DECA Economics Concepts 3 — Questions and Answers
Question 1: What does GDP measure?
- The total value of a country's exports minus imports
- The total market value of all final goods and services produced in a country in a given year (Correct answer)
- The total income earned by a country's citizens worldwide
- The government's total spending in a given fiscal year
Correct answer: The total market value of all final goods and services produced in a country in a given year
GDP (Gross Domestic Product) measures the total market value of all final goods and services produced within a country's borders in a specific time period.
Question 2: Which of the following is an example of a positive externality?
- A factory polluting a nearby river
- A neighbor's well-maintained garden increasing your home's value (Correct answer)
- Loud construction noise disturbing residents
- Traffic congestion from a large retail store
Correct answer: A neighbor's well-maintained garden increasing your home's value
A positive externality is a benefit that spills over to third parties not involved in the transaction, such as a neighbor's garden improving nearby property values.
Question 3: A decrease in consumer income leads to an increase in demand for bus rides. Bus rides are best classified as:
- A normal good
- A luxury good
- An inferior good (Correct answer)
- A complementary good
Correct answer: An inferior good
An inferior good is one for which demand increases as consumer income decreases, since consumers substitute it for pricier alternatives.
Question 4: The concept of 'ceteris paribus' in economics means:
- All variables change simultaneously
- All other things being equal or held constant (Correct answer)
- Supply always equals demand
- Prices adjust instantly to equilibrium
Correct answer: All other things being equal or held constant
'Ceteris paribus' is Latin for 'all other things being equal,' used to isolate the effect of one variable by holding all others constant.
Question 5: Which fiscal policy action would a government most likely take during a recession to stimulate the economy?
- Raising taxes and cutting spending
- Lowering taxes and increasing government spending (Correct answer)
- Reducing the money supply
- Raising the reserve requirement for banks
Correct answer: Lowering taxes and increasing government spending
Expansionary fiscal policy involves lowering taxes to increase disposable income and increasing government spending to boost aggregate demand during a recession.
Question 6: What is 'opportunity cost'?
- The total money spent on a business decision
- The value of the next best alternative foregone when making a choice (Correct answer)
- The risk of losing money on an investment
- The cost of raw materials used in production
Correct answer: The value of the next best alternative foregone when making a choice
Opportunity cost is the value of the best alternative you give up when you make a choice, reflecting the true cost of any decision.
Question 7: Which of the following would cause the supply curve for smartphones to shift to the right?
- An increase in consumer demand for smartphones
- A rise in the price of microchips used in production
- A technological improvement reducing production costs (Correct answer)
- A government tax on smartphone manufacturers
Correct answer: A technological improvement reducing production costs
A technological improvement lowers production costs, allowing producers to supply more smartphones at every price level, shifting the supply curve rightward.
