Principles of Economics (IN01 D089)
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Free Principles of Economics (IN01 D089) Questions
What is a key feature of a market economy
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Economic decisions are made by families and traditions
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The government controls all production and distribution
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Prices and production are self-driven by market forces
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Trade is based solely on bartering
Explanation
Correct Answer:
C. Prices and production are self-driven by market forces
Explanation:
In a market economy, prices and production are determined by the forces of supply and demand, with minimal government intervention. Individual choice and competition drive economic decisions.
Why other options are wrong:
A: Economic decisions made by families and traditions describe a traditional economy, not a market economy.
B: Government control over production and distribution is a characteristic of a command economy.
D: Bartering is an outdated method of trade and is not a key feature of a market economy.
Quinn found herself running late to work because there was a long line at Starbucks that morning. When she got to work, she noticed an order in her e-mail and had to literally sprint down to the production department to place an order for one of her customers to ensure it met the production deadline, which was in 30 minutes. While running through the plant, she tripped and fell, breaking her arm. Which of the following is most true regarding Quinn’s right to pursue a Worker’s Compensation claim
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It happened at work, while performing work-related functions, so she is entitled to it.
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She may be entitled to it, but her workplace will probably deny her claim.
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She is not entitled to it; it was her fault she was running and therefore negligent.
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She may only be entitled to it if she can prove there was a hazard that caused her to trip; otherwise, she was running and negligent, so she may not get it.
Explanation
Correct Answer:
A. It happened at work, while performing work-related functions, so she is entitled to it.
Explanation:
Under Workers Compensation law, employees are entitled to benefits if they sustain injuries while performing job-related duties, regardless of fault. Quinn was acting within the scope of her employment by trying to meet a production deadline, which constitutes a work-related function. Even though she was running and may have acted hurriedly, this does not disqualify her from coverage since the injury occurred at her workplace and while fulfilling her job responsibilities.
Why other options are wrong:
B. She may be entitled to it, but her workplace will probably deny her claim: Employers may dispute claims, but that does not affect Quinn's legal right to Worker’s Compensation. Her injury clearly occurred during the course of her work duties, making her eligible for benefits under the law.
C. She is not entitled to it; it was her fault she was running and therefore negligent: Worker’s Compensation is a no-fault system, meaning negligence on the part of the employee does not eliminate their right to benefits. The focus is on whether the injury arose during work-related activities.
D. She may only be entitled to it if she can prove there was a hazard that caused her to trip; otherwise, she was running and negligent, so she may not get it: Worker’s Compensation does not require employees to prove a specific hazard caused the injury. The key factor is whether the injury occurred during the course and scope of employment, which is clearly the case here.
Which inflation rate is the major goal for the United States
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0%
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2%
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4%
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6%
Explanation
Correct Answer:
B. 2%
Explanation:
The Federal Reserve targets a 2% inflation rate as its long-term goal, which is considered a stable and sustainable rate. It allows for price stability while encouraging economic growth.
Why other options are wrong:
A. 0%: Zero inflation can lead to deflationary pressures, which harm the economy by discouraging spending and investment.
C. 4%: While higher inflation may temporarily boost some economic activity, it risks eroding purchasing power and creating instability.
D. 6%: This rate is too high and often leads to negative economic consequences, such as hyperinflation and uncertainty.
Which description illustrates the nature of the non-accelerating inflation rate of unemployment (NAIRU)
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Phillips curve in the long run
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Cyclical unemployment in the long run
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Cyclical unemployment in the short run
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Phillips curve in the short run
Explanation
Correct Answer:
A. Phillips curve in the long run
Explanation:
NAIRU refers to the level of unemployment at which inflation does not accelerate. It aligns with the long-run Phillips curve, which is vertical and indicates no trade-off between inflation and unemployment in the long run.
Why other options are wrong:
B. Cyclical unemployment in the long run: Cyclical unemployment is related to short-term economic fluctuations, not the long run or NAIRU.
C. Cyclical unemployment in the short run: NAIRU focuses on structural unemployment, not short-term cyclical unemployment.
D. Phillips curve in the short run: The short-run Phillips curve shows a trade-off between inflation and unemployment, but NAIRU is a long-run concept where this trade-off disappears.
Which statement is true when Country A has a comparative advantage in the production of coffee compared to Country B
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Country B cannot produce coffee.
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Country A has an absolute advantage in the production of coffee.
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Country B has an absolute advantage in the production of coffee.
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Country A can produce coffee at a lower opportunity cost than Country B.
Explanation
Correct Answer:
D. Country A can produce coffee at a lower opportunity cost than Country B
Explanation:
Comparative advantage refers to the ability of a country to produce a good at a lower opportunity cost than another country. Even if Country B can produce coffee, Country A is more efficient in terms of opportunity cost, making it beneficial for Country A to specialize in coffee production.
Why other options are wrong:
A. Country B cannot produce coffee: Comparative advantage does not imply that the other country cannot produce the good; it only means the opportunity cost is higher.
B. Country A has an absolute advantage in the production of coffee: Absolute advantage means producing more output with the same resources, but comparative advantage focuses on opportunity cost.
C. Country B has an absolute advantage in the production of coffee: The question does not provide information to determine absolute advantage, and it is unrelated to comparative advantage.
