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WorksheetsIB Economics Review December 2022
Total questions: 100
Worksheet time: 58mins
If demand is ELASTIC,
it reacts a lot to price changes
it doesn't react to price changes
price change leads to an equal change in demand
Select a product with ELASTIC demand
petrol
make up
electricity bill
Unitary Elastic Demand
demand reacts a lot to price changes
change in price leads to an equal change in demand
demand doesn't react to price changes
Select a Unitary Elastic product
bread
electricity bill
make up
INELASTIC demand
demand reacts a lot to price changes
change in price leads to equal change in demand
demand doesn't react a lot to price changes
Which of the following is an example of inelastic demand?
Jason wants the most expensive cellphone. He decides to get a cheaper model.
Priya wants to go to the season-opening game. Tickets to another game cost less, but she still buys tickets for the opener.
Tianna wants to try out a new, expensive restaurant. She goes to another restaurant whose food is excellent and costs less.
Shawn wants to buy a house in one neighborhood. But after searching, he decides to buy a house elsewhere instead.
How does elasticity affect potential revenue for a firm?
If demand for a good is inelastic, lowering the price could raise revenue.
If demand for a good is inelastic, raising the price could reduce revenue.
If demand for a good is elastic, raising the price must increase revenue.
If demand for a good is elastic, raising the price could reduce revenue.
Which of the following is represented by X?
Percentage Change in Quantity Supplied
Percentage Change in Quantity Demanded
Percentage Change in Supply
Percentage Change in Demand
Select the list of words which completes this statement, in the correct order. A price __________ occurs when the government implements a maximum price and a price __________ occurs when the government implements a price minimum. Price floors tend to create a __________ and price ceilings tend to create a __________.
Floor, ceiling, shortage, surplus
Floor, ceiling, surplus, shortage
Ceiling, floor, shortage, surplus
Ceiling, floor, surplus, shortage
Which of the following best defines market equilibrium?
The point at which supply exceeds demand and prices are stable
The point at which supply and demand equal each other and prices are stable
The point at which demand exceeds supply and prices are changing regularly
The point at which supply and demand equal each other and prices are changing regularly
Refer to Table 2. If the price is $8.00
A surplus of 30 units would exist and price would tend to drop
A shortage of 60 units would exist and price would tend to rise
A shortage of 30 units would exist and price would tend to rise
A surplus of 60 units would exist and price would tend to drop
Which of the following describes the relative elasticity in demand for toothpaste?
Demand is inelastic because it is a luxury item
Demand is elastic because there are no substitutes
Demand is inelastic because it makes up a large share of most people’s budget
Demand is inelastic because it is a low-cost necessity
Water has seen an increase in demand 8% this summer, while the price has decreased 12%
1.5 inelastic
1.5 elastic
.67 inelastic
.67 elastic
Wheat has seen a decrease in demand of 5%, while the price has increased 7%
1.4 inelastic
1.4 elastic
.71 inelastic
.71 elastic
Melissa needs apples to make apple pie for a bake sale. She buys apples from a farmers market. She bakes the apple pies and sells them for $3 at the bake sale. What is true about Melissa in this scenario?
Melissa is a consumer.
Melissa is both a producer and a consumer.
Melissa is a producer.
none of the above
In the former Soviet Union, consumers had to wait in long lines to buy everyday items like bread. They did not have many choices and the government controlled factories. In what type of economy did they live?
Market
Mixed
Traditional
Command
Keith owns a store and a warehouse where metal jewelry is made. Keith buys metals to create the jewelry he sells in the store. Which of Keith’s resources are capital resources?
Check all that are true.
warehouse
metals
store
Keith's workers
Many years ago, the __________ sector was the primary economic sector in the United States. As technology improved, the __________ sector grew becoming the most important economic sector. This resulted in people moving to cities and the primary economic sector changed as well. Now the largest economic sector is the __________ sector.
entertainment; service, mining
mining; entertainment; agricultural
service; manufacturing, agricultural
agricultural; manufacturing; service
There are two different regions in a country. Region 1 contains farmlands and rich soil for growing crops. Region 2 has a large population of workers including lawyers, doctors, and office workers. Which are most likely the primary economic sectors in each region?
Check all that are true.
The manufacturing sector is the most important sector in both Region 1 and Region 2.
The mining sector is the most important sector in Region 2.
The service sector is the most important sector in Region 2.
The agricultural sector is the most important sector in Region 1.
It is your second choice-what you give up when you make a decision.
