DECA Economics Concepts 2 — Questions and Answers
Question 1: When the government sets a price ceiling below the equilibrium price, what typically results?
- A surplus of the good
- A shortage of the good (Correct answer)
- No change in quantity demanded
- An increase in supply
Correct answer: A shortage of the good
A price ceiling below equilibrium keeps prices artificially low, causing quantity demanded to exceed quantity supplied, creating a shortage.
Question 2: Which of the following best describes 'comparative advantage'?
- Producing more of a good than any other country
- Producing a good at a lower opportunity cost than others (Correct answer)
- Having the most advanced technology in an industry
- Controlling the largest share of a global market
Correct answer: Producing a good at a lower opportunity cost than others
Comparative advantage means producing a good or service at a lower opportunity cost relative to others, which is the basis for beneficial trade.
Question 3: A business notices its revenue increases when it lowers prices, suggesting demand for its product is:
- Perfectly inelastic
- Unit elastic
- Elastic (Correct answer)
- Inelastic
Correct answer: Elastic
When revenue rises after a price decrease, the percentage increase in quantity demanded exceeds the percentage price drop, indicating elastic demand.
Question 4: What is the term for the phenomenon where each additional worker hired adds less to total output than the previous one?
- Economies of scale
- Diminishing marginal returns (Correct answer)
- Negative externality
- Diseconomies of scope
Correct answer: Diminishing marginal returns
Diminishing marginal returns occurs when adding more of one input (like labor) while holding others fixed eventually yields smaller and smaller additions to output.
Question 5: In a command economy, who primarily answers the three basic economic questions?
- Individual consumers through market prices
- The government or central authority (Correct answer)
- Corporations based on profit motive
- International trade organizations
Correct answer: The government or central authority
In a command economy, a central government authority decides what to produce, how to produce it, and for whom to produce it.
Question 6: Which market structure has the FEWEST barriers to entry and exit?
- Monopoly
- Oligopoly
- Perfect competition (Correct answer)
- Monopolistic competition
Correct answer: Perfect competition
Perfect competition features no barriers to entry or exit, allowing firms to freely enter or leave the market based on profitability.
Question 7: When the Federal Reserve increases the federal funds rate, what is the most likely effect on borrowing?
- Borrowing becomes cheaper and increases
- Borrowing becomes more expensive and decreases (Correct answer)
- Borrowing is unaffected by the federal funds rate
- Borrowing shifts from banks to bond markets only
Correct answer: Borrowing becomes more expensive and decreases
A higher federal funds rate raises the cost of borrowing throughout the economy, discouraging loans for investment and consumption.
DECA Economics Concepts 2
When the government sets a price ceiling below the equilibrium price, what typically results?