Question

1) In a market economy, most choices about production and consumption are made by which of the following?

a)politicians

b)many individuals and firms

c)the government

d)managers

e)economists

2)

Which of the following is true of the circular flow model?

Firms are supplier in both the product and resource markets.
	Firms/businesses demand products in the resource market and supply other things in the product market.
	Households demand for goods in both the resource and product markets.
	The private sector includes the government, firms, and households.
	Households are suppliers in the product market and customers in the resource market.

3)

Falling output in an economy is consistent with which of the following?

a recession
	an expansion
	a recovery
	falling unemployment
	long-term economic growth

4)You can either go to a movie or study for an exam. Which of the following is an opportunity cost of studying for the exam?

a higher grade on the exam
	the price of the movie ticket
	the enjoyment from seeing the movie
	the cost of paper, pens, books, and other study materials
	the sense of achievement from learning

Answer 1

1. b. In a market economy, the economic decisions are made by individuals and suppliers. The forces of demand and supply decide the quantity to be produced and the prices at which they are sold.

2. B. Resource markets are markets for resources like labor and firms get supply of factors of production in the resource market. Product markets are markets where finished goods are sold by firm.

3. A. Recession. There fall in production and gross domestic product in a recession. During expansion, there is an increase in output.

4.C. The enjoyment from seeing the movie. Opportunity cost is an implicit cost and is the value of the next best opportunity foregone. Here the student foregoes seeing the movie so the enjoyment is the opportunity cost.