contrast to fixed costs, which remain constant regardless of the level of output. Variable costs typically include expenses such as raw materials, direct labor, and sales commissions, which are directly linked to the quantity of goods or services being produced.

The classic example of the paradox of value is when water, which is essential for survival and abundant, is worth less than diamonds, which are rare and not necessary for survival. This contradicts the traditional economic theory that value is determined by scarcity and utility.

The demand curve shifts when there is a change in price. An increase in price leads to a decrease in demand, causing the demand curve to shift to the left. Conversely, a decrease in price leads to an increase in demand, causing the demand curve to shift to the right.