Economics Practice Questions
• Fundamental Economic
Concepts
1. How does the concept of scarcity relate to
the Federal budget process?
A all government decisions are made based
on marginal costs and benefits
B
limited tax revenue must meet unlimited
wants and needs
C governments must use exchange rates
when dealing with foreign policy
D the government avoids scarcity by printing
money
Answer: B
2. Which describes scarcity?
A A condition where supply exceeds demand.
B
The situation that exists when there is
temporarily a shortage of a good or service.
C Unlimited wants exceeding limited
resources.
D An unlimited demand for goods and
services.
Answer: C
3. Which economic situation is characterized by
unlimited wants exceeding limited resources?
A
B
C
D
shortage
surplus
specialization
scarcity
Answer: D
4. In the production of chocolate chip cookies,
which represents the factor of capital?
A
B
C
D
the dough used to bake the cookies
the oven used to bake the cookies
the worker who decorates the cookies
the retailer who sells the cookies
Answer: B
5. Which is a human resource that Ms. Johnson
could use for her art gallery?
A Light fixtures to help display the artwork
B
A security system to protect the artwork
C Knowledge of trends in modern art
D A series of paintings by a prominent local
artist
Answer: C
6. Opportunity costs is MOST RELATED which
concept?
A
B
C
D
price floors
scarcity
elasticity
absolute advantage
Answer: B
7. Opportunity cost is best described as the
A sum of all production costs
B
most expensive resource used in
production
C value of the best alternative forgone when
a choice is made
D monetary value of all alternatives forgone
when a choice is made
Answer: C
8. In college people can major in a wide variety
of fields including medicine, journalism,
business, and design among others. This is an
example of the concept of
A
B
C
D
progressive taxation
scarcity
specialization
elastic demand
Answer: C
9. Which statement is true about the circular
flow diagram?
A Households are demanders in the product
market and suppliers in the factor market
B
Business are demanders in the product
market and suppliers in the factor market.
C Households are demanders in the factor
market and suppliers in the product market.
D Businesses and households are not
components of the circular flow diagram.
Answer: A
10. Which of the following is NOT one of the
three basic economic questions that must be
answered in an economy?
A
B
C
D
What to produce
When to produce
How to produce
For Whom to produce
Answer: B
11. Competition and free enterprise are most
common in which type of economic system?
A
B
C
D
traditional
market
communist
planned
Answer: B
12. Because command economies have a high
degree of government interaction, they are
better suited to meet which economic goals?
A
B
C
D
freedom and growth
efficiency and freedom
growth and efficiency
stability and equity
Answer: D
13. Economic growth is often tied to
investment in machinery, new technology, and
education of the population. This is because
A these items lead to a greater productivity of
inputs.
B
the only way to measure economic growth
is to observe changes in these factors.
C investment in these items are the sole
determinant of output.
D all of these items improve capital
resources.
Answer: A
14. Which BEST describes productivity?
A
B
C
D
the interaction of buyers and sellers
the relationship of inputs to outputs
producing at high opportunity costs
trading based on absolute advantage
Answer: B
15. Investing heavily in new capital equipment
and technology is MOST related to
A
B
C
D
supply and demand.
opportunity costs.
economic growth.
economic freedom.
Answer: C