BMAL 590 MACROECONOMICS 4 2026
PRACTICE TEST SHEET FULL SOLUTIONS
CORRECT ANSWERS PREPARATION SET
◉ Why do economist s say there's no such thing as a free lunch?
Answer: Someone pays the price. Scarcity requires a choice:
opportunity cost. You give up whatever that resource is not used for.
◉ What is the economizing problem?
Answer: Resources are scarce.
Individuals have limited incomes and unlimited wants.
Society doesn't have enough of the four resources: land, labor,
capital, entrepreneurial ability.
◉ What are the four factors of production?
Answer: Labor
Land
Capital
Entrepreneurial ability
◉ Why do firms use the least-cost production techniques?
Answer: To make more profit and be more competitive.
,◉ What does the Invisible Hand refer to?
Answer: It produces exactly what we want at the lowest possible
price.
Virtues of the market system:
Efficiency (lowest cost)
Incentives
Freedom of choice (what to buy, where to work, etc.)
◉ How does the simple circular flow model work?
Answer: Businesses buy resources from households at the resource
market.
Businesses sell products to households at the product market.
Households buy products from businesses at the product market.
Households sell resources to businesses at the resource market.
◉ What does the law of demand state?
Answer: Other things equal, as price falls, the quantity demanded
rises, and as price rises, the quantity demanded falls.
◉ What are the determinants / shifters of the demand curve?
Answer: Consumer tastes
, Number of buyers
Consumer incomes
Prices of related goods
Consumer expectations
◉ What are the determinants / shifters of the supply curve?
Answer: Resource prices
Producer expectations
Number of sellers
Technology
Prices of other goods
Taxes and subsidies
◉ What is happening when a market is in equilibrium?
Answer: The supply curve intersects the demand curve, and the
right amount of products are being produced and sold. Everyone is
happy.
◉ What is a nation's true gain from trade?
Answer: Nations, as well as individuals, can gain by specializing.
With trade, everyone ends up better off than before.
PRACTICE TEST SHEET FULL SOLUTIONS
CORRECT ANSWERS PREPARATION SET
◉ Why do economist s say there's no such thing as a free lunch?
Answer: Someone pays the price. Scarcity requires a choice:
opportunity cost. You give up whatever that resource is not used for.
◉ What is the economizing problem?
Answer: Resources are scarce.
Individuals have limited incomes and unlimited wants.
Society doesn't have enough of the four resources: land, labor,
capital, entrepreneurial ability.
◉ What are the four factors of production?
Answer: Labor
Land
Capital
Entrepreneurial ability
◉ Why do firms use the least-cost production techniques?
Answer: To make more profit and be more competitive.
,◉ What does the Invisible Hand refer to?
Answer: It produces exactly what we want at the lowest possible
price.
Virtues of the market system:
Efficiency (lowest cost)
Incentives
Freedom of choice (what to buy, where to work, etc.)
◉ How does the simple circular flow model work?
Answer: Businesses buy resources from households at the resource
market.
Businesses sell products to households at the product market.
Households buy products from businesses at the product market.
Households sell resources to businesses at the resource market.
◉ What does the law of demand state?
Answer: Other things equal, as price falls, the quantity demanded
rises, and as price rises, the quantity demanded falls.
◉ What are the determinants / shifters of the demand curve?
Answer: Consumer tastes
, Number of buyers
Consumer incomes
Prices of related goods
Consumer expectations
◉ What are the determinants / shifters of the supply curve?
Answer: Resource prices
Producer expectations
Number of sellers
Technology
Prices of other goods
Taxes and subsidies
◉ What is happening when a market is in equilibrium?
Answer: The supply curve intersects the demand curve, and the
right amount of products are being produced and sold. Everyone is
happy.
◉ What is a nation's true gain from trade?
Answer: Nations, as well as individuals, can gain by specializing.
With trade, everyone ends up better off than before.
