ETS Business Major Exit Exam
Questions and Answers (Graded A)
What is scarcity and choice? - Correct Answers -- Human wants and needs are
unlimited and resources to satisfy them are limited
- Choices must be made between the possible alternatives
3 questions every economy must answer: - Correct Answers -1. What to produce?
2. How to produce it?
3. For whom it is produced?
3 questions every economy must answer: What to produce? - Correct Answers -Have to
evaluate more than just needs. Involves the wants and needs of individuals.
3 questions every economy must answer: How to produce it? - Correct Answers -Center
upon the methods and resources (land, labor, capital, enterprise) used in the production
process. Optimum way to achieve the desired output utilizing these methods and
resources.
3 questions every economy must answer: For whom it is produced for? - Correct
Answers -Issue of the distribution of the output resulting from the application of the
production methods and resources.
Market Imperfections/Market Failure occurs when ______. - Correct Answers -Market
equilibrium results in too many or too few resources being used in the production of a
good or service
- This can be caused by lack of competition, externalities, public goods
Market Imperfections: Lack of competition is bad because you ______. - Correct
Answers -Must have competition among both producers and consumers for markets to
function effectively
Market Imperfections: Externalities occurs when ______. - Correct Answers -A cost or
benefit is imposed on people other than the consumers and producers of a product
- Ex. pollution from manufacturing negatively affects the community rather than either
the buyer or seller
Market Imperfections: What are Public Goods? - Correct Answers -Goods that are
collectively consumed by everyone and there is no way to bar people who do not pay
from consumption
- Ex. National defense
,What is the Law of Demand? - Correct Answers -An inverse relationship between the
price of a good and that quantity buyers are willing to purchase in a defined time period
What is the primary determinant of the quality demanded? - Correct Answers -The price
of the good - changes in the price of a good result in movement of the equilibrium point
along the demand line
What are the changes in demand? - Correct Answers -Increase - (rightward shift) high
equilibrium price and quantity
Decrease - (leftward shift) lower equilibrium price and quantity
Law of Supply states that ______. - Correct Answers -More of a particular good will be
supplied as the price of that good rises, while less will be purchased as its price
declines
What are Non-Price Determinants? - Correct Answers -Any factor other than price that
will cause a demand or a supply curve to shift right or left
Examples of factors:
- Number of sellers in a market
-Increases in technology that make suppliers more efficient
- Prices of raw materials
- Taxes of subsidies which increase or decrease the price of a product
- Changes in the expectations of producers
- Prices of other good the firm could produce
What happens when there is an increase in supply? - Correct Answers -There is a
rightward shift, and it results in a lower equilibrium price and a higher equilibrium
quantity
What happens when there is a decrease in supply? - Correct Answers -There is a
leftward shift, and it results in a higher equilibrium price and a lower equilibrium quantity
When happens when there is an equal increase in supply and demand? - Correct
Answers -There is a rightward shift, and an increase in equilibrium quantity and no
change in equilibrium price
What happens when supply increases more than demand? - Correct Answers -There is
a rightward shift, and lower equilibrium price and greater equilibrium quantity
What happens when demand increases more than supply? - Correct Answers -There is
a rightward shift, and high price and greater equilibrium quantity
, What happens when there is an equal decrease in supply and demand? - Correct
Answers -There is a leftward shift, and a decrease in equilibrium quantity with no
change in equilibrium price
What happens when supply decreases more than demand? - Correct Answers -There is
a leftward shift, and higher equilibrium price and lower equilibrium quantity
What happens when demand decreases more than supply? - Correct Answers -There is
a leftward shift, and a lower price and a lower equilibrium quantity
Shortage (Supply and Demand) occurs when ______. - Correct Answers -A price is
established below the equilibrium price and demand exceeds supply
- Can be fixed when the price is free to move
- The increase in price will slowly reduce the quantity demanded and increase the
quantity supplied
- Neither the supply or demand curves will move
Surplus (Supply and Demand) occurs when ______. - Correct Answers -A price is
established above the equilibrium price and supply exceeds demand
- Can be fixed if the price is able to move
- The decrease in price will slowly increase the quantity demanded and decrease the
quantity supplied
- Neither supply or demand curves will move
What is a Price Ceiling (Supply and Demand)? - Correct Answers -A price set below the
equilibrium price and results in a shortage with quantity demanded exceeding quantity
supplied.
What is a Price Floor (Supply and Demand)? - Correct Answers -A price set above the
equilibrium price and results in a surplus with quantity supplied exceeding quantity
demanded.
Price Elasticity of Demand is the relationship between ______. - Correct Answers -The
changes in the price of a product and the resulting changes in demand of that product
Elastic demand occurs when ______. - Correct Answers -The percentage change in
quantity demanded is greater than the percentage change in price. Ex. commodity
products
Inelastic demand occurs when ______. - Correct Answers -The percentage change in
quantity demanded is less than the percentage change in price. Ex. health care
Income Elasticity of Demand is ______. - Correct Answers -The ratio of the percentage
change in the quantity demanded to a given percentage change in income
Questions and Answers (Graded A)
What is scarcity and choice? - Correct Answers -- Human wants and needs are
unlimited and resources to satisfy them are limited
- Choices must be made between the possible alternatives
3 questions every economy must answer: - Correct Answers -1. What to produce?
