ECO 201 Test Questions with Correct Answers Latest Update 2025
Economics is best defined as the study of - Answers how society manages its scarce resources.
Your opportunity cost of going to a movie is - Answers the total cash expenditure needed to go to the
movie plus the value of your time.
A marginal change is one that - Answers incrementally alters an existing plan.
Adam Smith's phrase "invisible hand" refers to - Answers the ability of free markets to reach desirable
outcomes, despite the self-interest of market participants.
Governments may intervene in a market economy in order to - Answers -protect property rights.
-correct a market failure due to externalities.
-achieve a more equal distribution of income.
all above are correct
The company that you manage has invested $5 million in developing a new product, but the
development is not quite finished. At a recent meeting, your salespeople report that the introduction of
competing products has reduced the expected sales of your new product to $3 million. If it would cost
$1 million to finish development and make the product, you_______________ go ahead and do so. The
most you should pay to complete development is ___________ million. - Answers -should
-$3
The Social Security system provides income for people over age 65. If a recipient of Social Security
decides to work and earn some income, the amount he receives in Social Security benefits is typically
reduced.
The provision of Social Security gives people the incentive to save __________ while working. Moreover,
the reduction in benefits associated with higher earnings gives people the incentive to __________ past
age 65. - Answers - less
- not work
A 1996 bill reforming the federal government's antipoverty programs limited many welfare recipients to
only two years of benefits.
This change gives people the incentive to find a job _________ quickly than if welfare benefits lasted
forever.
, The loss of benefits after two years will result in the distribution of income becoming_________ equal.
In addition, the economy will be ________ efficient because of the change in working incentives. -
Answers - more
- less
- more
An economic model is - Answers a simplified representation of some aspect of the economy.
The circular-flow diagram illustrates that, in markets for the factors of production, - Answers households
are sellers, and firms are buyers.
A point inside the production possibilities frontier is - Answers feasible, but not efficient
An economy produces hot dogs and hamburgers. If a discovery of the remarkable health benefits of hot
dogs were to change consumers' preferences, it would - Answers move the economy along the
production possibilities frontier.
All of the following topics fall within the study of microeconomics EXCEPT - Answers the influence of the
government budget deficit on economic growth.
Which of the following is a positive, rather than a normative, statement? - Answers Law X will reduce
national income.
Selena pays a storekeeper $1 for a quart of milk.
Stuart earns $4.50 per hour working at a fast-food restaurant.
Shanna spends $30 to get a haircut.
Salma earns $10,000 from her 10% ownership of Acme Industrial. - Answers - Flow of goods and
services= Firm to household Flow of dollars= Household to firm
- Flow of goods and services=Household to firm Flow of dollars= Firm to household
-Flow of goods and services=Firm to household Flow of dollars= Household to firm
-Flow of goods and services=Household to firm Flow of dollars= Firm to household
Imagine a society that produces military goods and consumer goods, which we'll call "guns" and
"butter," respectively. The following graph shows the production possibilities frontier for guns and
Economics is best defined as the study of - Answers how society manages its scarce resources.
Your opportunity cost of going to a movie is - Answers the total cash expenditure needed to go to the
movie plus the value of your time.
A marginal change is one that - Answers incrementally alters an existing plan.
Adam Smith's phrase "invisible hand" refers to - Answers the ability of free markets to reach desirable
outcomes, despite the self-interest of market participants.
Governments may intervene in a market economy in order to - Answers -protect property rights.
-correct a market failure due to externalities.
-achieve a more equal distribution of income.
all above are correct
The company that you manage has invested $5 million in developing a new product, but the
development is not quite finished. At a recent meeting, your salespeople report that the introduction of
competing products has reduced the expected sales of your new product to $3 million. If it would cost
$1 million to finish development and make the product, you_______________ go ahead and do so. The
most you should pay to complete development is ___________ million. - Answers -should
-$3
The Social Security system provides income for people over age 65. If a recipient of Social Security
decides to work and earn some income, the amount he receives in Social Security benefits is typically
reduced.
The provision of Social Security gives people the incentive to save __________ while working. Moreover,
the reduction in benefits associated with higher earnings gives people the incentive to __________ past
age 65. - Answers - less
- not work
A 1996 bill reforming the federal government's antipoverty programs limited many welfare recipients to
only two years of benefits.
This change gives people the incentive to find a job _________ quickly than if welfare benefits lasted
forever.
, The loss of benefits after two years will result in the distribution of income becoming_________ equal.
In addition, the economy will be ________ efficient because of the change in working incentives. -
Answers - more
- less
- more
An economic model is - Answers a simplified representation of some aspect of the economy.
The circular-flow diagram illustrates that, in markets for the factors of production, - Answers households
are sellers, and firms are buyers.
A point inside the production possibilities frontier is - Answers feasible, but not efficient
An economy produces hot dogs and hamburgers. If a discovery of the remarkable health benefits of hot
dogs were to change consumers' preferences, it would - Answers move the economy along the
production possibilities frontier.
All of the following topics fall within the study of microeconomics EXCEPT - Answers the influence of the
government budget deficit on economic growth.
Which of the following is a positive, rather than a normative, statement? - Answers Law X will reduce
national income.
Selena pays a storekeeper $1 for a quart of milk.
Stuart earns $4.50 per hour working at a fast-food restaurant.
Shanna spends $30 to get a haircut.
Salma earns $10,000 from her 10% ownership of Acme Industrial. - Answers - Flow of goods and
services= Firm to household Flow of dollars= Household to firm
- Flow of goods and services=Household to firm Flow of dollars= Firm to household
-Flow of goods and services=Firm to household Flow of dollars= Household to firm
-Flow of goods and services=Household to firm Flow of dollars= Firm to household
Imagine a society that produces military goods and consumer goods, which we'll call "guns" and
"butter," respectively. The following graph shows the production possibilities frontier for guns and