Choice
Opportunity Cost
Scarcity
Shortage
Primary sector production is concerned with
The manufacturing of goods
The provision of services
The construction of buildings
The extraction of natural resources
One shortcoming of GDP as an indicator of society's social wellbeing is that it fails to measure the:
growth in productivity
increase in the quantity of goods
non-market production
change in the price level
Suppose inflation is currently running at 15% and, as a result, sales catalogues have to be reprinted every month. This is an example of:
noise in the price system
an unexpected redistribution in wealth
shoe-leather costs of inflation
menu costs due to inflation
Which of the following would not be included in Australia's GDP in this year’s GDP?
Gross fixed private investment.
The USA government purchases 10 000 Australian made military boots.
A new factory's purchase of used machines from a factory that is closing down.
New South Wales government's purchase of fresh milk for public servants.
One of the following is an example of a worker experiencing structural unemployment:
A worker that changes jobs to move closer to her family
A worker who quits his job because she doesn't like her fellow workers.
An assembly line worker who loses his job because a newly acquired machine requires fewer workers to operate.
A cargo employee who was sacked because of a recession.
The key assumption of the basic Keynesian model is that:
planned aggregate expenditure is autonomous
actual investment equals planned investment
firms meet demand at pre-set prices
planned aggregate expenditure is constant
When the Reserve Bank responds to higher inflation by raising real interest rates, consumption and investment spending:
. fall and, thus, short-run equilibrium output decreases
rise and, thus, short-run equilibrium output increases
fall and, thus, short-run equilibrium output increases
rise and, thus, short-run equilibrium output decreases
Government transfer payments usually
rise during expansions and recessions
rise during expansions and fall during recessions
fall during expansions and rise during recessions
fall during expansions and recessions
When the Reserve Bank responds to declining inflation rate by decreasing the cash rate, consumption and investment spending would:
rise and, thus, short-run equilibrium output increases
fall and, thus, short-run equilibrium output decreases
fall and, thus, short-run equilibrium output increases
rise and, thus, short-run equilibrium output decreases
An open-market sale of Commonwealth Government’s securities by the Reserve Bank will:
decrease bank reserves, and the money supply will increase
decrease bank reserves, and the money supply will decrease
increase bank reserves, and the money supply will decrease
increase bank reserves, and the money supply will increase
. Suppose a new computer model is introduced to replace a model included in the CPI basket. The price of the new model is 5% higher than the discontinued model, but the new model also includes additional features. In this situation, the CPI will tend to _____ inflation as a result of _____ bias.
overstate; substitution
understate; substitution
overstate; quality adjustment
accurately measure; substitution
James quits her job in order to spend time looking for a better paying job. This is an example of:
cyclical unemployment
seasonal unemployment
frictional unemployment
structural unemployment
If the economy is experiencing a recessionary gap, an increase in government purchases, ___________ can be used to stimulate spending and the contractionary gap;
a cut in taxes or an increase in transfer payments
the budget deficit
the aggregate demand
the aggregate supply
Suppose the government reduces its budget deficit at the same time as the price of oil rises sharply. Which of the following must happen?
Inflation will rise, since high oil price increases the cost of production.
Equilibrium output will rise; with less government spending there are more opportunities for the private sector to invest.
Equilibrium output will fall, since both events will tend to cause economic contraction.
Inflation will fall and AD curve will shift to the right.
Starting from long-run equilibrium, a large increase in government purchases will result in a(n) _____ gap in the short run and ____ inflation and ____ output in the long run.
expansionary; lower; potential
expansionary; higher; potential
expansionary; higher; higher
recessionary; higher; potential
An increase in aggregate supply will:
reduce the price level but increase real domestic output
. increase both the price level and real domestic output
C. reduce both the price level and real domestic output
increase the price level but reduce real domestic output
. If economic analysts found that real output was below potential output and that planned spending was too low, they might conclude that:
this economy faces an income inequality gap
this economy faces a contractionary narrowing
this economy faces a poverty gap
this economy faces a recessionary gap
If the government wants the economy (depicted in Figure 1) to return to full employment (Y*), it could:
increase government purchases
. increase taxes and decrease government purchases at the same time
decrease taxes
do none of the above
Suppose wages and inflation have been rising at the rate of 3% per annum over a period of time. As a result, workers negotiate a 3% per annum increase in wages. If expected inflation falls to 2% but the rate of wage increase remains at 3%, then
workers are worse off
firms are better off
workers are better off
both firms and workers are worse off
It is building up the capital stock for more future production and consumption.
interest rate
investments
income
capital
Point A inside this Production Possibilities Curve represents:
Resources are being inefficiently used
Production is not attainable
Production is possible if there is an increase in resources
Production possibilities are going to decrease
Market failure results in a misallocation of resources. In some cases, this can be corrected by the government
restricting the manufacture of goods that generate positive externalities
Providing public goods
subsidising all loss-making firms
placing a tax on merit goods
Under what condition is allocative efficiency achieved?
