Unit 2 Microeconomics Exam

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What is the primary function of households in a circular flow diagram?

• a. To supply goods and services
• b. To demand resources and provide income
• c. To demand goods and services and supply resources
• d. To supply goods and services and demand resources

In a circular flow model, what facilites the flow?

• a. The movement of money
• b. The movement of goods, services, and resources
• c. The taxes collected by the government
• d. The savings and investments of households

What does the law of demand state?

• a. As price decreases, quantity demanded increases
• b. As price increases, quantity demanded increases
• c. Supply creates its own demand
• d. Demand creates its own supply

Which of the following is a determinant/shifter of demand?

• a. Consumer income
• b. Number of sellers
• c. Technology
• d. Cost of production

How can a surplus be created in a market?

• a. By setting a price floor below equilibrium price
• b. By setting a price ceiling below equilibrium price
• c. By setting a price floor above equilibrium price
• d. By allowing the market to reach equilibrium naturally

What is the primary characteristic of a monopoly?

• a. Many sellers
• b. No barriers to entry
• c. Price taker
• d. Single seller

How does investment in human capital affect the economy?

• a. It decreases the standard of living
• b. It leads to increased unemployment
• c. It raises the standard of living
• d. It reduces overall production

Which of the following best describes a sole proprietorship?

• a. Owned by multiple people, limited liability
• b. Owned by one person, unlimited liability
• c. Owned by shareholders, limited lifespan
• d. Owned by partners, shared decision-making

What is the primary role of businesses in the circular flow model?

• a. To supply goods and services and demand resources
• b. To demand goods and services and supply resources
• c. To collect taxes
• d. To provide public good