Economics Chapter 1 And 2 Test

Economics Chapter 1 And 2 Test Economics Chapter 1 2 Test Instructions Answer all questions to the best of your ability Show all work for calculations where applicable You may use your notes textbook and other resources Please write legibly and use complete sentences when appropriate Total Points 100 Part I Multiple Choice 2 points each 20 points total Instructions Choose the best answer for each question 1 Which of the following is NOT a factor of production a Land b Labor c Capital d Money 2 The concept of scarcity means that a There are not enough resources to satisfy everyones wants b Resources are limited but wants are unlimited c People are always willing to pay high prices for scarce goods d Only wealthy people can afford everything they want 3 The opportunity cost of a decision is a The amount of money spent on the decision b The value of the best alternative forgone c The total amount of time spent on the decision d The amount of effort required to make the decision 4 A production possibilities curve shows a The different combinations of goods that can be produced with a given set of resources b The prices of different goods in an economy c The amount of profit that can be made by producing different goods d The relationship between supply and demand for different goods 5 Economic growth is represented by a 2 a Shift to the left of the production possibilities curve b Shift to the right of the production possibilities curve c Movement along the production possibilities curve d Point inside the production possibilities curve 6 Which of the following is an example of a positive statement a The government should increase taxes on gasoline b A decrease in the price of oil will lead to increased gasoline consumption c The government should provide free healthcare to all citizens d The governments budget deficit is too high 7 Which of the following is an example of a normative statement a The unemployment rate is currently 5 b The economy is growing at a rate of 2 per year c The government should increase spending on education d The price of milk has increased by 10 in the past year 8 The circular flow model shows a The flow of goods and services in an economy b The flow of money in an economy c The interaction between households and businesses d All of the above 9 In a free market economy prices are determined by a The government b The interaction of supply and demand c The cost of production d The availability of resources 10 Which of the following is NOT a characteristic of a command economy a Centralized planning b Government control of resources c Private ownership of businesses d Limited consumer choice Part II Short Answer 5 points each 20 points total Instructions Answer the following questions in a few sentences each 1 Explain the difference between scarcity and shortage 2 Explain the concept of opportunity cost and give an example 3 Describe the three basic economic questions that all societies must answer 4 Explain the difference between positive economics and normative economics 3 Part III Essay 30 points total Instructions Write a wellorganized essay that addresses the following prompt 1 Prompt Explain the role of incentives in a market economy Provide examples of how incentives can encourage or discourage certain economic behaviors Part IV Application 30 points total Instructions Answer the following questions using the information provided Scenario Imagine you are the owner of a small bakery that specializes in handcrafted pastries You have limited resources including flour sugar eggs and labor 1 Question Draw a production possibilities curve for your bakery showing the tradeoff between producing croissants and muffins Explain the shape of the curve 10 points 2 Question Suppose the price of flour increases significantly How would this affect your production possibilities curve Explain 10 points 3 Question If you wanted to increase the production of croissants what strategies could you employ Consider both the factors of production and the concept of opportunity cost 10 points