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1 Economics EOC Quiz Answer Key Microeconomic Concepts - (SSEMI1) Flow Of Goods, (SSEMI2) Law Of Demand, (SSEMI3) Economic Behavior, (SSEMI4) Organization And Role Of Business Student Name: Teacher Name: Heather Creamer 1) In the product market, A) productive resources are bought and sold. B) producers sell goods and services to consumers. C) a nation's total output of goods and services increases. D) the amount of output produced by a given amount of inputs is measured. Date: Score: As part of the circular flow of economic activity, in the product market, producers sell goods and services to consumers. Productive resources are bought and sold in the resource market (or factor market). 2) According to this diagram showing the circular flow of goods and resources, where do individuals spend the income they earn? A) in the factor market B) in the capital market C) in the product market D) in individual households According to the chart, individuals (households) spend their income in the product market. This income was earned in the factor market when they sold their labor. 3) 1/14

2 How do individuals contribute to the circular flow of economic activity? A) Businesses buy goods and services from individuals. B) Businesses purchase productive resources in product markets. C) Individuals provide labor for factor markets and buy goods in product markets. D) Individuals buy productive resources from factor markets and provide labor for product markets. Individuals provide labor for factor markets and buy goods in product markets. Businesses do get productive resources, but not in product markets. 4) The diagram shows the circular flow of goods and resources. What is the primary purpose of this chart? A) It shows the relationship between supply and demand. B) It indicates the changing tastes in the product market. C) It shows how households and businesses interact in a market economy. D) It shows the need for government intervention in any economic system. By showing what businesses and households bring to and take from the product and factor markets the chart shows how households and businesses interact in a market economy. 2/14

3 5) Money that individuals receive from businesses return to businesses in A) the factor markets. B) the product markets. C) the purchase of land. D) the payment for resources. When individuals purchase goods in the product markets, money flows back to businesses. Consumer spending is a vital part of the circular flow of economic activity. 3/14

4 6) The diagram shows the circular flow of goods and resources in a market economy. According to this diagram, where do individuals sell their labor? A) in households B) in the factor market C) in the product market D) in the revenue market In the factor market, individuals (households) sell their labor (one of the factors of production). Businesses exchange money (income) for this labor. 7) In a diagram of the circular flow of economic activity, businesses A) receive goods and services from productive markets. B) buy productive resources from resource markets. C) purchase goods and services from individuals. D) derive income from resource markets. In a diagram of the circular flow of economic activity, businesses buy productive resources from resource markets. Individuals then buy the finished goods and services in the product markets. 8) 4/14

5 According to the diagram showing the circular flow of goods and resources, where do businesses sell the goods and services they produce? A) in the factor market B) in the product market C) in the capital market D) in individual households Businesses sell the goods and services they produce in the product market. Individuals exchange money (income they have earned) for these goods and services. 9) Resource markets are LEAST LIKELY to sell A) land. B) capital. C) goods and services. D) labor and entrepreneurs. Resource markets are LEAST LIKELY to sell goods and services. Businesses use the inputs from the resource market to produce goods and services to sell on the product market. 10) 5/14

6 Which type of transaction refers to a flow of MONEY through the economy? A) Individuals spend money to purchase resources from factor markets. B) Money is used to purchase goods and services in the product markets. C) Businesses pay for goods purchased in the product markets with money. D) Money is used to purchase productive resources in the product markets. Money facilitates exchange when individuals purchase goods and services in the product markets. The money flows to businesses who then buy productive resources from the factor markets. 6/14

7 11) In a market economy, a high price is a signal for A) producers to supply less and consumers to buy less. B) producers to supply less and consumers to buy more. C) producers to supply more and consumers to buy less. D) producers to supply more and consumers to buy more. In a market economy, a high price is a signal for producers to supply more and consumers to buy less. If a price is set TOO high, though, then consumers will buy less. 12) The Law of Demand is one of the most famous laws in economics. It states that when the price of a good rises, the amount demanded, and when the price of a good falls, the amount demanded. A) rises, rises B) falls, falls C) rises, falls D) falls, rises The law of demand is one of the most famous laws in economics. It states that when the price of a good rises, the amount demanded falls, and when the price of a good falls, the amount demanded rises. 13) In a market economy, a high price will usually cause A) producers to offer less and consumers to buy less. B) producers to offer less and consumers to buy more. C) producers to supply more and consumers to buy less. D) producers to supply more and consumers to buy more. A high price for a product will usually cause producers to supply more and consumers to buy less. High prices signal greater profits for producers so they are likely to increase production. On the other hand, consumers are likely to reduce consumption. 14) What should happen to the equilibrium price of whoopee cushions when the price of the rubber necessary to make the cushions declines? A) The equilibrium price will rise. B) The equilibrium price will fall. C) The equilibrium price will stay the same. D) The price of substitute products will rise. When production costs are reduced (as when the costs of materials decrease), suppliers are willing to produce more or sell at a lower price. This will cause the equilibrium price to fall. 15) If the supply of computer engineers increases at the same time that the demand for these workers decreases, what would be the MOST LIKELY effect on wages for these workers? A) Wages would stay the same as job opportunities increase. B) Wages would increase as the number of workers increases. C) Wages would decline as the competition for jobs increases. D) Wages would increase as competition for these workers increases. Wages would decline as the competition for jobs increases. Workers and their wages follow the same laws of supply and demand as other products in the market. 16) 7/14

