NAEP Economics Grade 5 — Questions and Answers
Question 1: A company is the only seller of a product and faces no competition. This market structure is called:
- Perfect competition
- Oligopoly
- Monopoly (Correct answer)
- Monopolistic competition
Correct answer: Monopoly
A monopoly exists when a single seller controls the entire market for a product, allowing it to set prices above competitive levels.
Question 2: GDP measures the total value of goods and services produced in a country. Which of the following would NOT be included in GDP?
- Cars manufactured in the U.S. by a foreign-owned company
- A haircut purchased at a local salon
- A used car sold between two private citizens (Correct answer)
- Government spending on public schools
Correct answer: A used car sold between two private citizens
GDP counts only newly produced goods and services; resale of existing items like used cars does not add new production to the economy.
Question 3: A tariff on imported steel would most likely benefit which group in the short run?
- Consumers who buy products made with steel
- Domestic steel producers (Correct answer)
- Foreign steel companies
- Importers who rely on cheap steel
Correct answer: Domestic steel producers
A tariff raises the price of imported steel, making domestic steel more competitive and protecting domestic steel producers from foreign competition.
Question 4: Which economic indicator would signal that an economy is in a recession?
- Two consecutive quarters of negative GDP growth (Correct answer)
- A rise in consumer confidence index
- Falling unemployment rates for six months
- Increasing business investment spending
Correct answer: Two consecutive quarters of negative GDP growth
A recession is commonly defined as two consecutive quarters of negative real GDP growth, signaling contraction of economic output.
Question 5: If demand for a product increases while supply remains constant, what happens to the equilibrium price and quantity?
- Price rises, quantity falls
- Price falls, quantity rises
- Both price and quantity rise (Correct answer)
- Both price and quantity fall
Correct answer: Both price and quantity rise
When demand increases with no change in supply, the demand curve shifts right, raising both the equilibrium price and quantity.
Question 6: Which of the following best describes the role of profit in a market economy?
- It signals businesses to produce more of what consumers value (Correct answer)
- It ensures equal distribution of goods among citizens
- It prevents monopolies from forming
- It replaces the need for government regulation
Correct answer: It signals businesses to produce more of what consumers value
Profit serves as a signal that consumers value a product, incentivizing firms to increase production and attracting new competitors into the market.
Question 7: A government wants to reduce cigarette consumption. Which policy most directly uses a price mechanism to achieve this goal?
- Banning all cigarette advertising
- Imposing a tax on each pack of cigarettes sold (Correct answer)
- Requiring health warnings on packaging
- Limiting the number of tobacco farms
Correct answer: Imposing a tax on each pack of cigarettes sold
An excise tax raises the price of cigarettes, directly reducing quantity demanded by making the product more expensive for consumers.
NAEP Economics Grade 5
A company is the only seller of a product and faces no competition.
This market structure is called: