Module 1 Economics V14 Practice Exam and Glossary

Term

Definition

Basic economic questions

What to produce? How to produce? For whom to produce?

Benefits

What we gain when making a choice

Characteristics of money

Divisible, Stable in value, Durable, Portable, Scarce, Accepted

Counterfeit

A fake copy of something valuable

Currency

Coins and paper bills used in exchange for goods and services

Decrease in demand or supply

Curve shifts to the left

Demand

Total amount of a good or service that people are willing to buy

Demand curve slope

(From left to right) slopes downward

Economic products

Goods and services

Economics

A study of the ways people obtain their wants with limited resources.

Equilibrium price

The point where supply and demand meet - This is how much suppliers should

charge for their product.

Like U.S. currency, is money the government declares legal for use in payment. We

Fiat currency

have confidence that the money will hold its value because it was issued by the

government.

Gold Standard

The value of money was based on gold - money is NO LONGER backed by gold.

Increase in demand or supply

Curve shifts to the right

Macroeconomics

Study of the national and global economies

Market

Exchange of goods and services between buyers and sellers

measure of value

Money is used to describe the worth of an item.

Medium of exchange

Money is accepted in exchange for another item.

Microeconomics

Study of the individual, household, and business firm economies

Opportunity Cost

The most valued alternative given up when a choice is made. Opportunity cost =

“opportunity lost” or whatever is given up.

Quantity demanded

The quantity people will purchase at a specific price - a specific point along the

curve.

Quantity supplied

The quantity suppliers will produce at a specific price - a specific point on the curve.

Reasons a supply curve would shift: Resources, Other goods' price, Taxes (also

ROTTEN

subsidies and government regulation), Technology (productivity), Expectations of

the producer, Number of firms in the industry

Scarcity

Limited resources, rarity

When price is lower than the equilibrium price then not enough will be produced so

Shortage

there is a shortage (demand will increase due to the lower price, but supply will not

due to need to cover costs at a lower profit margin).

Standard of money

Money has a consistent numerical measurement.

Store of value

Money holds its value.

Supply curve slope

(from left to right) slopes upward

Supply

Total amount of a good or service available for purchase. Supply is the whole

curve,‖ supply for goods and services at all prices.

Surplus

When price is higher than the equilibrium price then too much will be produced so

there is a surplus (not as many people will want the good due to the higher price).

TRIBE

Reasons a demand curve would shift: Tastes and preferences, Related goods and

services, Income, Buyers, Expectations of price.

x-axis

On a supply and demand graph, the line that indicates quantity

y-axis

On a supply and demand graph, the line that indicates price

Module 1 Practice Exam – V14

In a week you could read two books or see four movies. The opportunity cost of choosing to read one book is

one book

two books

one movie

two movies

2.

Ezra runs a gyro stall at the local farmers' market. He would like to expand and open his own shop downtown. He has made the chart above, listing some potential costs and benefits of expansion. Item 3 under Costs best illustrates which concept?

Businesses must grow to stay competitive.

Fluctuations in demand cause fluctuations in supply.

Labor shortages drive up business costs.

Scarcity of resources necessitates economic choices.

3.

In the graph above, a shift from point A to point B represents which of the following?

A decrease in demand

A decrease in quantity demanded

An increase in demand

An increase in quantity demanded

4.

Use the above graph to answer the following question. Which line indicates the demand curve?

one

two

The x-axis

The y-axis

Which of the following best describes the concept of "equilibrium price"?

Sellers are happy with the price, but buyers are unhappy with the quantity.

Sellers are unhappy with the price, but buyers are happy with the quantity.

Both sellers and buyers are happy with the price and quantity.

Both sellers and buyers are unhappy with the price and quantity.

A new superhero movie has become very popular, and its toy action figures have recently hit the market. What impact will production of the new movie's toys have on the toys of last year's superhero movie?

Demand for the old action heroes will decrease, causing a decrease in equilibrium quantity.

Demand for the old action heroes will decrease, causing an increase in market price.

Demand for the old action heroes will increase, causing a decrease in market price.

Demand for the old action heroes will increase, causing an increase in equilibrium quantity.

7.

The graph above shows supply and demand for a popular brand of coffee. A gas crisis affects shipping costs. What would a coffee company do in anticipation of a rise in shipping costs, and how would that effect the equilibrium price?

Add D3 to the left of D2, showing decrease in equilibrium supply and equilibrium price.

Add D3 to the right of D2, showing increase in equilibrium supply and equilibrium price.

Add S2 to the left of S, showing decrease in supply and increase in equilibrium price.

