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Government Final May 2010-4

Multiple Choice
Identify the letter of the choice that best completes the statement or answers the question.
 

1. 
The minimum wage is an example of a federal law that supports
a.
economic equity.
c.
economic efficiency.
b.
economic growth.
d.
full employment.
 

2. 
The theory of production deals with the relationship between the factors of production and
a.
the output of goods and services.
c.
the cost of marginal returns.
b.
the cost of raw materials.
d.
fixed costs.
 

3. 
A popular model used to illustrate the concept of opportunity cost is
a.
entrepreneurship.
c.
the factors of production.
b.
the paradox of value.
d.
the production possibilities frontier.
 

4. 
Total cost is the sum of the
a.
all variable costs.
c.
fixed and variable costs.
b.
fixed and marginal costs.
d.
fixed costs and overhead.
 

5. 
The money used to buy the tools and equipment needed for production is known as
a.
wealth.
c.
the factors of production.
b.
financial capital.
d.
capital goods.
 

6. 
The authority to levy a federal income tax comes from
a.
an act of Congress.
c.
the Bill of Rights.
b.
the Fifth Amendment.
d.
the Sixteenth Amendment.
 

7. 
The situation in which some necessities have little value while some non-necessities have a much higher value is known as
a.
paradox of value.
c.
economic interdependence.
b.
trade-offs.
d.
opportunity cost.
 

8. 
The dollar value of all final goods and services and the most comprehensive measure of a country's total production output is
a.
its standard of living.
c.
financial capital.
b.
a cost-benefit analysis.
d.
Gross Domestic Product (GDP).
 

9. 
An increase in the price of milk causes a decrease in the demand for cereal. The two products are
a.
unrelated.
c.
demand elastic.
b.
complements.
d.
substitutes.
 

10. 
The federal minimum wage law demonstrates
a.
a societal choice for economic equity over efficiency.
b.
market equilibrium.
c.
the function of equilibrium price in a competitive market.
d.
government intervention to ensure the equilibrium price.
 

11. 
Actions in one part of the country or world that have an economic impact on what happens elsewhere are examples of
a.
economic interdependence.
c.
trade-offs.
b.
opportunity costs.
d.
specialization.
 

12. 
When a customer's need for a product is not urgent, demand tends to be
a.
elastic.
c.
complementary.
b.
inelastic.
d.
unit elastic.
 

13. 
In a market economy, a high price is a signal for
a.
producers to supply less and consumers to buy less.
b.
producers to supply more and consumers to buy less.
c.
producers to supply less and consumers to buy more.
d.
government to intervene to protect consumers.
 

14. 
Which of the following is NOT considered an economic and social goal?
a.
entrepreneurship
c.
economic growth
b.
economic efficiency
d.
price stability
 

15. 
Rent payments and property taxes would be counted as
a.
marginal costs.
c.
total cost.
b.
variable costs.
d.
fixed costs.
 

16. 
At a given price, a surplus occurs when
a.
the quantity demanded is more than the quantity supplied.
b.
the quantity supplied is greater than the quantity demanded.
c.
the quantity supplied is less than the quantity demanded.
d.
the quantity demanded is the same as the quantity supplied.
 

17. 
The flat tax
a.
shifts the burden of taxes to businesses.
b.
would complicate tax filing for most individuals.
c.
is strictly proportional even when some income is exempted.
d.
departs from ability-to-pay principle of taxation.
 

18. 
For most products and services, increased price results in
a.
demand for fewer products.
c.
reduced demand for substitutes.
b.
increased demand for complements.
d.
demand for more products.
 

19. 
Consumers' willingness to replace a costly item with a less costly item is an example of
a.
complements.
c.
the income effect.
b.
demand elasticity.
d.
the substitution effect.
 

20. 
When employees are getting in each other's way, the firm is operating
a.
in Stage II of production.
c.
as much as it possibly can.
b.
in Stage III of production.
d.
in Stage I of production.
 

21. 
An increase in the price of cameras results in a decrease in the demand for film. The two products are
a.
unrelated.
c.
demand elastic.
b.
substitutes.
d.
complements.
 

22. 
A demand schedule shows
a.
a listing of the various quantities demanded of a particular product at all prices that might prevail in the market.
b.
the fluctuations in demand that occurred over a specified period of time.
c.
an upward-sloping curve that illustrates the positive relationship between price and quantity demanded.
d.
the fluctuations in demand scheduled to occur over the following year.
 

