GED Social Studies Preparation Course: Economics

1. Question 1 of 18

   What does "scarcity" mean in economics?

   • APeople's wants are greater than the resources available
   • BThe government sets the price of most goods and services
   • CPrices go down over time
   • DA product is no longer made anywhere
   Show answer

   Answer: A. People's wants are greater than the resources available

   Scarcity is the condition in which wants are greater than the resources available to satisfy them, so people must make choices.

2. Question 2 of 18

   Dana has one free evening. She can work an extra shift for $90 or go to a concert with friends. She goes to the concert. What is her opportunity cost?

   • AThe price of the concert ticket
   • BThe $90 she could have earned
   • CNothing, because she enjoyed the concert
   • DThe cost of getting to work
   Show answer

   Answer: B. The $90 she could have earned

   Opportunity cost is the most valuable option given up. Dana gave up the $90 shift to go to the concert.

3. Question 3 of 18

   A bakery buys a new delivery van. Which factor of production is the van?

   • ACapital
   • BLabor
   • CLand
   • DEntrepreneurship
   Show answer

   Answer: A. Capital

   Capital means the machinery, tools and buildings people use to produce goods and services.

4. Question 4 of 18

   The price of movie tickets rises sharply. According to the law of demand, what usually happens?

   • APeople buy fewer movie tickets
   • BTheaters show fewer movies
   • CThe price of popcorn falls to zero
   • DPeople buy more movie tickets
   Show answer

   Answer: A. People buy fewer movie tickets

   The law of demand says that as price rises, the quantity demanded falls.

5. Question 5 of 18

   The price farmers get for strawberries rises. According to the law of supply, what usually happens?

   • AFarmers offer more strawberries for sale
   • BBuyers want more strawberries
   • CThe price of strawberries soon doubles again
   • DFarmers offer fewer strawberries for sale
   Show answer

   Answer: A. Farmers offer more strawberries for sale

   The law of supply says that as price rises, the quantity supplied also rises.

6. Question 6 of 18

   Hot dogs and hot dog buns are usually bought together. The price of hot dogs rises sharply. What most likely happens to the demand for buns?

   • AIt increases
   • BIt decreases
   • CIt stays exactly the same
   • DIt doubles
   Show answer

   Answer: B. It decreases

   Buns are a complement to hot dogs. When hot dogs cost more, people buy fewer of them, so they need fewer buns.

7. Question 7 of 18

   The table shows a market for bags of apples. What is the equilibrium price?

   Price per bag	Bags buyers want	Bags sellers offer
   $2	500	200
   $3	400	300
   $4	350	350
   $5	300	420

   • A$2
   • B$4
   • C$5
   • D$3
   Show answer

   Answer: B. $4

   Equilibrium is the price where the quantity buyers want equals the quantity sellers offer: 350 = 350 at $4.

8. Question 8 of 18

   In the same apple market, what happens if the price is set at $5?

   Price per bag	Bags buyers want	Bags sellers offer
   $2	500	200
   $3	400	300
   $4	350	350
   $5	300	420

   • AThere is a shortage, which pushes the price up
   • BThe market is at equilibrium
   • CThere is a surplus, which pushes the price down
   • DBuyers want more bags than sellers are willing to offer
   Show answer

   Answer: C. There is a surplus, which pushes the price down

   At $5, sellers offer 420 bags but buyers want only 300. That surplus of 120 bags puts downward pressure on the price.

9. Question 9 of 18

   What was the purpose of the Sherman Anti-Trust Act of 1890?

   • ATo give land to western settlers
   • BTo create the Federal Reserve
   • CTo set a national minimum wage for all factory and farm workers
   • DTo outlaw monopolies and business deals that restrain trade
   Show answer

   Answer: D. To outlaw monopolies and business deals that restrain trade

   The Sherman Act aimed to protect trade against unlawful restraints and monopolies. It was the first federal law of its kind.

10. Question 10 of 18

    Which country has the comparative advantage in producing wheat?

