Economics Semester Exam Review

Scarcity exists because:

• Prices are always rising

• Resources are unlimited and wants are limited

• People do not know what they want

• Wants are unlimited and resources are limited

Answer explanation

Scarcity arises because wants are unlimited while resources are limited. This means that people always desire more than what is available, leading to competition for those limited resources.

The next best alternative you give up when making a choice is called:

• Rational Choice

• Trade-off

• Opportunity Benefit

• Opportunity Cost

Answer explanation

The next best alternative you give up when making a choice is known as 'Opportunity Cost'. It represents the benefits you miss out on when choosing one option over another.

When a student chooses to study instead of going out with friends, the opportunity cost is:

• The enjoyment of spending time with friends

• The chance to learn something new

• The energy spend studying

• Better grades

Answer explanation

The opportunity cost of studying instead of going out with friends is the enjoyment of spending time with friends, as this is what the student is giving up to focus on their studies.

Which economic system relies on customs and traditions to answer economic questions?

• Traditional

• Market

• Command

• Mixed

Answer explanation

The traditional economic system relies on customs and traditions to make decisions about production and distribution. Unlike market or command systems, it emphasizes historical practices and cultural norms.

A government that controls all major industries is most likely operating under a:

• Market Economy

• Command Economy

• Mixed Economy

• Traditional Economy

Answer explanation

A command economy is characterized by government control over major industries and resources. In this system, the government makes all economic decisions, unlike market or mixed economies where market forces play a significant role.

In the circular flow model, households primarily provide:

• Goods & Services

• Taxes

• Government Regulations

• Labor & Resources

Answer explanation

In the circular flow model, households primarily provide labor and resources to firms, which use them to produce goods and services. This interaction is essential for the economy's functioning.

In the circular flow diagram, businesses receive revenue from:

• Selling Resources

• Selling goods and services

• Charging taxes

• Importing goods

Answer explanation

In the circular flow diagram, businesses primarily receive revenue by selling goods and services to consumers, which is their main source of income. Selling resources, charging taxes, and importing goods do not directly generate revenue in this context.

A nation with high government involvement in economic decisions but allowing some private ownership is best described as a:

• Mixed Economy

• Pure Market Economy

• Pure Command Economy

• Traditional Economy

Answer explanation

A mixed economy features significant government involvement in economic decisions while still allowing for some private ownership. This distinguishes it from pure command economies, which have total government control, and pure market economies, which have none.

The law of demand states that as price increases:

• Supply decreases

• Supply increases

• Quantity demanded increases

• Quantity demanded decreases

Answer explanation

The law of demand indicates that as price increases, consumers buy less of a good, leading to a decrease in quantity demanded. Therefore, the correct answer is that quantity demanded decreases.

The law of supply states that as price increases:

• Demand shifts right

• Producers supply more

• Producers supply less

• Demand shifts left

Answer explanation

The law of supply indicates that as prices rise, producers are incentivized to supply more goods to the market, leading to an increase in quantity supplied.