Marginal private benefits = marginal social costs
Marginal social benefits = marginal social costs
Marginal private benefits > marginal social costs
Marginal social benefits > marginal social costs
Most sales taxes are regressive because
taxable purchases are capped at $50,000 a year.
wealthier people pay less tax on a purchase than poorer people would pay on the same item.
most people cannot afford to buy such luxury goods as yachts, furs, and diamonds
poorer taxpayers spend a larger proportion of their income on taxable goods and services than do wealthier taxpayers.
From an economic standpoint, government intervention is justified
When the private sector is larger than public sector.
Because the government will encourage the production of private goods.
Because the government can increase the level of market power of private businesses.
When the market mechanism fails to achieve the optimal mix of output.
Which of the following statements is true about externalities?
When externalities exist, resources are allocated efficiently
When positive externalities exist, efficiency is improved by taxing the product
From society's point of view, the output of goods for which a positive externality exists is too low
The price system overproduces goods with positive externalities
The free market outcome is determined by the intersection of _____ and ____, resulting in quantity ____ and price ____. The social optimum outcome is given by the intersection of ____ with ____, which determines quantity _____ and price ____.
MPB; MSB; Qm; Popt; MPC; MSC; Qopt; Popt
MPC; Popt; Qm; Pm; MSC; MSQ; Oopt, Pm
MPB; MPC; Qm; Pm; MSB; MSC; Qopt; Popt
MSB, MSC; Qm; Pm; MPB; MPC; Qopt; Popt
When there is a _______ production externality, the free market _________ resources to the production of the good and too ______ of it is produced relative to the social optimum. This is shown by _______and _______ at the point of production, Qm, *
negative; misallocate; little; Qm > Qopt; MSC < MSB
positive; underallocate; much; Qm > Qopt; MSB > MSC
negative; overallocate; much; Qm > Qopt; MSC > MSB
positive; misallocate; much; Qm > Qopt; MSC > MSB
__________ goods are goods that are considered __________ for consumers but which are_________ by the market. One important reason for overprovision is that the good may have __________ consumption externalities, thus the market ________ resources in its production.
Excise; desirable; underproduced; positive; overallocates
Demerit; desirable; underproduced; positive; underallocates
Normal; needs; undervalued, elastic; frees
Demerit; undesirable; overproduced; negative; overallocates
Public goods, such as defence, are not supplied by the price system because;
the capital cost is too high
the benefits would - ceteris paribus - not be restricted to buyers but would be available to non-buyers as well
public goods are necessities and therefore cannot be left to the price system
monopolies would make supernormal profits
A tin-mining company is found guilty of polluting a river. Which one of the following government measures would an economist describe as an appropriate market-based solution?
Imposition of regulations and direct control on the company
A reduction of private property rights over the river
Increase tax on the tin produced
Nationalization of the tin-mining company
Which of the following diagrams best represents the market for vaccines?
Which of the following diagrams best represents the market for sugary drinks?
Private benefits plus external benefits is
External benefit
Social benefits
Private benefits
The use of taxes to decrease negative externality of production affects
Marginal social cost
Marginal private cost
Marginal social benefit
Marginal private benefit
The welfare loss triangle will be pointing right (to the positive quadrant) when the issue is about…
NEGATIVE externalities
POSITIVE externalities
Focusing on a narrow range of products/services that can be produced most efficiently and cost-effectively.
subsistence
specialization
scarcity
bartering
Privatization refers to ....
Transfer of assets from people to government
Transfer of assets from public to private organizations
Transfer of assets from corporate to public
Transfer of assets from corporate to government
According to the Keynesian framework, which of the following may help a country reduce inflation, but will not help that country to get out of a recession?
increased spending by the government on health care
an increase in taxes on business investments
an increase in military spending
a decrease in the tax rate on consumer income
According to macroeconomic theory, evidence that high unemployment may be accompanied by low inflation, and low unemployment may be accompanied by high inflation is supported by the:
neoclassical expenditure-output model.
Keynesian cross diagram.
Keynesian Phillips curve tradeoff.