23. 
Because a modest price increase has little or no effect, the demand for the product is
a.
unit elastic.
c.
elastic.
b.
inelastic.
d.
complementary.
 

24. 
Manufactured goods needed to produce other goods and services are called
a.
capital goods.
c.
nondurable goods.
b.
consumer goods.
d.
Gross Domestic Product (GDP).
 

25. 
Division of labor is a characteristic of
a.
entrepreneurship.
c.
home craft businesses.
b.
classroom education.
d.
assembly line production.
 

26. 
All of the following are characteristics of a command economy EXCEPT
a.
it can change direction drastically in a brief period of time.
b.
it is not designed to meet the wants of consumers.
c.
it provides workers with few incentives to work hard.
d.
public services are available at little or no cost.
 

27. 
The study of economics is important because it enables us to
a.
determine what goods ought to be produced.
b.
describe our standard of living.
c.
become better decision makers.
d.
increase our consumption of consumer goods.
 

28. 
The flat tax
a.
would increase the need for individuals to hire tax accountants.
b.
includes incentives that promote positive economic behavior.
c.
allows too many loopholes.
d.
simplifies the tax process.
 

29. 
A market economy
a.
permits extensive government intervention.
b.
offers a high degree of certainty for its workers.
c.
does not provide for everyone's basic needs.
d.
limits the choices of goods and services available.
 

30. 
A business doubled the price of a product in order to increase profits. Which of the following scenarios might have occurred?
a.
A small increase in revenues demonstrated the unit elasticity of the product.
b.
A dramatic decline in revenues demonstrated the elasticity of the product.
c.
A dramatic decline in revenues demonstrated the inelasticity of the product.
d.
A sharp increase in revenues demonstrated the elasticity of the product.
 

31. 
FICA includes taxes to pay for
a.
unemployment and medicare.
c.
medicare and worker's compensation.
b.
Social Security and unemployment.
d.
Social Security and medicare.
 

32. 
An economy at its production possibilities frontier is operating
a.
with slow economic growth.
c.
without division of labor.
b.
as a free enterprise economy.
d.
at full potential.
 

33. 
To render a guilty verdict in criminal cases, it is necessary to have
a.
unanimous consent of the jury
c.
two-thirds majority of the jury
b.
a majority vote of the jury
d.
formal consent from the judge
 

34. 
A municipal corporations
a.
a state-funded organization designed to provide for larger city or town governments
c.
a Governor-approved self-governing city or town with more than 3500 people
b.
a Governor-approved self-governing city or town of any size
d.
a town with 1000 people or less
 

35. 
An initiative refers to when
a.
the Legislature creates a new law
c.
the people repeal a law
b.
the people proposes a new law
d.
the Legislature repeals a law
 

36. 
The separation of powers is described in Article ...
a.
1
c.
3
b.
2
d.
25
 

37. 
The United States can best be described as having a
a.
modified private enterprise system.
c.
command economy.
b.
traditional system.
d.
pure free enterprise system.
 

38. 
In a general partnership,
a.
the business continues even if one partner dies.
b.
partners must pay specific business taxes.
c.
partners usually draw up legal papers called articles of partnership.
d.
partners are only liable for the business's debt up to the amount of their investment.
 

39. 
Which of the following is NOT a reason why prices effectively perform the allocation function?
a.
Competitive markets find their own prices without interference.
b.
Prices favor neither the producer nor the consumer.
c.
Prices remain surprisingly stable despite unexpected events.
d.
Prices are easily understood.
 

40. 
Prices enable a market economy to adjust to unexpected events by
a.
maintaining consumption and production at stable levels.
b.
government rationing.
c.
ensuring that producers always earn a profit.
d.
adjusting consumption and production.
 

41. 
Unlike a general partnership, in a limited partnership
a.
all partners share equal financial responsibility for the firm's decisions.
b.
the inactive partner has limited liability for the business's debts.
c.
the partners must pay special business taxes.
d.
the business does not end with the death of a partner.
 

