[PSU - ECON 102 FINAL EXAM] – QUESTIONS AND
ANSWERS | VERIFIED AND WELL DETAILED
ANSWERS | PLUS RATIONALES | GUARANTEED
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EXAM PREP | STUDY GUIDE | PRACTICE TEST
1. What does the law of demand state?
A. Price and quantity demanded move in the same direction
B. Price and quantity demanded move in opposite directions
C. Demand is independent of price
D. Supply determines demand
Correct Answer: A. Price and quantity demanded move in the same direction
Rationale: This option is incorrect because the law of demand states that price and quantity
demanded move in opposite directions, not the same direction.
2. Which factor shifts the demand curve?
A. Change in consumer income
B. Change in price of the good
C. Change in production technology
D. Change in input costs
Correct Answer: B. Change in price of the good
Rationale: A change in price causes movement along the demand curve, not a shift; other
factors shift demand.
3. What is a characteristic of a perfectly competitive market?
A. Many buyers and few sellers
B. Single seller controls the market
,C. Many buyers and many sellers
D. High barriers to entry
Correct Answer: C. Many buyers and many sellers
Rationale: Perfect competition requires many buyers and sellers with no individual market
control.
4. GDP measures:
A. Total government spending only
B. Total value of final goods and services produced
C. Total imports and exports
D. Household income only
Correct Answer: D. Household income only
Rationale: This is incorrect because GDP measures total final goods and services, not only
household income.
5. Inflation refers to:
A. Decrease in price level
B. Increase in unemployment
C. General rise in price level
D. Decline in GDP
Correct Answer: A. Decrease in price level
Rationale: Inflation is defined as a sustained increase in the general price level, not a decrease.
6. The opportunity cost is:
A. Monetary cost only
B. Benefit of the next best alternative
C. Total production cost
D. Fixed cost of production
Correct Answer: B. Benefit of the next best alternative
Rationale: Opportunity cost represents the value of the next best alternative forgone.
7. A monopoly is characterized by:
,A. Many firms producing identical goods
B. One firm controlling the market
C. No barriers to entry
D. Perfect information
Correct Answer: C. No barriers to entry
Rationale: Monopolies typically have high barriers to entry, not no barriers.
8. Which policy tool is used by the Federal Reserve?
A. Taxation
B. Monetary policy
C. Trade restrictions
D. Wage controls
Correct Answer: D. Wage controls
Rationale: The Federal Reserve primarily uses monetary policy tools like interest rates and
money supply control.
9. Elastic demand means:
A. Quantity demanded changes little with price
B. Quantity demanded changes greatly with price
C. Demand is perfectly inelastic
D. Price does not affect demand
Correct Answer: A. Quantity demanded changes little with price
Rationale: Elastic demand means quantity demanded is highly responsive to price changes.
10. The production possibility frontier shows:
A. Government budget limits
B. Maximum possible output combinations
C. Inflation rates
D. Employment levels only
Correct Answer: B. Maximum possible output combinations
Rationale: It illustrates efficient production combinations of two goods given resources.
11. Unemployment caused by changing industries is called:
, A. Cyclical unemployment
B. Structural unemployment
C. Seasonal unemployment
D. Frictional unemployment
Correct Answer: C. Seasonal unemployment
Rationale: Structural unemployment results from changes in industry composition or skills
mismatch.
12. Fiscal policy involves:
A. Central bank actions
B. Government taxation and spending
C. Private investment decisions
D. Foreign trade rules
Correct Answer: D. Foreign trade rules
Rationale: Fiscal policy refers to government spending and taxation, not trade rules.
13. A price ceiling is:
A. Minimum legal price
B. Maximum legal price
C. Market equilibrium price
D. Export price limit
Correct Answer: A. Minimum legal price
Rationale: A price ceiling is a maximum legal price set below equilibrium.
14. Which increases aggregate demand?
A. Higher taxes
B. Lower government spending
C. Increased consumer confidence
D. Reduced exports
Correct Answer: B. Lower government spending
Rationale: Increased consumer confidence shifts aggregate demand rightward.