Add S2 to the right of S, showing increase in supply and equilibrium price.

Lara has earned $20 mowing grass around her neighborhood. She takes her money to the bookstore and purchases a CD for $11.99. She wants to buy a book as well, but she has to choose between the hardcover for $12 and the softcover for six dollars. Lara's use of her money and the decision she makes best illustrate which two functions of money?

Measure of value and standard

Medium of exchange and measure of value

Standard and store of value

Store of value and medium of exchange

Which situation best illustrates the basic economic questions?

Your sister decides to make beaded bracelets and give them to friends.

Your sister decides to make beaded bracelets and wear them all herself.

Your sister hand beads the bracelets and sells them to neighbors

Your sister goes to the store and purchases beaded bracelets from the jewelry department.

10 . Which situation best illustrates ALL THREE of the basic economic questions?

You start your own shirt design company and sell your services to local businesses.

You start your own shirt design company for fun, making shirts for your friends.

You pay a shirt design company to make shirts for you.

You start a shirt design company using your own equipment and serve local businesses.

Your friend wanted a big screen TV and a class ring for birthday gifts. When her mom said she could only have one, she chose the class ring. Her opportunity cost is the

The enjoyment of having a big screen TV.

Price of the big screen TV.

The enjoyment of having a class ring.

Price of the class ring.

You have to choose between being in the school play or being on the baseball team because the practices overlap. This choice exemplifies that

Time is scarce.

Demand is scarce.

Music lessons are scarce.

Sports teams are scarce.

A cookie costs $2 and a shirt costs $20. If your allowance is $20 and you choose to purchase a shirt, your opportunity cost is

One cookie.

Ten cookies.

One shirt.

Ten shirts.

There is a shortage of milk at $1 per gallon. The equilibrium price for milk is

$1 per gallon.

Less than $1 per gallon.

More than $1 per gallon.

Not calculable.

On a supply and demand graph, the line that indicates quantity is

The longest line.

The line equal to zero.

The x-axis.

The y-axis.

Stores are overflowing with the latest car racing video game at $20. Store managers are frustrated with the lack of sales. The equilibrium price for this video game is

More than $20.

Less than $20.

$20.

Not calculable.

A decrease in demand causes the demand curve to

Shift to the left.

Shift to the right.

Increase its slope.

Decrease its slope.

When price decrease, quantity supplied

Decreases.

Increases.

Becomes zero.

Stays the same.

Which may occur as a result of a decrease in the price of minivans?

Increase in demand

Increase in quantity demanded

Decrease in demand

Decrease in quantity demanded

20. Use the graph to answer the following question.

Which line indicates an increase in supply?

1

2

3

4

Use the graph to answer the following question.

Which of the following may occur as a result of a decrease in the price of cell phones?

Shift from line 1 to line 2

Move from point S to point U

Shift from line 2 to line 1

Move from point U to point S

Your teacher says your history book is worth about fifty dollars. Your teacher is using money as a

Standard.

Store of value.

Measure of value.

Medium of exchange.

The gold standard is:

What United States paper money is “backed” by

The weight of US paper money.

Government stores of valuables.

No longer in use – money is backed by public and government acceptance.

You chose to study for your final exam rather than go to the movies with your friends. You made the choice with the lowest?

Demand

Supply

Benefit

Opportunity Cost

Which economic question is addressed by targeting shoppers that age from 30-40?

What to produce?

Where to produce?

How to produce?

For whom to produce?

The point where supply and demand meet is the?

X-axis

Y-axis

Equilibrium

Minimum price

Can you draw a conclusion as to what will happen to the quantity supplied when the price increase?

It will decrease.

It will stay the same.

It will increase.

Nothing.

Please analyze the following scenario paying special attention to the wording.

Dominic is opening a pizzeria in which he will make pizzas from scratch as they are ordered. He is located on the boardwalk.

Which of the three economic questions has he not considered?

For whom to produce?

How to produce?

What to produce?

When to produce?

What is the effect of the demand for a product or service increasing on the demand curve?

It shifts to the right.

It shifts to the left.

It does not shift.

It is deleted.

30.

Look at the graph. Where P is price and Q is quantity, what might cause a move from d to e?

The cost of raw materials to manufacture the product increases.

A National price celling was lifted.

Machinery was shut down for repair.

Minimum wage was increased.

31.

The supply and demand curves reflect the availability and cost of a smart phone. If the smart phone market is currently at Demand and Supply, which change to the graph, would have to occur to increase equilibrium price while lowering equilibrium quantity?

Add Demand 1 to left of Demand.