Matching
 
 
Match each statement with the correct item below.
a.
act of buyers and sellers freely and willingly engaging in market transactions
b.
driving force that encourages people and organizations to improve their material well-being
c.
organized way in which a society provides for the wants and needs of its people
d.
extent to which individuals or organizations are better off at the end of an economic exchange than before the exchange
e.
economic system in which people carry on their economic affairs freely but are subject to some government intervention
f.
privilege that entitles people to own their possessions
g.
market economy in which private citizens own the factors of production
h.
federal program of disability and retirement benefits that covers most working people
i.
economy in which a central authority makes most of the WHAT, HOW, and FOR WHOM decisions
j.
income that does not increase even if prices go up
 

42. 
capitalism
 

43. 
command economy
 

44. 
voluntary exchange
 

45. 
economic system
 

46. 
profit motive
 

47. 
mixed economy
 

48. 
Social Security
 

49. 
profit
 

50. 
private property rights
 
 
Match each statement with the correct item below.
a.
illustrates the demand of everyone interested in purchasing a product
b.
quantity demanded of a product varies inversely with its price
c.
study of the economic behavior of individuals and firms
d.
extent to which a change in price causes a change in demand
e.
decline in extra satisfaction from using additional quantities of a product
f.
change in quantity demanded because a price change altered consumer's real income
g.
products where the use of one product increases the use of another
h.
willingness to buy more or less of a product at the same price
i.
graph showing the quantity demanded at every price
j.
describes a given change in price that causes a relatively smaller change in quantity demanded
 

51. 
Law of Demand
 

52. 
complements
 

53. 
microeconomics
 

54. 
demand curve
 

55. 
inelastic
 
 
Match each statement with the correct item below.
a.
measure of responsiveness that shows how a dependent variable responds to a change in an independent variable
b.
field of economics that deals with behavior and decision making by small units
c.
describes change in demand when a change in price causes a relatively larger change in quantity demanded
d.
extra usefulness gained from using one more unit of a product
e.
movement along the demand curve
f.
desire, ability, and willingness to buy a product
g.
products used in place of other products
h.
change in quantity demanded due to a change in relative price
i.
listing that shows quantities demanded of a product at all prices
j.
given change in price that causes a proportional change in quantity demanded
 

56. 
substitution effect
 

57. 
microeconomics
 

58. 
substitutes
 

59. 
marginal utility
 

60. 
demand
 

61. 
elasticity
 

62. 
elastic
 
 
Match each statement with the correct item below.
a.
person who assigns value to property for tax purposes
b.
tax that imposes a higher percentage of taxation on lower incomes than on higher incomes
c.
annual report to the IRS summarizing income, deductions, and taxes withheld by employers
d.
tax levied on property left to an heir when a person dies
e.
exceptions in the tax law that allow some people to avoid paying taxes
f.
additional tax above and beyond the base rate
g.
federal health care program for senior citizens
h.
proportional tax on individual income after an income threshold has been reached
i.
tax paid by corporations on their income
j.
tax in which everyone pays the same percentage regardless of income
 

63. 
regressive tax
 

64. 
flat tax
 

65. 
tax loophole
 
 
Match each statement with the correct item below.
a.
diagram representing various combinations of goods and/or services that an economy can produce when all productive resources are fully employed
b.
any good that lasts three years or more when used regularly
c.
process of using up goods and services to satisfy wants and needs
d.
process of creating goods and services
e.
market where productive resources are bought and sold
f.
economy in which consumers and privately owned businesses make the majority of the WHAT, HOW, and FOR WHOM decisions
g.
basic requirement for survival
h.
manufactured goods that are used to produce other goods
i.
way of expressing a need that leads to a preference for some goods over others
j.
work that is performed for someone
 

66. 
want
 

67. 
production possibilities frontier
 

68. 
free enterprise economy
 

69. 
need
 

70. 
capital good
 

71. 
factor market
 

72. 
production
 

73. 
service
 
 
Match each statement with the correct item below.
a.
amount of a product that producers bring to market at any given price
b.
total product a firm must sell to cover its total costs
c.
government payment to encourage or protect an economic activity
d.
period of production that's long enough for adjustments in all resources
e.
amount of a product that would be offered for sale at all possible prices
f.
unprocessed natural products used in production
g.
cost a business incurs even if nothing is produced
h.
graph showing the various quantities supplied at each and every price
i.
number of units sold multiplied by the average price per unit
j.
cost that changes when the rate of operation or output changes
 

