Economics Practice Test

Correct answer: C

The correct answer is The relationship between the price of a good and the quantity consumers are willing and able to buy, holding other factors constant.

1. Identify the economic concept: Determine whether the question concerns scarcity, incentives, markets, production, macroeconomics, trade, policy, or data.
2. Use the evidence: A demand curve represents a relationship between price and quantity demanded under stated assumptions.
3. Check the relationship: Confirm that the answer explains the direction, tradeoff, mechanism, or measurement rather than relying on an isolated term.

Correct answer: D

The correct answer is Quantity demanded tends to decrease according to the law of demand.

1. Identify the economic concept: Determine whether the question concerns scarcity, incentives, markets, production, macroeconomics, trade, policy, or data.
2. Use the evidence: The law of demand describes movement along a demand curve, while other factors can shift the entire curve.
3. Check the relationship: Confirm that the answer explains the direction, tradeoff, mechanism, or measurement rather than relying on an isolated term.

Correct answer: A

The correct answer is An increase in income, a rise in the price of a substitute, or a change in preferences favoring the good.

1. Identify the economic concept: Determine whether the question concerns scarcity, incentives, markets, production, macroeconomics, trade, policy, or data.
2. Use the evidence: Demand shifts when a non-price determinant changes; the direction depends on the good and the factor.
3. Check the relationship: Confirm that the answer explains the direction, tradeoff, mechanism, or measurement rather than relying on an isolated term.

Correct answer: B

The correct answer is The relationship between price and the quantity producers are willing and able to sell, holding other factors constant.

1. Identify the economic concept: Determine whether the question concerns scarcity, incentives, markets, production, macroeconomics, trade, policy, or data.
2. Use the evidence: A supply curve models producer decisions at different prices under stated cost and technology conditions.
3. Check the relationship: Confirm that the answer explains the direction, tradeoff, mechanism, or measurement rather than relying on an isolated term.

Correct answer: C

The correct answer is Lower input costs, improved technology, or conditions that make production more efficient.

1. Identify the economic concept: Determine whether the question concerns scarcity, incentives, markets, production, macroeconomics, trade, policy, or data.
2. Use the evidence: Supply shifts when production conditions change, not merely because the product price changes.
3. Check the relationship: Confirm that the answer explains the direction, tradeoff, mechanism, or measurement rather than relying on an isolated term.

Correct answer: D

The correct answer is The price and quantity at which quantity supplied equals quantity demanded.

1. Identify the economic concept: Determine whether the question concerns scarcity, incentives, markets, production, macroeconomics, trade, policy, or data.
2. Use the evidence: Equilibrium is a model outcome in which planned buying and selling match at a given price and quantity.
3. Check the relationship: Confirm that the answer explains the direction, tradeoff, mechanism, or measurement rather than relying on an isolated term.

Correct answer: A

The correct answer is A legal maximum below equilibrium that can create a shortage when quantity demanded exceeds quantity supplied.

1. Identify the economic concept: Determine whether the question concerns scarcity, incentives, markets, production, macroeconomics, trade, policy, or data.
2. Use the evidence: A binding ceiling prevents the market price from reaching equilibrium and may create shortages or non-price allocation.
3. Check the relationship: Confirm that the answer explains the direction, tradeoff, mechanism, or measurement rather than relying on an isolated term.

Correct answer: B

The correct answer is A legal minimum above equilibrium that can create a surplus when quantity supplied exceeds quantity demanded.

1. Identify the economic concept: Determine whether the question concerns scarcity, incentives, markets, production, macroeconomics, trade, policy, or data.
2. Use the evidence: A binding floor prevents the market price from falling to equilibrium and can leave unsold supply.
3. Check the relationship: Confirm that the answer explains the direction, tradeoff, mechanism, or measurement rather than relying on an isolated term.

Correct answer: C

The correct answer is How responsive quantity demanded is to a change in price.

1. Identify the economic concept: Determine whether the question concerns scarcity, incentives, markets, production, macroeconomics, trade, policy, or data.
2. Use the evidence: Elasticity compares the percentage change in quantity demanded with the percentage change in price.
3. Check the relationship: Confirm that the answer explains the direction, tradeoff, mechanism, or measurement rather than relying on an isolated term.

Correct answer: D

The correct answer is A cost or benefit affecting others is not fully included in the private market decision.

1. Identify the economic concept: Determine whether the question concerns scarcity, incentives, markets, production, macroeconomics, trade, policy, or data.
2. Use the evidence: When third-party effects are left outside the transaction, private incentives may not match social costs or benefits.
3. Check the relationship: Confirm that the answer explains the direction, tradeoff, mechanism, or measurement rather than relying on an isolated term.