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Quizzes > Quizzes for Business > Finance

Take the Economics Knowledge Test Quiz

Test Your Economic Concepts and Principles

Difficulty: Moderate
Questions: 20
Learning OutcomesStudy Material
Colorful paper art displaying elements related to Economics Knowledge Test quiz

Looking for a comprehensive economics quiz to test your skills? This Economics Knowledge Test combines microeconomics and macroeconomics basics into a dynamic practice quiz that suits students and professionals alike. Discover how theories apply to real-world markets and sharpen your skills by trying the Economics Demand and Supply Quiz or dive deeper with the Managerial Economics Knowledge Quiz. All questions are fully customizable in our editor, so you can tailor the test to any learning objective. Explore more free quizzes and elevate your economic expertise today.

What is opportunity cost?
The cost of production for goods
The value of the next best alternative foregone
The amount of time spent on an activity
The total financial cost of a decision
Opportunity cost refers to the value of the next best alternative that is given up when making a choice. It captures the trade-off inherent in any decision.
Which of the following best describes the law of demand?
Demand curve is upward sloping
As price rises, quantity demanded rises, ceteris paribus
Supply and demand are always in equilibrium
As price falls, quantity demanded rises, ceteris paribus
The law of demand states that, all else equal, a lower price leads to a higher quantity demanded. This inverse relationship is shown by a downward-sloping demand curve.
A market in which price tends to move toward the level where quantity supplied equals quantity demanded is called:
Market equilibrium
Price ceiling
Market surplus
Price floor
Market equilibrium occurs where the supply and demand curves intersect, meaning quantity supplied equals quantity demanded. At this point, there is no tendency for price to change.
Which factor would shift a firm's supply curve to the right?
Technological improvement reducing production costs
A rise in business taxes
A decrease in the number of suppliers
An increase in input prices
Technological improvements lower production costs and allow firms to supply more at every price, shifting the supply curve to the right. Higher input costs or taxes would shift it left.
Which of the following is a tool of fiscal policy?
Reserve requirement
Discount rate
Government spending
Open market operations
Fiscal policy involves government taxing and spending decisions. Changing government spending directly affects aggregate demand.
If the government imposes a binding price ceiling below the equilibrium price, what is the likely outcome?
Shortage of the good
Quantity supplied increases
Surplus of the good
Market remains in equilibrium
A binding price ceiling prevents price from rising to equilibrium, causing quantity demanded to exceed quantity supplied. This results in a shortage.
A positive cross-price elasticity of demand between two goods indicates they are:
Normal goods
Complements
Substitutes
Inferior goods
Cross-price elasticity measures how demand for one good responds to a price change in another. A positive value indicates that as the price of one good rises, demand for the other increases, which is characteristic of substitutes.
Which statement best defines an inferior good?
Demand decreases as consumer income rises
Demand decreases as price falls
Demand is unaffected by income changes
Demand increases as consumer income rises
Inferior goods experience a decline in demand when consumer incomes increase, as buyers switch to higher-quality alternatives.
Which monetary policy action would the central bank most likely take to reduce high inflation?
Increase the reserve requirement
Buy government bonds
Decrease the reserve requirement
Lower the discount rate
Raising the reserve requirement restricts banks' ability to lend, reducing money supply and dampening inflationary pressures. Buying bonds or lowering rates would be expansionary.
If demand is price inelastic, what happens to total revenue when price rises?
Impossible to determine without supply data
Total revenue remains constant
Total revenue increases
Total revenue decreases
When demand is inelastic, the percentage drop in quantity demanded is smaller than the percentage rise in price, so total revenue increases.
What characterizes consumer equilibrium in utility maximization?
Maximized expenditure on all goods
Equal total utility across all goods
Minimized marginal utility per dollar
Equal marginal utility per dollar across all goods
Consumers maximize utility by allocating their budget so that the marginal utility per dollar spent is the same for all goods.
What is the effect on equilibrium price and quantity when both supply and demand increase simultaneously?
Price and quantity both increase
Price increases; quantity is ambiguous
Quantity increases; price is ambiguous
Price and quantity both decrease
An increase in demand raises price and quantity, while an increase in supply lowers price and raises quantity. Combined, quantity for sure rises, but price impact depends on the magnitude of shifts.
Which curve illustrates the inverse relationship between inflation and unemployment in the short run?
IS curve
Aggregate supply curve
Phillips curve
Laffer curve
The Phillips curve shows that in the short run, lower unemployment tends to associate with higher inflation, reflecting the trade-off policymakers may face.
In a perfectly competitive market, a firm in the short run will continue producing as long as price exceeds:
Average fixed cost
Marginal cost
Average variable cost
Average total cost
If price covers average variable cost, the firm can cover its variable costs and contribute to fixed costs, so it will continue producing in the short run.
Which factor shifts the aggregate demand curve to the right?
Decrease in government spending
Higher interest rates
Tighter monetary policy
Lower personal income taxes
Lower personal income taxes increase disposable income and consumption, boosting aggregate demand. Higher rates or tighter policy would shift it left.
In the IS-LM model, an increase in government spending causes:
LM curve shifts left, raising interest rate and income
LM curve shifts right, lowering interest rate and decreasing income
IS curve shifts right, raising both interest rate and income
IS curve shifts left, lowering interest rate and income
Higher government spending raises aggregate demand, shifting the IS curve right. In the IS-LM framework, this increases both equilibrium income and interest rates.
The crowding out effect refers to:
Firms investing less when taxes are cut
Private investment increasing government debt
Higher government borrowing raising interest rates and reducing private investment
Interest rates falling as government debt rises
Crowding out occurs when increased government borrowing drives up interest rates, which discourages private sector investment.
Which unemployment rate is composed of frictional and structural unemployment and consistent with stable inflation?
Natural rate of unemployment
Full employment rate including cyclical
Actual unemployment rate
Cyclical unemployment rate
The natural rate of unemployment includes frictional and structural unemployment but excludes cyclical unemployment, aligning with stable inflation in the long run.
In the long run, the aggregate supply curve is:
Upward sloping
Downward sloping
Horizontal at the price level
Vertical at potential output
In the long run, output is determined by factors like technology and resources, not the price level, so the long-run aggregate supply curve is vertical at potential output.
In the IS-LM framework, an unexpected increase in money supply will:
Shift LM left, raising interest rate and lowering income
Shift LM right, lowering interest rate and raising income
Shift IS right, raising interest rate and income
Shift IS left, lowering interest rate and income
An increase in money supply reduces interest rates and increases liquidity, shifting the LM curve right and resulting in higher income and lower interest rates.
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Learning Outcomes

