PRINCIPLES OF ECONOMICS (D089) EXAM
QUESTIONS WITH CORRECT ANSWERS
LATEST UPDATE
Principles of Economics #1 --ANSWER--Everyone faces trade-offs
Principles of Economics #2 --ANSWER--The cost of something is determined
by what you give up to get it
Principles of Economics #3 --ANSWER--Rational people think at the margin
Principles of Economics #4 --ANSWER--People respond to incentives
Principles of Economics #5 --ANSWER--Trade can benefit everyone
Principles of Economics #6 --ANSWER--Markets are a sound method of
organizing economic activity
Principles of Economics #7 --ANSWER--Governments may be able to improve
market outcomes
Page 1 of 76
,Principles of Economics #8 --ANSWER--A nation's standard of living depends
on it's ability to produce.
Principles of Economics #9 --ANSWER--Printing too much money causes
prices to rise
Principles of Economics #10 --ANSWER--There is a short-run trade-off
between inflation and unemployment
Macroeconomics --ANSWER--A branch of economics dealing with the
performance, structure, behavior, and decision-making of an economy as a
whole
Microeconomics --ANSWER--A branch of economics that studies the behavior
of individuals and firms in making decisions regarding the allocation of scarce
resources and the interactions among these individuals and firms
Scarcity --ANSWER--The basic economic problem; the gap between limited,
scarce , resources and theoretically limitless wants
Opportunity cost --ANSWER--The next best alternative that is given up when a
choice is made
Page 2 of 76
,Think at the margin --ANSWER--Thinking about what the next step or an
additional action means for a person
Marginal benefit --ANSWER--The incremental increase in the benefit to a
consumer caused by the consumption of one additional unit of a good or service
Economic systems --ANSWER--A system of the production, resource
allocation, and distribution of goods and services within a society or a given
geographic area
Traditional Economy --ANSWER--An economic system that relies on customs,
history, and time-honored beliefs. Tradition guides economic decisions such as
production and distribution
Command Economy --ANSWER--An economic system in which production,
investment, prices, and incomes are determined centrally by a government
Market Economy --ANSWER--An economic system in which the decisions
regarding investments, production, and distribution are guided by the price
signals created by the forces of supply and demand
Page 3 of 76
, Mixed Economy --ANSWER--An economic system in which both private
enterprise and a degree of state monopoly (Usually in public services, defense,
infrastructure, and basic industries) co-exist
Five key characteristics of a Traditional Economy --ANSWER--1. It is centered
around families or tribes.
2. It exists in a hunter-gatherer and nomadic society.
3. Trade is heavily dependent on bartering rather than money.
4. It only produces what is needed, and a surplus is very rare.
5. It eventually changes from purely trade to the use of some type of currency.
Advantages to a Traditional Economy --ANSWER--There is little competition
or friction among members of the society.
People's roles and contributions are well understood.
It can be more sustainable than a technology-based economy.
Disadvantages to a Traditional Economy --ANSWER--It is exposed to
environmental changes and weather patterns.
It is vulnerable to market of command economies, which consume and deplete
the resources or traditional economies.
Five key characteristics of a Command Economy --ANSWER--1. All economic
activity is planned and controlled by a centralized government power.
Page 4 of 76
QUESTIONS WITH CORRECT ANSWERS
LATEST UPDATE
Principles of Economics #1 --ANSWER--Everyone faces trade-offs
Principles of Economics #2 --ANSWER--The cost of something is determined
by what you give up to get it
Principles of Economics #3 --ANSWER--Rational people think at the margin
Principles of Economics #4 --ANSWER--People respond to incentives
Principles of Economics #5 --ANSWER--Trade can benefit everyone
Principles of Economics #6 --ANSWER--Markets are a sound method of
organizing economic activity
Principles of Economics #7 --ANSWER--Governments may be able to improve
market outcomes
Page 1 of 76
,Principles of Economics #8 --ANSWER--A nation's standard of living depends
on it's ability to produce.
Principles of Economics #9 --ANSWER--Printing too much money causes
prices to rise
Principles of Economics #10 --ANSWER--There is a short-run trade-off
between inflation and unemployment
Macroeconomics --ANSWER--A branch of economics dealing with the
performance, structure, behavior, and decision-making of an economy as a
whole
Microeconomics --ANSWER--A branch of economics that studies the behavior
of individuals and firms in making decisions regarding the allocation of scarce
resources and the interactions among these individuals and firms
Scarcity --ANSWER--The basic economic problem; the gap between limited,
scarce , resources and theoretically limitless wants
Opportunity cost --ANSWER--The next best alternative that is given up when a
choice is made
Page 2 of 76
,Think at the margin --ANSWER--Thinking about what the next step or an
additional action means for a person
Marginal benefit --ANSWER--The incremental increase in the benefit to a
consumer caused by the consumption of one additional unit of a good or service
Economic systems --ANSWER--A system of the production, resource
allocation, and distribution of goods and services within a society or a given
geographic area
Traditional Economy --ANSWER--An economic system that relies on customs,
history, and time-honored beliefs. Tradition guides economic decisions such as
production and distribution
Command Economy --ANSWER--An economic system in which production,
investment, prices, and incomes are determined centrally by a government
Market Economy --ANSWER--An economic system in which the decisions
regarding investments, production, and distribution are guided by the price
signals created by the forces of supply and demand
Page 3 of 76
, Mixed Economy --ANSWER--An economic system in which both private
enterprise and a degree of state monopoly (Usually in public services, defense,
infrastructure, and basic industries) co-exist
Five key characteristics of a Traditional Economy --ANSWER--1. It is centered
around families or tribes.
2. It exists in a hunter-gatherer and nomadic society.
3. Trade is heavily dependent on bartering rather than money.
4. It only produces what is needed, and a surplus is very rare.
5. It eventually changes from purely trade to the use of some type of currency.
Advantages to a Traditional Economy --ANSWER--There is little competition
or friction among members of the society.
People's roles and contributions are well understood.
It can be more sustainable than a technology-based economy.
Disadvantages to a Traditional Economy --ANSWER--It is exposed to
environmental changes and weather patterns.
It is vulnerable to market of command economies, which consume and deplete
the resources or traditional economies.
Five key characteristics of a Command Economy --ANSWER--1. All economic
activity is planned and controlled by a centralized government power.
Page 4 of 76
