FSOT Economic Principles 2

Question 1

When the price of a good rises and consumers buy less of it, this illustrates the law of:

Accepted Answer

Demand

Answer

The law of demand states that as price rises, quantity demanded falls, all else equal.

Question 2

Which market structure has many sellers offering differentiated products, with easy entry and exit?

Accepted Answer

Monopolistic competition

Answer

Monopolistic competition features many firms selling similar but differentiated products with low barriers to entry.

Question 3

A government budget surplus occurs when:

Accepted Answer

Tax revenues exceed government expenditures

Answer

A budget surplus means the government collects more in taxes and revenues than it spends.

Question 4

The concept of 'moral hazard' in economics refers to:

Accepted Answer

Reduced incentive to avoid risk when protected from consequences

Answer

Moral hazard occurs when an entity takes on more risk because it is insulated from the consequences, such as with insurance.

Question 5

In international trade, a tariff primarily serves to:

Accepted Answer

Raise the price of imported goods

Answer

A tariff is a tax on imported goods that raises their price, making domestic alternatives more competitive.

FSOT Test Practice Test