74. 
supply
 

75. 
fixed cost
 

76. 
variable cost
 

77. 
total revenue
 
 
Match each statement with the correct item below.
a.
quantity demanded is greater than quantity supplied
b.
prices are relatively stable, and quantity supplied is equal to quantity demanded
c.
check sent to producers that makes up the difference between the actual market price and the target price
d.
monetary value of a product
e.
quantity supplied is greater than quantity demanded at a given price
f.
price that produces neither a surplus nor a shortage
g.
set of assumptions and/or relationships that can be used to help analyze behavior and predict outcomes
h.
ticket that entitles the holder to a certain amount of a product
i.
a socially desirable price determined by factors other than the market
j.
maximum legal price that can be charged for a product
 

78. 
surplus
 

79. 
economic model
 

80. 
price
 

81. 
shortage
 

82. 
market equilibrium
 
 
Match each statement with the correct item below.
a.
study of how people try to satisfy their needs and wants through the use of limited resources
b.
people with all their efforts, abilities, and skills
c.
condition of not having enough resources to produce all the things people want
d.
worth that can be expressed in dollars and cents
e.
item that is economically useful or that satisfies an economic want
f.
alternative choices made by consumers in the marketplace
g.
quality of life based on the possession of the necessities and luxuries that make life easier
h.
sum of those economic products that are tangible, scarce, useful, and transferable
i.
cost of the next best alternative use of money, time, or resources when one choice is made rather than another
j.
tools, equipment, machinery, and factories used in the production of goods and services
 

83. 
capital
 

84. 
labor
 

85. 
wealth
 

86. 
opportunity cost
 

87. 
good
 

88. 
economics
 

89. 
scarcity
 

90. 
trade-offs
 
 
Match each statement with the correct item below.
a.
role of the consumer as ruler of the market
b.
society's way of providing for wants and needs
c.
program that provides retirement and disability benefits for working people
d.
economic system in which the allocation of resources and nearly all other economic activity stems from ritual or habit
e.
struggle among sellers to attract consumers
f.
economy in which people carry on their economic affairs freely but are subject to some government intervention and regulation
g.
economic system in which people and firms act in their own best interests to answer economic questions
h.
economy in which competition is allowed to flourish with a minimum of government interference
i.
degree to which people are better off after completing an economic activity
j.
rise in the general level of prices
 

91. 
traditional economy
 

92. 
competition
 

93. 
market economy
 

94. 
profit
 
 
Match each statement with the correct item below.
a.
reduction in business taxes based on investment in new plants and equipment
b.
tax on people's earnings
c.
system requiring employers to deduct income taxes from employees' paychecks and send it directly to the government
d.
profits from the sale of an asset held for 12 months
e.
tax that imposes a higher percentage rate of taxation on people with higher incomes than on people with lower incomes
f.
medicare and FICA
g.
tax on tangible and intangible possessions, such as real estate, buildings, furniture, stocks, bonds, and bank accounts
h.
relatively high tax on socially undesirable products, such as tobacco
i.
tax on the manufacture and sale of selected items
j.
upward revision of the tax brackets to compensate for the effects of inflation
 

95. 
capital gains
 

96. 
sin tax
 

97. 
progressive tax
 

98. 
payroll withholding system
 
 
Match each statement with the correct item below.
a.
system under which the government or another agency decides everyone's fair share of a product
b.
the minimum wage, the lowest legal price that can be paid to most workers, is an example of this
c.
partial refund of the original price of a product
d.
where these occur, resources slowly shift to other markets where equilibrium prices prevail
e.
price that “clears the market”
f.
unsold product that causes suppliers to reduce their prices
g.
serves as an allocation signal when established by supply and demand
h.
loan that has neither a penalty nor an obligation to repay if not paid back
i.
condition that leaves suppliers wishing they had more product to sell
 

99. 
rebate
 

100. 
equilibrium price
 

101. 
price ceiling
 

102. 
rationing
 

103. 
shortage
 
 
Match each statement with the correct item below.
a.
form of business organization recognized by law as a separate legal entity having all the rights of an individual
b.
corporation that has manufacturing or service operations in a number of countries
c.
voluntary association that buys bulk amounts of goods on behalf of its members
d.
business owned and run by one person
e.
price paid for the use of another's money
f.
investor's responsibility for the debts of a business which is limited by the size of his or her investment in the business
g.
organization of workers formed to represent its members' interests in various employment matters
h.
money that is borrowed
i.
non-cash charge a firm takes for the general wear and tear on its capital goods
j.
stock of finished goods and parts in reserve
 

104. 
sole proprietorship
 

105. 
limited liability
 

106. 
corporation
 

True/False
Indicate whether the sentence or statement is true or false.
 

