24-25_APM_Unit 1 Review Quiz

Economics is best defined as:

• Using unlimited resources to satisfy limited needs and wants
• The study of choices individuals make to satisfy unlimited needs and wants with limited resources
• The study of all exchanges that use money
• The comparison of capitalism to other economic systems

Answer explanation

Rationale: This is the foundation of economics, which studies decision-making under constraints.

A market is in disequilibrium with a price greater than equilibrium. What does this create?

• Inferior good
• Shortage
• Surplus
• Extra

Answer explanation

Rationale: A price above equilibrium results in excess supply (surplus).

What happens to equilibrium price and quantity if demand increases and supply decreases?

• Price increases, quantity decreases
• Price decreases, quantity increases
• Price is ambiguous, quantity decreases
• Price increases, quantity increases

Answer explanation

Rationale: Demand increase puts upward pressure on price, and supply decrease reduces quantity available.

What is opportunity cost?

• The money spent on a good
• The next best alternative given up when a choice is made
• The financial cost of a decision
• The opportunity to choose something different

Answer explanation

Rationale: Opportunity cost focuses on the foregone alternative, not just financial cost.

The law of demand states that:

• Price and quantity demanded are directly related
• Price and quantity demanded are inversely related
• As price increases, quantity demanded increases
• Prices and demand are not related

Answer explanation

Rationale: As prices go up, fewer consumers buy a product; this is a fundamental principle of demand.

Which of the following best illustrates the concept of scarcity?

• Resources are limited and cannot satisfy all human wants
• People are not willing to make choices
• Resources are abundant
• Unlimited resources are available

Answer explanation

Scarcity means resources are limited compared to unlimited wants.

What does a point inside the production possibilities curve represent?

• Underutilization of resources
• Full efficiency of resources
• Overutilization of resources
• Economic growth

Answer explanation

Points inside the curve indicate resources are not being used to their fullest potential.

What is the economic principle demonstrated when countries trade based on comparative advantage?

• Maximizing production possibilities
• Restricting trade between nations
• Specialization based on opportunity cost
• Promoting protectionist policies

Answer explanation

Comparative advantage involves specialization based on opportunity costs.

If the price of a substitute good increases, what happens to the demand for the original good?

• Increase
• Decrease
• No change
• Fluctuates randomly

Answer explanation

A rise in the price of a substitute increases demand for the original good.

What does a movement along the demand curve represent?

• A change in the quantity demanded
• A shift in demand
• The imposition of a price ceiling
• A new equilibrium point

Answer explanation

Movement along the curve indicates changes in quantity demanded due to price.