Economics Practice Test - Units 3 & 4 - Quiz, Trivia & Questions

1.

Monopolistic competition is characterized by:
- A.
  
  A few firms and low barriers to entry
- B.
  
  Large number of firms and many barriers
- C.
  
  Large number of firms and low barriers
- D.
  
  Few firms and many barriers
Correct Answer
C. Large number of firms and low barriers

Explanation
Monopolistic competition is characterized by a large number of firms and low barriers to entry. In this market structure, there are many firms that produce similar but slightly differentiated products. The large number of firms ensures that no single firm has significant market power or control over prices. Additionally, low barriers to entry allow new firms to easily enter the market, increasing competition. This means that firms in monopolistic competition must constantly innovate and differentiate their products to attract customers and maintain a competitive edge.

Rate this question:
2.

What does it mean when demand for a product is inelastic?
- A.
  
  People will buy much less of the product as the price rises
- B.
  
  People will not buy any of the product when price goes up
- C.
  
  There are very few substitute products for the good.
- D.
  
  A price increase does not have a significant impact on purchasing habits.
Correct Answer
D. A price increase does not have a significant impact on purchasing habits.

Explanation
When demand for a product is inelastic, it means that consumers are not very responsive to changes in price. This implies that even if the price of the product increases, people will still continue to purchase it in similar quantities. In other words, the demand for the product remains relatively stable regardless of price fluctuations. This could be due to various reasons such as the product being a necessity, having limited substitutes available, or consumers being loyal to the brand.

Rate this question:
3.

What happens to supply when the selling price of an items down?
- A.
  
  The cost of the items goes down.
- B.
  
  The profit of the item goes down.
- C.
  
  Businesses will produce less goods.
- D.
  
  There is no relationship between the two.
Correct Answer
C. Businesses will produce less goods.

Explanation
When the selling price of an item goes down, businesses will produce less goods. This is because a lower selling price means that businesses will receive less revenue for each unit sold. In order to maintain profitability, businesses will reduce their production to avoid incurring losses. This decrease in production leads to a decrease in supply, as fewer goods are being produced and made available in the market.

Rate this question:
4.

Rent control is a type of:
- A.
  
  Rationing
- B.
  
  Price ceiling
- C.
  
  Price floor
- D.
  
  Surplus
Correct Answer
B. Price ceiling

Explanation
Rent control is a type of price ceiling. A price ceiling is a government-imposed limit on how high a price can be charged for a good or service. In the case of rent control, it is a government regulation that sets a maximum limit on the amount of rent that landlords can charge for their properties. This is done in order to make housing more affordable for tenants. By setting a price ceiling on rent, the government aims to prevent landlords from charging excessively high rents and to ensure that housing remains affordable for low-income individuals and families.

Rate this question:
5.

In a publicly held corporation:
- A.
  
  Stockholders rarely trade their stock
- B.
  
  A large number of stock holders can buy and sell stock
- C.
  
  Stocks are not usually traded at stock exchange
- D.
  
  Family members are excluded from holding stock
Correct Answer
B. A large number of stock holders can buy and sell stock

Explanation
In a publicly held corporation, a large number of stockholders can buy and sell stock. This is because publicly held corporations have shares of stock that are available to the general public for purchase. These shares can be bought and sold on stock exchanges, allowing for a large number of individuals to participate in the buying and selling of stocks. This is in contrast to privately held corporations, where the number of shareholders is typically limited and the trading of stock is not as accessible to the general public.

Rate this question:
6.

How much control do firms in a perfect competition market have over price?
- A.
  
  None
- B.
  
  Very little
- C.
  
  Some
- D.
  
  Total control
Correct Answer
A. None

Explanation
In a perfect competition market, firms have no control over the price. This is because in a perfectly competitive market, there are numerous buyers and sellers, and all firms produce identical products. As a result, no individual firm can influence the market price. Instead, firms are price takers, meaning they must accept the prevailing market price and adjust their quantity of production accordingly. Thus, the correct answer is "none."

Rate this question:
7.

What is an example of a variable cost in a Major League Baseball team?
- A.
  
  Players salaries
- B.
  
  Ticket sellers salaries
- C.
  
  Field maintenance
- D.
  
  Stadium rent
Correct Answer
B. Ticket sellers salaries

Explanation
An example of a variable cost in a Major League Baseball team is ticket sellers salaries. This is because the cost of paying ticket sellers can vary depending on the number of tickets sold. If there are more games or higher attendance, the team will need more ticket sellers and therefore incur higher costs. Conversely, if there are fewer games or lower attendance, the team will require fewer ticket sellers and the cost will be lower.

Rate this question:
8.

Which of the following is a disadvantage of sole proprietorship?
- A.
  
  High taxes
- B.
  
  Difficult to start up
- C.
  
  Legal fees
- D.
  
  Lack of permanence
Correct Answer
D. Lack of permanence

Explanation
Sole proprietorship has a disadvantage of lack of permanence. This means that the business does not have a separate legal existence from its owner and therefore, it ceases to exist upon the death or retirement of the owner. Unlike other business structures, such as corporations or partnerships, a sole proprietorship does not have continuity and cannot be easily transferred or passed on to others. This lack of permanence can make it difficult for the business to grow and expand in the long term.

Rate this question:
9.

A barrier to entry could be a:
- A.
  
  Technology
- B.
  
  Start up cost
- C.
  
  Licenses
- D.
  
  All of the above
- E.
  
  None of the above
Correct Answer
D. All of the above

Explanation
A barrier to entry refers to any factor that makes it difficult for new firms to enter a market and compete with existing businesses. In this case, all of the options mentioned - technology, start-up costs, and licenses - can act as barriers to entry. The need for advanced technology or specialized knowledge can make it challenging for new firms to enter certain industries. High start-up costs can also deter potential competitors, as they may not have the necessary financial resources. Additionally, licenses or permits may be required to operate in certain industries, further limiting the entry of new firms. Therefore, all of the options listed can contribute to creating barriers to entry.

Rate this question:

Economics Practice Test - Units 3 & 4

Monopolistic competition is characterized by:

What does it mean when demand for a product is inelastic?

What happens to supply when the selling price of an items down?

Rent control is a type of:

In a publicly held corporation:

How much control do firms in a perfect competition market have over price?

What is an example of a variable cost in a Major League Baseball team?

Which of the following is a disadvantage of sole proprietorship?

A barrier to entry could be a: