High School Economics practice questions and exam guide

A store offers a discount to customers who shop early. The discount is an example of:

1. a sunk cost
2. an incentive
3. scarcity
4. a factor of production

Answer: B — an incentive

B) Correct — Incentives are rewards or penalties that change behavior. A) Sunk costs are past and unrecoverable. C) Is limited resources versus wants. D) Is an input like land or labor.

You have 3 hours. You could work at $15/hour, mow a lawn for $60, or sleep in. If you mow the lawn, your opportunity cost is:

1. $60
2. $105
3. $45
4. $0

Answer: C — $45

C) Correct — The next-best paid choice is 3 hours × $15. A) Is what you earn, not what you give up. B) Adds all alternatives; only the next best counts. D) Earning money does not erase the cost of the choice.

A minimum wage set above the equilibrium wage is a price floor that can cause:

1. a shortage of workers
2. a surplus of labor
3. lower wages for all workers
4. no change in employment

Answer: B — a surplus of labor

B) Correct — More people want jobs than firms want to hire at that wage. A) Results from a wage ceiling. C) The floor raises the wage. D) A binding floor changes hiring.

Price elasticity of demand measures:

1. how much supply responds to price
2. how much quantity demanded responds to price
3. how much demand responds to a change in income
4. the slope of the supply curve

Answer: B — how much quantity demanded responds to price

B) Correct — It compares the percentage changes. A) Is price elasticity of supply. C) Is income elasticity. D) Elasticity is about demand here.

Total cost rises from $200 to $230 when output rises from 10 to 11 units. Marginal cost is:

1. $230
2. $20.91
3. $30
4. $2.73

Answer: C — $30

C) Correct — MC = change in total cost ÷ change in output. A) Is total cost. B) Is average total cost at 11 units. D) Divides 30 by 11.

Surgeons earn more than cashiers mainly because surgeons:

1. have scarce, valuable skills
2. are mostly paid by the government
3. belong to unions
4. work fewer hours

Answer: A — have scarce, valuable skills

A) Correct — Few people can supply that labor. B) Most are not. C) Most surgeons are not union members. D) Hours are not the reason.

$1,000 earns 10% interest compounded yearly. What is the balance after 2 years?

1. $1,210
2. $1,200
3. $1,100
4. $1,020

Answer: A — $1,210

A) Correct — $1,000 × 1.1 × 1.1. B) Uses simple interest. C) Is the balance after one year. D) Uses 1% instead of 10%.

A flat tax that takes 15% of every income is:

1. progressive
2. proportional
3. regressive
4. a tariff

Answer: B — proportional

B) Correct — Everyone pays the same percentage. A) Rates would rise with income. C) Would take a larger share from low incomes. D) Is a tax on imports.

The Consumer Price Index (CPI) measures:

1. the number of jobs created
2. the total value of all output produced
3. the stock market's value
4. the cost of a typical basket of goods

Answer: D — the cost of a typical basket of goods

D) Correct — Its changes track inflation. A) Is a labor statistic. B) Is GDP. C) Is measured by stock indexes.

Stagflation, as in the 1970s, is a combination of:

1. low inflation and low unemployment
2. deflation and rapid growth
3. high inflation and high unemployment
4. high growth and high inflation

Answer: C — high inflation and high unemployment

C) Correct — It is hard to fix with demand policy alone. A) Is a healthy economy. B) Is not stagflation. D) Is an overheating economy.

The USMCA is a trade agreement among:

1. the U.S., the U.K., and Canada
2. the U.S., Mexico, and Canada
3. the U.S., Mexico, and China
4. all members of the European Union

Answer: B — the U.S., Mexico, and Canada

B) Correct — It replaced NAFTA in 2020. A) The U.K. is not a member. C) China is not a member. D) The EU has its own agreements.

The FICA deduction on a paycheck pays for:

1. federal income tax
2. health insurance premiums
3. Social Security and Medicare
4. state sales tax

Answer: C — Social Security and Medicare

C) Correct — Employees and employers each pay a share. A) Is withheld separately. B) Are separate deductions. D) Is paid when you buy goods.

What is economics?

The study of how people, businesses, and governments allocate scarce resources to satisfy unlimited wants and needs.

What does elastic demand mean?

|Elasticity| > 1. A small price change causes a large quantity change (e.g., luxury goods).

What is the WTO?

World Trade Organization — sets rules for international trade and resolves disputes among member nations.

What is expansionary fiscal policy?

Increased spending or tax cuts to stimulate the economy during recession.

How can governments address negative externalities?

Taxes (Pigouvian), regulations, tradable permits, lawsuits/property rights (Coase theorem).

Worked example: In a small market, demand is Qd = 100 − 2P and supply is Qs = 20 + 2P (P in dollars, Q in units). Find the equilibrium price and quantity.

Step 1 — Equilibrium occurs where Qd = Qs. Step 2 — Set the equations equal: 100 − 2P = 20 + 2P. Step 3 — Solve for P: 100 − 20 = 2P + 2P → 80 = 4P → P* = $20. Step 4 — Plug P* into either equation: Qd = 100 − 2(20) = 100 − 40 = 60, and Qs = 20 + 2(20) = 20 + 40 = 60. ✓ Step 5 — Equilibrium: P* = $20, Q* = 60 units. At any P above $20, Qs > Qd (surplus → price pressure down); below $20, Qd > Qs (shortage → price pressure up).