A) Demand decreases.
B) Demand remains unchanged.
C) Demand increases.
D) Supply increases.
Substitute goods are goods that can replace each other. If the price of one increases, consumers tend to switch to the other, increasing its demand. For example, if the price of tea rises, the demand for coffee (a substitute) will likely increase.
A) The government should reduce unemployment.
B) Increasing minimum wage will reduce employment among low-skilled workers.
C) Income inequality is unfair.
D) Everyone should have free access to education.
Positive statements are objective and testable, describing “what is” rather than “what ought to be.” Option B is a factual claim that can be analyzed and tested, whereas the other options are normative statements reflecting opinions or values.
A) Total value of exports in a country
B) Total value of all goods and services produced within a country in a given period
C) The income of the government
D) The total spending on defense
GDP is the total monetary value of all finished goods and services produced within a country’s borders in a specific time period, typically measured annually or quarterly. It serves as an indicator of a country’s economic health.
A) Store of value
B) Medium of exchange
C) Unit of account
D) All of the above
Money serves three main functions in an economy: (1) A medium of exchange, facilitating trade; (2) A unit of account, providing a standard measure of value; and (3) A store of value, allowing individuals to save and defer consumption.
A) A shortage of the good.
B) A surplus of the good.
C) No change in the quantity demanded.
D) The market reaching a perfect balance.
When the price of a good is above the equilibrium price, suppliers will want to produce more, but consumers will demand less, leading to a surplus of the good. In this case, producers may lower prices to eliminate the surplus and return to equilibrium.
A) As the price of a good increases, the quantity demanded increases.
B) As the price of a good decreases, the quantity demanded decreases.
C) As the price of a good increases, the quantity demanded decreases.
D) Price and demand are unrelated.
According to the law of demand, there is an inverse relationship between the price of a good and the quantity demanded, meaning that as the price increases, demand typically decreases, assuming all other factors remain constant.
A) Homogeneous products
B) Free entry and exit
C) Few firms in the market
D) Perfect information
In a perfectly competitive market, there are many firms, all producing identical (homogeneous) products. There is free entry and exit of firms, and buyers and sellers have perfect information. The presence of only a few firms would imply some form of market concentration, which is not characteristic of perfect competition.
A) To reduce government spending
B) To control inflation
C) To increase taxes
D) To regulate wages
The primary goal of monetary policy is to manage the money supply and interest rates to control inflation and stabilize the economy. By doing so, central banks aim to prevent the economy from overheating (high inflation) or falling into deflation (falling prices and economic slowdown).
A) Inflation
B) Unemployment
C) Scarcity
D) Government intervention
The basic economic problem arises because resources are limited, while human wants are unlimited. This condition, known as scarcity, forces societies to make choices about how to allocate resources efficiently. Inflation, unemployment, and government intervention are important economic issues but not the fundamental economic problem.