Economics Concepts Quiz

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What does opportunity cost refer to in economic terms?

The total amount of money spent on an item
The alternative options that are forgone when a choice is made (correct)
The savings accumulated from avoiding unnecessary purchases
The value of all resources used in a project

Which factor of production is primarily responsible for creating and managing new businesses?

Land
Labor
Entrepreneurship (correct)
Capital

What relationship does the data on album download sales illustrate?

Quantity demanded remains constant regardless of price
Higher prices lead to higher sales
Quantity demanded typically decreases as price increases (correct)
Sales are highest when the price is at its peak

What is meant by equilibrium price?

The price at which quantity demanded equals quantity supplied (D) Signup and view all the answers

In traditional economies, how are production decisions typically made?

According to customs and beliefs (A) Signup and view all the answers

What do households provide to factor markets?

Factors of production (C) Signup and view all the answers

What do firms use the revenues from product markets for?

Paying for factors of production and reinvesting (A) Signup and view all the answers

In which market do households purchase goods and services?

Product markets (A) Signup and view all the answers

What is a defining characteristic of a command economy?

Production decisions made by governments (A) Signup and view all the answers

What happens when supply exceeds demand?

Producers are less likely to raise prices (C) Signup and view all the answers

What role do households play in the circular flow model?

They provide the factors of production. (B) Signup and view all the answers

In the product market, which transaction occurs?

Businesses sell goods and services to households. (C) Signup and view all the answers

What happens when umbrella prices drop significantly?

Producers will likely supply fewer umbrellas. (C) Signup and view all the answers

What do businesses receive from selling goods and services?

Revenue (C) Signup and view all the answers

What is one of the primary advantages of a free market system?

Prices are determined by supply and demand. (C) Signup and view all the answers

Where do households sell their productive resources?

In the factor market. (C) Signup and view all the answers

Which factor would be included in the 'resources (inputs)' portion of the Circular Flow of the Economy diagram?

Labor. (D) Signup and view all the answers

How does an increase in productivity rates affect standards of living?

It leads to an increase in standards of living. (D) Signup and view all the answers

What accounts for the relationship between rising productivity and economic growth?

Rising productivity leads to widespread economic growth. (D) Signup and view all the answers

Which question addresses the most fundamental issue for an economic system?

What goods will be produced? (D) Signup and view all the answers

What is the primary purpose of businesses purchasing items in the factor market?

To create goods and services for the product market (A) Signup and view all the answers

Which step comes after households earn income in the factor market?

Households spend their income to buy goods and services in the product market (D) Signup and view all the answers

How do businesses generate revenue in the circular flow of money?

By selling goods and services in the product market (B) Signup and view all the answers

What happens to the revenue generated in the product market?

It is used to purchase product resources in the factor market (B) Signup and view all the answers

What is the opportunity cost in Bob's decision to decline a summer trip?

The chance to spend time with his friends (C) Signup and view all the answers

What does the term 'incentives' refer to in economics?

Factors that motivate consumers to purchase goods or services (A) Signup and view all the answers

According to laws of supply and demand, what is a likely outcome when the price of a product rises?

New suppliers will enter the industry (C) Signup and view all the answers

What does 'land' refer to as a factor of production?

Natural resources available for production (D) Signup and view all the answers

Opportunity Cost

The value of the next best alternative forgone when a choice is made.

Factor of Production: Entrepreneurship

The factor of production focused on business creation and management.