  1. Analyze core economic theories and models
  2. Evaluate market supply and demand relationships
  3. Identify factors influencing consumer choices
  4. Apply fiscal and monetary policy concepts
  5. Demonstrate understanding of market equilibrium dynamics
  6. Master key terminology in micro and macroeconomics

Cheat Sheet

  1. Law of Supply and Demand - Think of supply and demand as a seesaw: when demand for a juicy burger goes up and the grill only makes so many, prices shoot up! Flip it around - more burgers than hungry mouths means prices drop. Get comfy with this idea to unlock the mystery of why your favorite snacks cost what they do. Investopedia: Law of Supply and Demand
    2. Investopedia: Law of Supply and Demand
  2. Market Equilibrium - Imagine a perfect handshake between buyers and sellers: that's market equilibrium, where the amount people want matches what's available. It's like finding the exact Goldilocks price that's not too hot or too cold. Mastering this helps you predict how a sneeze in supply or a cough in demand tweaks the whole system. Britannica: Market Equilibrium
    3. Britannica: Market Equilibrium
  3. Elasticity - Elasticity is the "stretchiness" of demand or supply when prices jiggle. If a tiny price change makes people leap away from buying, that product is super elastic - think trendy gadgets! Understanding elasticity is your secret weapon for pricing strategies and consumer surprises. Britannica: Market Equilibrium or Balance
    4. Britannica: Market Equilibrium or Balance
  4. General Equilibrium Theory - Picture the entire economy as a grand orchestra where every market plays its part in harmony. General equilibrium theory studies how all those instruments - goods, services, wages - tune together to create a symphony of balanced prices. It's the big-picture view that shows why markets can't be studied in isolation. Wikipedia: General Equilibrium Theory
    5. Wikipedia: General Equilibrium Theory
  5. Say's Law - Say's Law cheekily claims that "supply creates its own demand," meaning producing cool sneakers gives people the cash and desire to buy other things. It's a cornerstone of classical economics and a neat way to see how making stuff drives the whole money merry-go-round. Wikipedia: Say's Law
    6. Wikipedia: Say's Law
  6. Heckscher - Ohlin Model - This globe-trotting model explains why some countries export cars while others send out coffee. It all boils down to who has more factories (capital) or workers (labor). Understanding this helps you see the logic behind international trade deals. Wikipedia: Heckscher - Ohlin Model
    7. Wikipedia: Heckscher - Ohlin Model
  7. Price Elasticity of Demand - This measures how dramatically buyers react when a price tag changes. Are they bargain hunters sprinting away at the tiniest increase? Or loyal fans who pay up no matter what? Pricing strategies hinge on knowing just how stretchy your customers are. Britannica: Market Equilibrium or Balance
    8. Britannica: Market Equilibrium or Balance
  8. Fiscal and Monetary Policies - These are the superhero duo of economic management: fiscal policy wields the government's spending and taxes, while monetary policy uses interest rates and bank magic to steer cash flow. Together, they fight inflation villains and recession monsters to keep the economy smiling. Wikipedia: Macroeconomic Policy
    9. Wikipedia: Macroeconomic Policy
  9. Consumer Choice Theory - Ever wonder why you pick pizza over pasta when both cost the same? Consumer choice theory dives into utility, budgets, and preferences to explain those everyday decisions. It's like being a detective of your own shopping habits. Wikipedia: Consumer Choice Theory
    10. Wikipedia: Consumer Choice Theory
  10. Key Economic Terminology - Brush up on must-know terms like GDP, inflation, opportunity cost, and comparative advantage. These are your toolbox for analyzing news headlines, debating policies, and sounding like an econ whiz at the dinner table. Wikipedia: Economics
    11. Wikipedia: Economics
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