Economics Test
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1. What is the fundamental economic problem faced by all societies?
Inflation
Scarcity
Supply
Profit
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2. Which of the following is not a function of money?
Medium of exchange
Unit of account
Tool for investment decisions
Store of value
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3. Which of the following is an example of a merit good?
Cigarettes
Street lighting
Healthcare
Alcohol
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4. A government imposes a price ceiling below equilibrium. What is the likely result?
Surplus
Shortage
Equilibrium
Increased price
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5. What does the Lorenz Curve illustrate?
Market failure
Distribution of income
Opportunity cost
Comparative advantage
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6. If the cross elasticity of demand between tea and coffee is positive, the goods are:
Complements
Substitutes
Inferior
Normal
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7. What is the primary aim of contractionary fiscal policy?
Reduce inflation
Increase unemployment
Raise GDP
Encourage investment
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8. A country produces only wine and cheese. If it increases wine production by reducing cheese, what concept is being demonstrated?
Absolute advantage
Law of diminishing returns
Opportunity cost
Utility maximisation
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9. What happens in the long run under perfect competition if firms are making supernormal profits?
Firms exit the market
Firms raise prices
New firms enter, profits normalise
Government intervenes
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10. Which of the following would most likely cause a shift in the production possibility frontier (PPF) outward?
Increase in unemployment
Natural disaster
Technological advancement
Higher interest rates
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