Modern Principles of Economics Test Questions with Correct Answers Latest Update 2025-2026
Incentives - Answers Rewards and penalties that motivate behavior.
Scarcity - Answers When there isn't enough to satisfy all of our wants.
The Great Economic Problem - Answers How to arrange our scarce resources to satisfy as many of our
wants as possible.
Opportunity Cost - Answers The value of the opportunities lost.
Economies of Scale - Answers The reduction in costs created when goods are mass-produced.
Preferences - Answers The subjective value people place on a good.
Absolute Advantage - Answers The ability to produce the same good using fewer inputs than another
producer.
Production Possibilities Frontier - Answers Shows all of the combinations of goods that country can
produce given its productivity and supply of inputs.
Comparative Advantage - Answers Whatever country has a lower opportunity cost to produce a good.
Autarky - Answers Self-sufficiency in producing a good.
Productivity - Answers The quantity of output produced by the quantity of input.
Demand Curve - Answers A function that shows the quantity demanded at different prices.
Quantity Demanded - Answers The quantity that buyers are willing and able to buy at a particular price.
Consumer Surplus - Answers The consumer's gain from exchange.
Total Consumer Surplus - Answers The area beneath the demand curve and above the price.
Normal Good - Answers A good for which demand increases when income increases.
Inferior Good - Answers A good for which demand decreases when income increases.
Substitutes - Answers When the decrease in the price of one good leads to a decrease in demand for the
other good.
Complements - Answers When the decrease in the price for one good leads to an increase in demand for
the other good.
Supply Curve - Answers A function that shows the quantity supplied at different prices.
Quantity Supplied - Answers The amount of a good that sellers are willing and able to sell at a particular
price.
, Producer Surplus - Answers The producer's gain from exchange.
Total Producer Surplus - Answers The area above the supply curve and below the price.
Big Idea #1 - Answers Incentives matter.
Big Idea #2 - Answers Good institutions align self-interest with social interest.
Big Idea #3 - Answers Trade-offs are everywhere.
Big Idea #4 - Answers Thinking on the margin.
Big Idea #5 - Answers The Power of Trade
Benefit of Trade #1 - Answers Trade makes people better off when preferences differ.
Benefit of Trade #2 - Answers Trade increases productivity through specialization and the division of
knowledge.
Benefit of Trade #3 - Answers Trade increases productivity through comparative advantage.
The Law of Demand - Answers As the price increases for a good, the quantity demanded by consumers
decreases.
What Factors Shift the Demand Curve? - Answers SEPTIC: Substitute's price changes, Expectations of
future price, Population/demographics, Tastes, Income, Complement's price changes.
The Law of Supply - Answers As the price increases for a good, the quantity supplied by producers
increases.
What Factors Shift the Supply Curve? - Answers EATS IN: Expectations of future price, Alternative
product's prices, Technology/innovation, Subsidies and taxes, Input price, Number of firms.
Big Idea #6 - Answers The importance of wealth and economic growth
Big Idea #7 - Answers Institutions matter
Big Idea #8 - Answers Economic booms and busts cannot be avoided but can be moderated.
Big Idea #9 - Answers Inflation is caused by increases in the supply of money.
Big Idea #10 - Answers Central banking is a hard job.
Inflation - Answers An increase in the general level of prices.
Globalization - Answers The advance of human cooperation across its national boundaries.
What is the basis of trade? - Answers Comparative advantage
Incentives - Answers Rewards and penalties that motivate behavior.
Scarcity - Answers When there isn't enough to satisfy all of our wants.
The Great Economic Problem - Answers How to arrange our scarce resources to satisfy as many of our
wants as possible.
Opportunity Cost - Answers The value of the opportunities lost.
Economies of Scale - Answers The reduction in costs created when goods are mass-produced.
Preferences - Answers The subjective value people place on a good.
Absolute Advantage - Answers The ability to produce the same good using fewer inputs than another
producer.
Production Possibilities Frontier - Answers Shows all of the combinations of goods that country can
produce given its productivity and supply of inputs.
Comparative Advantage - Answers Whatever country has a lower opportunity cost to produce a good.
Autarky - Answers Self-sufficiency in producing a good.
Productivity - Answers The quantity of output produced by the quantity of input.
Demand Curve - Answers A function that shows the quantity demanded at different prices.
Quantity Demanded - Answers The quantity that buyers are willing and able to buy at a particular price.
Consumer Surplus - Answers The consumer's gain from exchange.
Total Consumer Surplus - Answers The area beneath the demand curve and above the price.
Normal Good - Answers A good for which demand increases when income increases.
Inferior Good - Answers A good for which demand decreases when income increases.
Substitutes - Answers When the decrease in the price of one good leads to a decrease in demand for the
other good.
Complements - Answers When the decrease in the price for one good leads to an increase in demand for
the other good.
Supply Curve - Answers A function that shows the quantity supplied at different prices.
Quantity Supplied - Answers The amount of a good that sellers are willing and able to sell at a particular
price.
, Producer Surplus - Answers The producer's gain from exchange.
Total Producer Surplus - Answers The area above the supply curve and below the price.
Big Idea #1 - Answers Incentives matter.
Big Idea #2 - Answers Good institutions align self-interest with social interest.
Big Idea #3 - Answers Trade-offs are everywhere.
Big Idea #4 - Answers Thinking on the margin.
Big Idea #5 - Answers The Power of Trade
Benefit of Trade #1 - Answers Trade makes people better off when preferences differ.
Benefit of Trade #2 - Answers Trade increases productivity through specialization and the division of
knowledge.
Benefit of Trade #3 - Answers Trade increases productivity through comparative advantage.
The Law of Demand - Answers As the price increases for a good, the quantity demanded by consumers
decreases.
What Factors Shift the Demand Curve? - Answers SEPTIC: Substitute's price changes, Expectations of
future price, Population/demographics, Tastes, Income, Complement's price changes.
The Law of Supply - Answers As the price increases for a good, the quantity supplied by producers
increases.
What Factors Shift the Supply Curve? - Answers EATS IN: Expectations of future price, Alternative
product's prices, Technology/innovation, Subsidies and taxes, Input price, Number of firms.
Big Idea #6 - Answers The importance of wealth and economic growth
Big Idea #7 - Answers Institutions matter
Big Idea #8 - Answers Economic booms and busts cannot be avoided but can be moderated.
Big Idea #9 - Answers Inflation is caused by increases in the supply of money.
Big Idea #10 - Answers Central banking is a hard job.
Inflation - Answers An increase in the general level of prices.
Globalization - Answers The advance of human cooperation across its national boundaries.
What is the basis of trade? - Answers Comparative advantage
