Economics IG2 Practice MCQ 3

Which of the following is NOT a function of money? a) Medium of exchange b) Unit of account c) Store of value d) Producer of goods

• a) Medium of exchange

• b) Unit of account

• c) Store of value

• d) Producer of goods

Answer explanation

Money is not a producer of goods. It functions as a medium of exchange, unit of account, and store of value.

What is the difference between a tariff and a quota? a) A tariff is a limit on imports, while a quota is a tax on imports. b) A tariff is a tax on imports, while a quota is a limit on imports. c) A tariff is a tax on exports, while a quota is a limit on exports. d) A tariff and a quota are essentially the same thing.

• a) A tariff is a limit on imports, while a quota is a tax on imports.

• b) A tariff is a tax on imports, while a quota is a limit on imports.

• c) A tariff is a tax on exports, while a quota is a limit on exports.

• d) A tariff and a quota are essentially the same thing.

Answer explanation

A tariff is a tax on imports, while a quota is a limit on imports.

Which of the following is an example of a positive externality? a) Pollution from a factory b) Noise pollution from a construction site c) Education d) Traffic congestion

• a) Pollution from a factory

• b) Noise pollution from a construction site

• c) Education

• d) Traffic congestion

Answer explanation

Education is an example of a positive externality because it benefits not only the individual receiving it but also society as a whole.

What is the difference between absolute advantage and comparative advantage? a) Absolute advantage is the ability to produce a good at a lower opportunity cost, while comparative advantage is the ability to produce a good with fewer resources. b) Absolute advantage is the ability to produce a good with fewer resources, while comparative advantage is the ability to produce a good at a lower opportunity cost. c) Absolute advantage and comparative advantage are essentially the same thing. d) There is no difference between absolute advantage and comparative advantage.

• a) Absolute advantage is the ability to produce a good at a lower opportunity cost, while comparative advantage is the ability to produce a good with fewer resources.

• b) Absolute advantage is the ability to produce a good with fewer resources, while comparative advantage is the ability to produce a good at a lower opportunity cost.

• c) Absolute advantage and comparative advantage are essentially the same thing.

• d) There is no difference between absolute advantage and comparative advantage.

Answer explanation

Absolute advantage is the ability to produce a good at a lower opportunity cost, while comparative advantage is the ability to produce a good with fewer resources.

What is the difference between a progressive tax and a regressive tax? a) A progressive tax takes a higher percentage of income from high-income earners, while a regressive tax takes a higher percentage of income from low-income earners. b) A progressive tax takes a higher percentage of income from low-income earners, while a regressive tax takes a higher percentage of income from high-income earners. c) A progressive tax and a regressive tax are essentially the same thing. d) There is no difference between a progressive tax and a regressive tax.

• a) A progressive tax takes a higher percentage of income from high-income earners, while a regressive tax takes a higher percentage of income from low-income earners.

• b) A progressive tax takes a higher percentage of income from low-income earners, while a regressive tax takes a higher percentage of income from high-income earners.

• c) A progressive tax and a regressive tax are essentially the same thing.

• d) There is no difference between a progressive tax and a regressive tax.

Answer explanation

A progressive tax takes a higher percentage of income from high-income earners, while a regressive tax takes a higher percentage of income from low-income earners.

Which of the following is an example of a public good? a) A private beach b) A movie theater c) National defense d) A luxury car

• a) A private beach

• b) A movie theater

• c) National defense

• d) A luxury car

Answer explanation

National defense is an example of a public good because it benefits everyone in society, regardless of whether they contribute to its provision or not.

What is the difference between fiscal policy and monetary policy? a) Fiscal policy involves changes in government spending and taxation, while monetary policy involves changes in the money supply and interest rates. b) Fiscal policy involves changes in the money supply and interest rates, while monetary policy involves changes in government spending and taxation. c) Fiscal policy and monetary policy are essentially the same thing. d) There is no difference between fiscal policy and monetary policy.

• a) Fiscal policy involves changes in government spending and taxation, while monetary policy involves changes in the money supply and interest rates.

• b) Fiscal policy involves changes in the money supply and interest rates, while monetary policy involves changes in government spending and taxation.

• c) Fiscal policy and monetary policy are essentially the same thing.

• d) There is no difference between fiscal policy and monetary policy.

Answer explanation

Fiscal policy involves changes in government spending and taxation, while monetary policy involves changes in the money supply and interest rates. This is the correct choice.

Which of the following is NOT a characteristic of a command economy? a) Centralized decision-making b) Private ownership of property c) Government control over production and distribution d) Limited consumer choice

• a) Centralized decision-making

• b) Private ownership of property

• c) Government control over production and distribution

• d) Limited consumer choice

Answer explanation

Private ownership of property is NOT a characteristic of a command economy. In a command economy, the government controls production and distribution, and decision-making is centralized. Consumer choice is also limited.

What is the difference between a fixed exchange rate and a floating exchange rate? a) A fixed exchange rate is determined by market forces, while a floating exchange rate is set by the government. b) A fixed exchange rate is set by the government, while a floating exchange rate is determined by market forces. c) A fixed exchange rate and a floating exchange rate are essentially the same thing. d) There is no difference between a fixed exchange rate and a floating exchange rate.

• a) A fixed exchange rate is determined by market forces, while a floating exchange rate is set by the government.

• b) A fixed exchange rate is set by the government, while a floating exchange rate is determined by market forces.

• c) A fixed exchange rate and a floating exchange rate are essentially the same thing.

• d) There is no difference between a fixed exchange rate and a floating exchange rate.

Answer explanation

A fixed exchange rate is set by the government, while a floating exchange rate is determined by market forces.

Which of the following is an example of price discrimination? a) Charging different prices for the same product based on the customer's willingness to pay b) Charging the same price for the same product to all customers c) Charging different prices for different products based on the customer's willingness to pay d) Charging different prices for the same product based on the customer's age

• a) Charging different prices for the same product based on the customer's willingness to pay

• b) Charging the same price for the same product to all customers

• c) Charging different prices for different products based on the customer's willingness to pay

• d) Charging different prices for the same product based on the customer's age

Answer explanation

Price discrimination is the practice of charging different prices for the same product based on the customer's willingness to pay. Option a) is an example of price discrimination.