107. 
A nondurable good lasts for less than five years when used on a regular basis.
 

108. 
In economics, land refers to the natural resources needed for production, such as forests, minerals, and climate.
 

109. 
Supply and demand are used to predict the incidence of a tax.
 

110. 
A desire to buy a product is the only requirement needed for demand to exist.
 

111. 
The paradox of value occurs when some necessities have little value, while some non-necessities have a much higher value.
 

112. 
The profit motive states that the consumer decides WHAT goods and services to produce.
 

113. 
When manufactured goods are used to produce other goods and services, they are called capital goods.
 

114. 
The Law of Supply states that suppliers will normally offer less for sale at higher prices and more for sale at lower prices.
 

115. 
The marginal tax rate is the tax that applies to the next dollar of taxable income.
 

116. 
The four factors of production are land, capital, labor, and financing.
 

117. 
The production function describes the relationship of changes in output to different amounts of a single input while other inputs are held constant.
 

118. 
Voluntary exchange is a characteristic of command economies.
 

119. 
The four important measures of cost are: total cost, fixed cost, variable cost, and marginal cost.
 

120. 
The two largest sources of revenue for states are sales taxes and intergovernmental revenues.
 

121. 
The market supply curve shows the quantities offered at various prices by all firms that offer the product for sale in a given market.
 

122. 
The three criteria for effective taxes are equity, complexity, and efficiency.
 

123. 
Division of labor increases efficiency because it allows workers to master many aspects of their jobs.
 

124. 
Marginal analysis compares the additional benefits of an action to its additional costs.
 

125. 
The circular flow of economic activity describes an economy that is free of markets.
 

126. 
Taxes on most personal property are seldom collected because of the problem of valuation.
 

127. 
An increase in the cost of inputs can cause the supply curve to shift to the left.
 

128. 
A person's payroll withholding statement summarizes federal, state, and local tax deductions.
 

129. 
Time is an opportunity cost when a manufacturer assigns workers to one task rather than to another.
 

130. 
Fixed cost is the cost that a business incurs even if there are no employees and no production takes place.
 

131. 
Capitalism is a competitive economic system in which private citizens own the factors of production.
 

132. 
If the price of an item is too high in a competitive market, a shortage appears until the price goes down.
 

133. 
Marginal cost is the change in total revenue when one more unit of output is sold.
 

134. 
Economic growth occurs when a nation's total output of goods and services increases over time.
 

135. 
Economics is a social science because it deals with how people behave while trying to satisfy their needs and wants through use of relatively scarce resources.
 

136. 
Perfect competition is not necessary for the theory of competitive pricing to be practical.
 

137. 
The production possibilities frontier can be reached even if certain resources remain idle.
 

138. 
The supply curve is likely to be elastic for products that can be made quickly without huge amounts of capital and skilled labor.
 

139. 
The entrepreneur organizes land, capital, and labor for production in hopes of earning a profit.
 

140. 
A demand curve illustrates the quantity demanded at all possible prices at a given time.
 

141. 
The Law of Demand states that more of a product will be purchased at low prices than at high ones.
 

142. 
Economic products consist of both goods and services that are useful, relatively scarce, and transferable to others.
 

143. 
Marginal utility describes the decreasing satisfaction a consumer receives with the purchase of each additional unit.
 

144. 
Economic interdependence limits a nation's growth and usually reduces the efficiency of production.
 

145. 
Sole proprietorships must request a charter from the state in which they are organized.
 

146. 
Productivity will decrease if workers are unmotivated.
 

147. 
The amount of a price change is affected by the elasticity of both the supply and demand curves.
 

148. 
Limited liability is one characteristic of the corporate form of business organization.
 

149. 
Labor unions use collective bargaining to negotiate job-related issues with management.
 

150. 
Social Security is an example of government's direct role in the economy.
 



 
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