Keynesian Inflation trade-off model.
component of Aggregate demand
foreign exchange
interest rate
consumption
none of these
Economics is considered to be a social science because its study includes:
ENVIRONMENT
WOMEN ISSUES
HUMAN BEHAVIOUR
NONE OF THE ABOVE
Formula to find NDP(Net Domestic Product) is_______
GDP-Income from abroad
GDP+Income from abroad
GNP-Depreciation
GDP-Depreciation
A economist who introduced the steady increase of the supply of money within growing economies.
David Ricardo
John Maynard Keynes
Milton Friedman
Beatrice Webb
Competition and profit motive are important characteristics of a:
command economy
traditional economy
market economy
socialist economy
Pick the odd one out in case of AD< AS
Undesired stock of goods
Increase the production
Employment decrease
Income decrease
Who said that Economics is a science of wealth?
When was the book ” an inquiry into the nature and causes of the wealth of nations”?
1770
1776
1870
1876
Match the following:
Mixed Economy
market-based economic system with limited government involvement
Traditional Economy
this system answers economic questions based on customs and values passed down from ancestors
Command Economy
this system answers economic questions through strict government control and economic regulations
Market Economy
this system answers economic questions based on supply and demand w/little or no government control
The way in which a country produces and distributes goods and services is a(n)....
natural resource.
Tariff
Economic System
Exhange Rate
The total value of all goods and services produced by a country in one year is called.....
Interdependence
Human Capital
Capital Goods
Gross Domestic Product (GDP)
natural resources
materials found in nature that are used by living things
capital goods
Buildings, machines, technology, and tools needed to produce goods and services.
human capital
the knowledge and skills a worker gains through education and experience
A person who takes the risks necessary to start a new business is considered a(n)....
co-worker
corporation
entrepreneur
government official
tariff
a tax placed on imported goods
quota
a limit on the quantity of an item brought into a country
embargo
a ban on trade with a specific nation or group of nations
exchange rate
how much one currency is worth when compared to another
trade
Exchange of goods and services
trade barrier
a government policy or restriction that limits international trade
specialization
when people or regions only focus on producing selected goods or services
opportunity cost
the value of what is given up when one choice is made over another
interdependence
depending, or relying, on each other
Which of the following best describes what a cognitive bias is?
A rational decision that is based on research and facts
The belief that we are right until someone provides information that contradicts our belief
An error in the way we think that can influence our decisions
The belief that a person should change their opinions when new facts arise
Unlike traditional economics, behavioral economics believes that…
People do not always behave in a rational way when making economic decisions
People will always update their viewpoints based on new information
There is no way to predict how people will make economic decisions
People behave in a rational way when making economic decisions
The pain of losing a $20 bill is felt more than the joy of finding it.
This is a result of...
Loss aversion
Overconfidence
Sunk cost
Endowment effect
Overconfidence bias may lead the majority of Americans to think that they are…
Below average drivers
Extremely poor drivers
Average drivers
Above average drivers
Investments of time, effort, and money that cannot be recovered are...
Opportunity costs
Avoidable costs
Sunk costs
Relevant costs
Which of the following scenarios BEST demonstrates FOMO (Fear of Missing Out)?
Megan takes a baking class after seeing a sign for the class at her favorite bakery
José wants to go see a movie that all of his friends have seen and are raving about
David goes on a vacation to Europe and posts about it on social media every day
Angela sees an advertisement for a pair of shoes and decides to buy them
A website tells you, "Only one left!" while shopping online. Which loss aversion strategy is this website using?
Coupons
Buy now, get free shipping
Free trials and samples
Scarcity and urgency
Producing the goods that society wants at the lower possible cost is the concept of ________
Efficiency
Consumer surplus
Producer surplus
PPF
The demand curve is also known as _________
Marginal benefit
Marginal cost
PPF
Consumer surplus
The diagram shows the price and quantity of pizzas. Calculate the total value of the 5 pizzas.
$40
$50
$12
Not enough information
Consumer surplus is ________
The difference between what a producer is prepared to sell at and what they actually sell at
Total benefits - total costs
The difference between what a consumer is prepared to pay and what they actually pay
Total costs - total benefits
The diagram shows the demand for pizza. What is the consumer surplus on the last pizza?
$0
$12
$3
$4
When market price falls, what happens?
Consumer surplus decreases
Consumer surplus increases
Demand shifts right
Demand shifts left
When total surplus is reduced because of either under or overproduction, it is referred to as _______
Marginal cost
Market efficiency
Equilibrium
A deadweight loss