    Country	Cloth per worker per day	Wheat per worker per day
    Arland	8 bolts	4 bushels
    Bexia	3 bolts	3 bushels

    • ANeither country, because both produce wheat
    • BArland, because each bushel of wheat costs it 2 bolts of cloth
    • CArland, because its workers produce more wheat per day than Bexia's
    • DBexia, because each bushel of wheat costs it only 1 bolt of cloth
    Show answer

    Answer: D. Bexia, because each bushel of wheat costs it only 1 bolt of cloth

    Comparative advantage means the lower opportunity cost. A bushel of wheat costs Arland 8 ÷ 4 = 2 bolts of cloth but costs Bexia 3 ÷ 3 = 1 bolt.

11. Question 11 of 18

    The United States puts a tariff on imported steel. Which result is most likely?

    • AImported steel costs more for U.S. buyers
    • BForeign steel makers pay U.S. income tax
    • CU.S. steel makers face more competition from imports
    • DImported steel becomes cheaper for U.S. buyers
    Show answer

    Answer: A. Imported steel costs more for U.S. buyers

    A tariff is a tax on imports. It raises the price of imported goods, which helps domestic producers but costs buyers more.

12. Question 12 of 18

    A factory dumps waste into a river, and people downstream pay to clean their water. What is this an example of?

    • ADeflation
    • BA negative externality
    • CComparative advantage
    • DA positive externality
    Show answer

    Answer: B. A negative externality

    A negative externality is a cost that spills over onto people outside the deal, like pollution.

13. Question 13 of 18

    What is the difference between nominal GDP and real GDP?

    • ANominal GDP is measured every 10 years
    • BNominal GDP also counts goods that were made in other countries
    • CReal GDP counts only goods, not services
    • DReal GDP is adjusted to remove the effects of inflation
    Show answer

    Answer: D. Real GDP is adjusted to remove the effects of inflation

    GDP is the value of final goods and services produced. Real GDP removes price changes, so different years can be compared.

14. Question 14 of 18

    Prices rise 2% over one year. According to the Federal Reserve's education site, what happens to a dollar?

    • AIt buys about 2% fewer goods and services than a year before
    • BIt buys about 2% more goods and services than a year before
    • CIts value stays the same until prices fall
    • DIt is replaced by a new dollar that is worth 2% more than the old one
    Show answer

    Answer: A. It buys about 2% fewer goods and services than a year before

    Inflation is a general, sustained rise in prices. As prices rise, each dollar buys less.

15. Question 15 of 18

    A town's labor force is 50,000 people, and 2,000 of them are unemployed. What is the unemployment rate?

    • A25.0%
    • B2.0%
    • C4.2%
    • D4.0%
    Show answer

    Answer: D. 4.0%

    Unemployment rate = unemployed ÷ labor force × 100 = 2,000 ÷ 50,000 × 100 = 4.0%.

16. Question 16 of 18

    Which is one of the goals Congress has set for the Federal Reserve's monetary policy?

    • AA balanced federal budget
    • BLower income tax rates
    • CHigher tariffs on imports
    • DStable prices
    Show answer

    Answer: D. Stable prices

    The Fed's monetary policy aims for maximum employment, stable prices and moderate long-term interest rates.

17. Question 17 of 18

    Congress and the president cut taxes and spend more on highways to help a weak economy. What kind of policy is this?

    • AMonetary policy
    • BForeign policy
    • CFiscal policy
    • DTrade policy
    Show answer

    Answer: C. Fiscal policy

    Fiscal policy is government decisions about taxes and spending. Monetary policy is run by the Federal Reserve.

18. Question 18 of 18

    Two car loans have the same interest rate, but Loan B has higher fees. Which loan will show the higher APR?

    • AAPR does not apply to car loans
    • BLoan A
    • CLoan B
    • DThey will have the same APR
    Show answer

    Answer: C. Loan B

    The APR includes the interest rate plus fees and other charges, so the loan with higher fees has the higher APR.

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The real test: 145 on each GED subject test