Add Demand 1 to right of Demand.

Add Supply 2 to left of Supply.

Add Supply 2 to right of Supply.

Jen has a twenty dollar bill in her pocket but she needs change. Shea gives her a ten dollar bill, a five dollar bill and four ones and four quarters. Jen takes the one dollar to by some chips from the vending machine. Which characteristics of money has Jen best demonstrated?

Medium, scarcity, and value

scarcity, and stability of value, Divisibility

Durability, portability, and standard

Acceptability, divisibility, and portability

After working very hard at your after school job you have managed to save $1000! You can invest your money into the stock market or you can spend your money on a trip this summer with your friends. If you decide to invest your money into the stock market, what is your opportunity cost?

$1000

Going to college

Investing in the stock market

Going on a trip with your friends

The new IPhone has come out and is better than ever. All of your friends have the new phone and it makes you want to have the new IPhone that much more. Which part of TRIBE is impacted in this example?

Taste and Preferences

Related goods

Income

Buyers in the market

Interpret the graph below for Kookie cookies and pick an explanation as to why the line shifts because of ROTTEN

Cookies

Price

S

S1

Quantity

Minimum wage increased to $10 an hour resulting in the cost to produce Kookie cookies to increase.

Next week is cookie appreciation week. People come from all over to purchase Kookie cookies

For every Kookie cookie produced a $1 tax must be paid to the government

The oven used to produce Kookie cookies broke.

Aaron heads to the store on a Wednesday to purchase the latest book in a series he enjoys.

He doesn’t get paid again until Friday, and uses the last 20 dollars he has to pay for the book, which costs 15 dollars. When he hands the cashier the 20 dollar bill, she inspects it with her counterfeit marker, determines it is a real bill, and then gives Aaron back his 5

dollars in change. Which characteristics of money are best demonstrated in Aaron’s scenario?

Scarcity, acceptability, and divisibility

Medium, value, store

Divisibility, stability, portability

Standard, durability, scarcity

Louise wants to go to the Imagine Dragons concert next Saturday but her sister reminds her it is also their dad’s birthday that day. Which of these is an opportunity cost of Louise choosing to spend her dad’s birthday with him?

Her dad will be disappointed

She will save the cost of buying her dad a present

Enjoying the Imagine Dragons concert

The price of the Imagine Dragons ticket

38.

Use the equilibrium graph to help answer the question. Which situation would cause a shift from line 4 to line 3?

A decrease in the cost of rubber to make the soles

A factory worker strike

A decrease in the price of Nikes

Kobe Bryant creating his own line of shoes

Mark has been given an invite by friends to attend the opening night of a movie but has also received tickets to the upcoming football game on the same night, creating a dilemma as to which event to attend. From this scenario, distinguish what is the scarcity most likely creating the dilemma Mark is currently facing?

The choices

Location

Time

Number of friends

Mark has been given an invite by friends to attend the opening night of a movie but has also received tickets to the upcoming football game on the same night, creating a dilemma as to which event to attend. In assessing the scenario above, Mark’s opportunity cost for choosing the football game would be….?

Cost of food

Going to the football game

Time spent

Going to the movie

Kalli has increased the sales of her jewelry business since setting up an online website for people to shop from. With Valentine’s Day coming up, Kalli has decided to introduce a new line heart shaped necklaces and charms. Within weeks her profits have increased by 20%. In analyzing the scenario, what type of graph would best display Kalli’s choice to introduce a new line of product?

