EOC EOC Economics 2 — Questions and Answers
Question 1: What is a 'monopoly' in a market economy?
- A market with many sellers
- A market dominated by one seller with no close substitutes (Correct answer)
- A government-owned business
- A cooperative business model
Correct answer: A market dominated by one seller with no close substitutes
A monopoly exists when a single company or entity is the sole seller of a product or service in a market, giving it significant pricing power.
Question 2: Which of the following best describes 'fiscal policy'?
- The central bank's control of the money supply
- Government use of taxation and spending to influence the economy (Correct answer)
- Private sector investment strategies
- Regulations on international trade
Correct answer: Government use of taxation and spending to influence the economy
Fiscal policy refers to government decisions about taxation and public spending to influence economic conditions such as growth and employment.
Question 3: What happens to a supply curve when the cost of production increases?
- It shifts to the right
- It shifts to the left (Correct answer)
- It becomes horizontal
- It remains unchanged
Correct answer: It shifts to the left
When production costs increase, suppliers are less willing to produce at every price level, shifting the supply curve to the left and reducing supply.
Question 4: What is the Federal Reserve's primary tool for controlling inflation?
- Adjusting tax rates
- Changing government spending
- Setting interest rates (Correct answer)
- Regulating stock markets
Correct answer: Setting interest rates
The Federal Reserve controls inflation primarily by raising or lowering the federal funds rate, which influences borrowing costs throughout the economy.
Question 5: Which economic term describes a situation where resources are used in the most efficient way possible?
- Market failure
- Productive efficiency (Correct answer)
- Scarcity
- Diminishing returns
Correct answer: Productive efficiency
Productive efficiency occurs when a good or service is produced at the lowest possible cost, meaning resources are not wasted.
Question 6: What is the primary purpose of a price ceiling set below the equilibrium price?
- To increase supply
- To prevent prices from rising too high (Correct answer)
- To eliminate surpluses
- To encourage saving
Correct answer: To prevent prices from rising too high
A price ceiling is a government-imposed maximum price intended to keep goods affordable by preventing prices from rising above a set level.
EOC EOC Economics 2
What is a 'monopoly' in a market economy?