8 Assuming that the graph follows the normal laws of economics, the line represents A) demand. B) supply. C) equilibrium price. D) production possibilities. According to the law of supply, as price increases, supply increases. Thus a supply curve almost always slopes upward. 8/14

9 17) In the graph, what happened to the equilibrium price when the supply curve moved from S 1 to S 2? A) It did not change. B) The equilibrium price went up. C) The equilibrium price went down. D) It indicated a decrease in demand. When the supply curve moved to the left, a decreased supply was indicated. A decreased supply would probably cause a rise in price. Thus, the equilibrium price went up. 18) In the graph, the equilibrium price is approximately A) $ /14

10 B) $3.00 C) $5.00 D) $6.00 The equilibrium price is determined by looking at the intersection of the demand and supply curves. In this graph that intersection is at $ ) If OPEC decided to cut oil production for the coming year, what would be the MOST LIKELY effect? A) prices would not change B) oil prices would probably rise C) oil prices would probably decline D) the price for substitute products would decline If OPEC reduced production, oil prices would probably rise in response to the reduced supply. 20) A decrease in the price of a particular product will result in A) a decrease in the demand for that product. B) a shift in the production possibilities frontier. C) an increase in the quantity demanded of that product. D) an increase in the quantity supplied of that product. According to the Law of Demand, when there is a decrease in price there will be an increase in the quantity demanded of that product. 21) In the graph, what might explain the movement of the demand curve from D 1 to D 3? A) a surplus of the product B) a decrease in the general income of the region C) a decrease in the price of a substitute product 10/14

11 D) a decrease in the price of a complementary product When a demand curve moves to the right, as in this case, demand has increased. This might happen when there is a decrease in the price of a complementary product. 11/14

12 22) Looking at the graph, if there is an increase in income for the households in this market, what is the MOST LIKELY result? A) The equilibrium price will fall. B) The demand curve will shift to the left. C) The demand curve will shift to the right. D) The supply curve will become a vertical line. Increased income usually increases demand in the marketplace. This means that the demand curve will shift to the right. 23) A modest price increase for a monthly cell phone package has had little or no effect on demand. This MOST LIKELY indicates that demand for the product is A) complementary. B) elastic. C) inelastic. D) variable. Demand for the product is inelastic when a modest price increase has little or no effect on demand. 24) The new oven in Mr. Brown's bakery allows him to produce bread more efficiently and more cheaply. What is the MOST LIKELY effect? A) the price drops and the quantity demanded decreases B) the price rises and the quantity demanded decreases C) the price drops and the quantity demanded increases D) the price rises and the quantity demanded increases The price drops and quantity demanded increases.the efficiency of the new oven allows Mr. Brown to reduce his prices. The lower prices would likely create increased the quantity demanded for the product. 25) Which of these is MOST LIKELY a result of apartment rent controls? A) a shortage of apartments B) increased mobility of workers C) decreased demand for apartments D) a dramatic increase in rental rates 12/14

13 Rent controls usually result in rents below the equilibrium price. When this happens, there will be a shortage of apartments. 26) The MOST LIKELY incentive for entrepreneurs to start a new business is A) to make a profit. B) to discover a new patent. C) to risk financial failure. D) to create a new social benefit. The MOST LIKELY incentive for entrepreneurs to start a new business is to make a profit. Although they may create a new patent or social benefit, these are not the primary incentives for entrepreneurs. 27) Entrepreneurs develop new goods and services to start a business. Why is entrepreneurship often difficult? A) There is a risk that the new business may fail. B) There are laws that restrict most new businesses. C) Motivation for profit may not be the best incentive. D) Healthy competition encourages higher quality products. There is a risk that the new business may fail, which makes entrepreneurship very difficult (and risky). 13/14

14 28) All of these are describing what market type of market structure? A) monopoly B) oligopoly C) perfect competition D) monopolistic competition firms produce and sell identical products firms have a relatively small market share consumers are aware of the products and their prices there are few barriers to entry into the market Perfect competition is characterized by a large number of suppliers, no barriers to producers in the marketplace, and very similar products. Perfect competition is somewhat similar to monopolistic competition, but the access of producers to the market is a primary distinguishing factor. 29) Which market structure has the largest number of suppliers? A) monopoly B) oligopoly C) perfect competition D) monopolistic competition Perfect competition is characterized by a large number of suppliers who have open access to the market. 30) In a free enterprise system, what drives individuals to risk their savings in a business venture? A) the idea of failure B) the desire to pay taxes C) the potential for profit D) the increase in stock prices The potential for profit drives individuals to risk their savings in a business venture. The profit motive drives individuals to improve their material well-being. 14/14

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