Demand

Supply

Marginal Cost and Revenue

PPC

Module 1 Practice Exam Answer Key V141.D: Opportunity Cost = Opportunity Lost. She chose the books so she gave up the movies.2.D: Scarcity – Time is a scare resource, you cannot be in more than one place at the same time.3.D: Quantity demanded is a shift along the same graph, from one point to a new point. A change in demand would mean the entire line moves.4.A: Demand goes Down to the group (and sUPply goes UP to the sky)5.C: Equilibrium is where demand and supply intersect. It is the perfect price and quantity so that there is not a surplus or a shortage. Buyers and sellers are both happiest at this price.6.A. Demand drops, so the entire demand curve would shift to the left. As demand lessens, the price will also drop.7.C: As the price of gas increases, supply would decrease (left is less and right is more). Thus the supply curve would shift to the left. Once supply moves to the left, equilibrium price would decrease.8.B: It illustrates a medium of exchange because she hands 11.99 to the cashier and in return gets a CD. It shows the measure of value because the hardcover is worth $12 while the softcover is worth $6.9.C – The basic economic questions are: What to produce, How to produce, & For whom to produce?10.D – This answer demonstrates all three economics questions (option A does not show “how to produce”).11.A – “Opportunity cost = Opportunity lost”, the best alternative, what you gave up.12.A – Scarcity is limited resources, or rarity. It is often time or money.13.B – You could have spent the same $20 on cookies, since each cookie costs $2, you must divide $20 by $2 to determine how many cookies were given up by buying 1 shirt.14.C – Equilibrium is the point where supply and demand curves meet. This is how much suppliers should charge for their product. If suppliers charge too little, it will create a shortage. Charging too much will create a surplus.15.C - On a supply and demand graph, the line that indicates quantity is the x-axis. They-axis indicates price.16.B - Equilibrium is the point where supply and demand curves meet. This is how much suppliers should charge for their product. If suppliers charge too little, it will create a shortage. Charging too much will create a surplus.17.A – For shifts in supply and demand, “Left is Less and Right is more”. Review ROTTEN and TRIBE for reasons for supply or demand curve shifts.18.A - Quantity supplied is the quantity suppliers will produce at a specific price - a specific point on the curve. A change in price will not cause the entire curve to shift.19.B - Quantity demanded is the quantity people will purchase at a specific price - a specific point along the curve. A change in price alone will not cause the entire curve to shift.20.C - Supply curves point from left to right up on the page. Shifts to the right indicate increases. Shifts to the left indicate decreases.21.B – Price alone will NOT cause the entire curve to shift. Use the values on the y-axisto determine a reduction in price and the new plotted point on the original curve.22.C - Measure of Value - Money is used to describe the worth of an item.23.D – The gold standard was abandoned in the Great Depression. Now money is backed by public and government acceptance.

24.D: Remember opportunity cost is opportunity lost. In this case, you made the decision to study for your exam rather than go to the movies.25.D: Companies will analyze which age group they are targeting for a particular product then market that item to that specific age group. This will help them decide whom to produce the item for.26.C: The point where supply and demand meet is also known as the equilibrium price.27.C: This occurs because the supplier is making an economic decision based on a prediction for future demand of the product and also sees this as a good time to earn more profit.28.A: because after analyzing the scenario you would see that the other two economic questions are answered. (Which word(s) answers the economic question: How to produce? = make pizzas from scratch. Which word(s) answers the economic question: What to produce? = Pizzas. When to produce? Not an economic question)29.A: because as demand for a product increases the amount paid for the product will also increase.30.B: Because to slide up and down on the line you need to have a change in price. Lifting the price celling allowed prices to rise and supply to increase. The rest of the options would cause a change in the overall supply and make the curve shift.31.C: In this scenario you need to think about which way the curve moves to get an increasing equilibrium price and a decreasing quantity. To do that the supply curve would have to move left and make a new line.32.D: In this scenario Jen’s 20 dollars was accepted by the vending machine, it was also divisible byShea breaking it down into smaller amounts and it was portable by her carrying it to the machine.33.D (opportunity cost is your next valued alternative – you can invest your money or go on a trip with your friends. If you decide to invest your money than your opportunity cost would be a trip with your friends)34.A (Taste and preferences target your likes and your dislikes)35.B (producer expectations – producers expect people to purchase cookies. The supply will increase to prepare for this)36.A: When Aaron heads to the store with his LAST 20 dollars this demonstrates that money is scarce. The cashier inspects his bill and determines it is real, thus accepting it and showing acceptability. Getting his change shows that money is divisible and can be broken down into smaller denominations.37.C: Louise’s scarce resource here is time, not money. So her enjoyment from the Imagine Dragons concert is what she will give up in order to spend time with her dad on his birthday. Opportunity cost = opportunity lost.38.A: Lines 3 and 4 are supply lines so your scenario relates to supply. Moving from line 4 to line 3 indicates an increase in supply (remember “right is more” and “left is less”). A factory worker strike would cause a decrease so b) is incorrect. C) is incorrect because price is not an indicator for an entire line to shift. D) would also not cause an increase in supply for Nikes, but rather a decrease.39.C: Scarcity is a limited resource that creates the need to make a choice. In this case, Time would be the most likely resource that would create the dilemma. Mark is unable to be at both places at the same time.40.D: Opportunity Cost is the opportunity lost in the making of a choice. In this case, by choosing to go to the football game, Mark is giving up the opportunity to attend the movie.41.A: With Valentine’s Day approaching the tastes and preferences of the consumer has changed. By adding a new line of jewelry specifically for this change, Kalli has increased theDemand of her line, making the demand graph the best to display this scenario.