Country A places a limit on the amount of beer that can be imported into the country. Which action does Country A take in this situation
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Imposing a quota
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Dumping
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Imposing a tariff
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Providing an export subsidy
Explanation
Correct Answer:
A. Imposing a quota
Explanation:
A quota is a limit on the quantity of a good that can be imported into a country. By placing a restriction on the amount of beer imported, Country A is imposing a quota to protect domestic industries or control trade volume.
Why other options are wrong:
B. Dumping: Dumping occurs when a country exports goods at a price lower than the production cost to gain market share, which is unrelated to import limits.
C. Imposing a tariff: A tariff is a tax on imports, not a quantity restriction. While tariffs increase the cost of imports, they do not directly limit the quantity.
D. Providing an export subsidy: An export subsidy is a financial incentive given to domestic producers to encourage exports, not a restriction on imports.
Which term is used to describe the cost of time and effort that people will spend trying to counteract the effects of inflation
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Shoe leather costs
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Purchasing power
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Hyperinflation
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Menu costs
Explanation
Correct Answer:
A. Shoe leather costs
Explanation:
Shoe leather costs refer to the resources (time and effort) individuals use to minimize the impact of inflation, such as frequent trips to the bank to manage cash holdings due to the erosion of purchasing power. The term originates from the metaphorical idea of "wearing out your shoes" due to increased walking.
Why other options are wrong:
B. Purchasing power: This refers to the amount of goods and services that money can buy, which decreases during inflation but does not represent the effort to counteract it.
C. Hyperinflation: This is an extremely high and typically accelerating rate of inflation, but it is a broader phenomenon, not related to personal time and effort costs.
D. Menu costs: These are the costs businesses face when they frequently update prices (e.g., reprinting menus), not the individual effort to manage inflation impacts.
Which market structure is characterized by firms that have no market power and create no barriers to market entry
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Monopolistic competition
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Oligopoly
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Perfect competition
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Monopoly
Explanation
Correct Answer:
C. Perfect competition
Explanation:
In perfect competition, firms have no market power, meaning they cannot influence the price of goods and services because there are many competitors selling identical products. Additionally, there are no barriers to entry, allowing new firms to freely enter or exit the market.
Why other options are wrong:
A. Monopolistic competition: While firms in monopolistic competition face few barriers to entry, they do have some market power due to product differentiation, which does not apply to perfect competition.
B. Oligopoly: Oligopolies are characterized by a few firms that dominate the market and have significant market power, along with high barriers to entry.
D. Monopoly: A monopoly is a market structure with a single firm that has complete market power and creates significant barriers to entry to prevent competition.
The price of cotton increases, and it is having an impact as the primary input for blue jeans. How does this situation affect the price and supply of blue jeans
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The price and supply both rise.
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The price rises, and the supply falls.
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The price and supply both fall.
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The price falls, and the supply rises.
Explanation
Correct Answer:
B. The price rises, and the supply falls.
Explanation:
When the cost of an input like cotton increases, production becomes more expensive. This results in a decrease in supply, which leads to an increase in price as producers compensate for the higher costs.
Why other options are wrong:
A. The price and supply both rise: A rise in supply would require lower production costs, not higher.
C. The price and supply both fall: The supply falls due to higher costs, but this causes the price to rise, not fall.
D. The price falls, and the supply rises: This is incorrect because higher input costs reduce supply and increase price.
Which challenges are highlighted by the Phillips curve
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Financial challenges of increasing GDP and government spending
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Fiscal challenges of reducing unemployment and inflation
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Political challenges of providing jobs and reducing imports
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Monetary challenges of lowering prices and environmental damage
Explanation
Correct Answer:
B. Fiscal challenges of reducing unemployment and inflation
Explanation:
The Phillips curve illustrates the trade-off between inflation and unemployment in the short run. Reducing unemployment often leads to higher inflation, while reducing inflation can increase unemployment, highlighting fiscal and monetary policy challenges.
Why other options are wrong:
A. Financial challenges of increasing GDP and government spending: The Phillips curve does not focus on GDP or government spending but rather the relationship between inflation and unemployment.
C. Political challenges of providing jobs and reducing imports: While jobs may relate to unemployment, the Phillips curve does not directly address trade issues like imports.
D. Monetary challenges of lowering prices and environmental damage: The Phillips curve does not deal with environmental issues, and lowering prices is unrelated to its core focus on inflation and unemployment.
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Frequently Asked Question
Price elasticity of demand measures how responsive the quantity demanded of a good is to changes in its price. Learn more in-depth on the topic and practice questions on ULOSCA.com.
Taxes on goods, like sugary drinks, increase their price. This typically causes a leftward shift in the demand curve. Understand the mechanics behind this with additional resources at ULOSCA.com.
A shift in demand refers to a change in the entire demand curve due to factors like income or preferences, while a movement along the curve happens when the price changes but no other factors are at play. Learn more through practice questions at ULOSCA.com.
A rightward shift in the demand curve can occur when factors such as an increase in consumer income, favorable changes in tastes, or a reduction in the price of complementary goods cause consumers to demand more. Find relevant explanations on ULOSCA.com.
Complementary goods are products that are consumed together. For instance, coffee and sugar. Learn how price changes in one good affect its complement on ULOSCA.com.
'Elastic' demand means that the quantity demanded of a good changes significantly in response to a price change. Understand elasticity in detail with examples and exercises at ULOSCA.com.
Inelastic demand means that price increases do not significantly reduce the quantity demanded. Explore further examples and case studies at ULOSCA.com.