2. How to produce it?
3. For whom it is produced?
3 questions every economy must answer: What to produce? - Correct Answers -Have to
evaluate more than just needs. Involves the wants and needs of individuals.
3 questions every economy must answer: How to produce it? - Correct Answers -Center
upon the methods and resources (land, labor, capital, enterprise) used in the production
process. Optimum way to achieve the desired output utilizing these methods and
resources.
3 questions every economy must answer: For whom it is produced for? - Correct
Answers -Issue of the distribution of the output resulting from the application of the
production methods and resources.
Market Imperfections/Market Failure occurs when ______. - Correct Answers -Market
equilibrium results in too many or too few resources being used in the production of a
good or service
- This can be caused by lack of competition, externalities, public goods
Market Imperfections: Lack of competition is bad because you ______. - Correct
Answers -Must have competition among both producers and consumers for markets to
function effectively
Market Imperfections: Externalities occurs when ______. - Correct Answers -A cost or
benefit is imposed on people other than the consumers and producers of a product
- Ex. pollution from manufacturing negatively affects the community rather than either
the buyer or seller
Market Imperfections: What are Public Goods? - Correct Answers -Goods that are
collectively consumed by everyone and there is no way to bar people who do not pay
from consumption
- Ex. National defense
,What is the Law of Demand? - Correct Answers -An inverse relationship between the
price of a good and that quantity buyers are willing to purchase in a defined time period
What is the primary determinant of the quality demanded? - Correct Answers -The price
of the good - changes in the price of a good result in movement of the equilibrium point
along the demand line
What are the changes in demand? - Correct Answers -Increase - (rightward shift) high
equilibrium price and quantity
Decrease - (leftward shift) lower equilibrium price and quantity
Law of Supply states that ______. - Correct Answers -More of a particular good will be
supplied as the price of that good rises, while less will be purchased as its price
declines
What are Non-Price Determinants? - Correct Answers -Any factor other than price that
will cause a demand or a supply curve to shift right or left
Examples of factors:
- Number of sellers in a market
-Increases in technology that make suppliers more efficient
- Prices of raw materials
- Taxes of subsidies which increase or decrease the price of a product
- Changes in the expectations of producers
- Prices of other good the firm could produce
What happens when there is an increase in supply? - Correct Answers -There is a
rightward shift, and it results in a lower equilibrium price and a higher equilibrium
quantity
What happens when there is a decrease in supply? - Correct Answers -There is a
leftward shift, and it results in a higher equilibrium price and a lower equilibrium quantity
When happens when there is an equal increase in supply and demand? - Correct
Answers -There is a rightward shift, and an increase in equilibrium quantity and no
change in equilibrium price
What happens when supply increases more than demand? - Correct Answers -There is
a rightward shift, and lower equilibrium price and greater equilibrium quantity
What happens when demand increases more than supply? - Correct Answers -There is
a rightward shift, and high price and greater equilibrium quantity
, What happens when there is an equal decrease in supply and demand? - Correct
Answers -There is a leftward shift, and a decrease in equilibrium quantity with no
change in equilibrium price
What happens when supply decreases more than demand? - Correct Answers -There is
a leftward shift, and higher equilibrium price and lower equilibrium quantity
What happens when demand decreases more than supply? - Correct Answers -There is
a leftward shift, and a lower price and a lower equilibrium quantity
Shortage (Supply and Demand) occurs when ______. - Correct Answers -A price is
established below the equilibrium price and demand exceeds supply
- Can be fixed when the price is free to move
- The increase in price will slowly reduce the quantity demanded and increase the
quantity supplied
- Neither the supply or demand curves will move
Surplus (Supply and Demand) occurs when ______. - Correct Answers -A price is
established above the equilibrium price and supply exceeds demand
- Can be fixed if the price is able to move
- The decrease in price will slowly increase the quantity demanded and decrease the
quantity supplied
- Neither supply or demand curves will move
What is a Price Ceiling (Supply and Demand)? - Correct Answers -A price set below the
equilibrium price and results in a shortage with quantity demanded exceeding quantity
supplied.
What is a Price Floor (Supply and Demand)? - Correct Answers -A price set above the
equilibrium price and results in a surplus with quantity supplied exceeding quantity
demanded.
Price Elasticity of Demand is the relationship between ______. - Correct Answers -The
changes in the price of a product and the resulting changes in demand of that product
Elastic demand occurs when ______. - Correct Answers -The percentage change in
quantity demanded is greater than the percentage change in price. Ex. commodity
products
Inelastic demand occurs when ______. - Correct Answers -The percentage change in
quantity demanded is less than the percentage change in price. Ex. health care
Income Elasticity of Demand is ______. - Correct Answers -The ratio of the percentage
change in the quantity demanded to a given percentage change in income
