Economics Practice Test 2

What is a traditional economy primarily based on?

• Industrial production

• Customs and traditions

• Technological advancements

• Government planning

Which of the following is a disadvantage of a capitalist free economy?

• Equal distribution of wealth

• Lack of competition

• Income inequality

• Centralized decision-making

How do free enterprises typically grow in a capitalist economy?

• Through government subsidies

• By increasing taxes

• By reinvesting profits

• Through state ownership

What does an elastic supply curve indicate?

• Supply is unresponsive to price changes

• Supply is highly responsive to price changes

• Supply remains constant regardless of price

• Supply decreases as price increases

How is marginal revenue calculated?

• Total revenue divided by quantity sold

• Change in total revenue divided by change in quantity sold

• Total cost divided by quantity produced

• Change in total cost divided by change in quantity produced

In an economy, equilibrium occurs when:

• Supply exceeds demand

• Demand exceeds supply

• Supply equals demand

• Prices are fixed by the government

What is the purpose of a price ceiling?

• To ensure prices do not fall below a certain level

• To ensure prices do not rise above a certain level

• To eliminate competition

• To increase government revenue

Which of the following is a cause of interest rates?

• Government subsidies

• Inflation expectations

• Fixed exchange rates

• Trade deficits

What is a price floor?

• A minimum price set by the government

• A maximum price set by the government

• A price determined by market forces

• A price that fluctuates with demand

Which of the following best describes how equilibrium price is determined in a market?

• By government intervention

• By the intersection of supply and demand curves

• By the highest bidder

• By the lowest cost producer