Economics Review 1

What best describes the role of government in a free enterprise system?

• 
  control business activities

• decide what companies will be formed and then allow managers to run them

• establish policies to encourage competitive markets

• make most of the basic economic decisions for large industries

Consumers able and willing to buy a good or service reflect the market component of

• 
  consumption

• demand

• elasticity

• allocation

What determines the price and quantity produced of most goods? 

• 
  the consumer’s perception of necessity

• the interaction of supply and demand

• the availability of substitutes for the goods

• the quality of the goods that are produced

How is demand affected by future expectations?

•  If the price is expected to rise, current demand will drop.

•  If the price is expected to fall, current demand will rise.

• If the price is expected to rise, current demand will rise.

• Future price is not related to current demand.

What happens to a market in equilibrium when there is an increase in supply?

• 
  Excess supply means that producers will make less of the good. 

• Quantity demanded will exceed quantity supplied, so the price will drop.

• Quantity supplied will exceed quantity demanded, so the price will drop. 

• Undersupply means that the good will become very expensive. 

An increase in the price of milk causes a decrease in the demand for cereal.  The two products are

• 
  substitutes 

• complements

• unrelated

• elastic demand

All of the following can change the market supply curve EXCEPT 

• 
  the cost of labor

•  the expectation that prices are about to increase 

• a change in the demand for the product 

• the number of sellers offering the product 

Using the concepts of marginal analysis, what decision would you make when marginal benefit is less than the marginal cost of an additional unit? 

• produce more output 

• do not produce the additional unit 

• decrease production

• close the business because it is now making losses

The lowest point in an economic contraction is called 

• 
  a peak

• a trough

• a recession

• a depression

Which is not a government intervention prerequisite for a market economy?

• establishing law and order 

• defining rules of property and its exchange 

• enforcing contracts 

• establishing a democratic form of government