15. A budget surplus occurs when:
ANSWERS | VERIFIED AND WELL DETAILED
ANSWERS | PLUS RATIONALES | GUARANTEED
PASS | LATEST EXAM UPDATE | STUVIA VERIFIED |
EXAM PREP | STUDY GUIDE | PRACTICE TEST
1. What does the law of demand state?
A. Price and quantity demanded move in the same direction
B. Price and quantity demanded move in opposite directions
C. Demand is independent of price
D. Supply determines demand
Correct Answer: A. Price and quantity demanded move in the same direction
Rationale: This option is incorrect because the law of demand states that price and quantity
demanded move in opposite directions, not the same direction.
2. Which factor shifts the demand curve?
A. Change in consumer income
B. Change in price of the good
C. Change in production technology
D. Change in input costs
Correct Answer: B. Change in price of the good
Rationale: A change in price causes movement along the demand curve, not a shift; other
factors shift demand.
3. What is a characteristic of a perfectly competitive market?
A. Many buyers and few sellers
B. Single seller controls the market
,C. Many buyers and many sellers
D. High barriers to entry
Correct Answer: C. Many buyers and many sellers
Rationale: Perfect competition requires many buyers and sellers with no individual market
control.
4. GDP measures:
A. Total government spending only
B. Total value of final goods and services produced
C. Total imports and exports
D. Household income only
Correct Answer: D. Household income only
Rationale: This is incorrect because GDP measures total final goods and services, not only
household income.
5. Inflation refers to:
A. Decrease in price level
B. Increase in unemployment
C. General rise in price level
D. Decline in GDP
Correct Answer: A. Decrease in price level
Rationale: Inflation is defined as a sustained increase in the general price level, not a decrease.
6. The opportunity cost is:
A. Monetary cost only
B. Benefit of the next best alternative
C. Total production cost
D. Fixed cost of production
Correct Answer: B. Benefit of the next best alternative
Rationale: Opportunity cost represents the value of the next best alternative forgone.
7. A monopoly is characterized by:
,A. Many firms producing identical goods
B. One firm controlling the market
C. No barriers to entry
D. Perfect information
Correct Answer: C. No barriers to entry
Rationale: Monopolies typically have high barriers to entry, not no barriers.
8. Which policy tool is used by the Federal Reserve?
A. Taxation
B. Monetary policy
C. Trade restrictions
D. Wage controls
Correct Answer: D. Wage controls
Rationale: The Federal Reserve primarily uses monetary policy tools like interest rates and
money supply control.
9. Elastic demand means:
A. Quantity demanded changes little with price
B. Quantity demanded changes greatly with price
C. Demand is perfectly inelastic
D. Price does not affect demand
Correct Answer: A. Quantity demanded changes little with price
Rationale: Elastic demand means quantity demanded is highly responsive to price changes.
10. The production possibility frontier shows:
A. Government budget limits
B. Maximum possible output combinations
C. Inflation rates
D. Employment levels only
Correct Answer: B. Maximum possible output combinations
Rationale: It illustrates efficient production combinations of two goods given resources.
11. Unemployment caused by changing industries is called:
, A. Cyclical unemployment
B. Structural unemployment
C. Seasonal unemployment
D. Frictional unemployment
Correct Answer: C. Seasonal unemployment
Rationale: Structural unemployment results from changes in industry composition or skills
mismatch.
12. Fiscal policy involves:
A. Central bank actions
B. Government taxation and spending
C. Private investment decisions
D. Foreign trade rules
Correct Answer: D. Foreign trade rules
Rationale: Fiscal policy refers to government spending and taxation, not trade rules.
13. A price ceiling is:
A. Minimum legal price
B. Maximum legal price
C. Market equilibrium price
D. Export price limit
Correct Answer: A. Minimum legal price
Rationale: A price ceiling is a maximum legal price set below equilibrium.
14. Which increases aggregate demand?
A. Higher taxes
B. Lower government spending
C. Increased consumer confidence
D. Reduced exports
Correct Answer: B. Lower government spending
Rationale: Increased consumer confidence shifts aggregate demand rightward.
15. A budget surplus occurs when:
