IB Economics
Unit 1 Test (Chapters 1-5) Part 1
Terms and Concepts (58 points)
Name:
Date:
1. What is a brief description of economics? What are the conditions that give
rise to this definition? (2)
2. Some stores give “free” products to consumers. An economist would say the
products are not free. Why the difference? Explain with economic
supporting details. (2)
3. Distinguish between microeconomics and macroeconomics. (2)
4. Give one example of a positive economic statement and one example of a
normative economic statement. (2)
5. Economic growth is the result of what 3 factors? (3)
6. Use marginal analysis to explain why it is possible to “have too much of a
good thing.” (2)
7. Why is the right of private property an essential characteristic of a market
system? (1)
8. Explain this quote from Adam Smith: “It is not from the benevolence of the
butcher, the brewer, or the baker that we expect our dinner but from their
regard to their own interest.” (1)
9. What is the relationship between businesses and households in the circular
flow model? (2)
10. State the law of demand and explain why the other-things-equal assumption
is critical to it. (3)
11. Evaluate how the following situations will affect the demand curve for iPods.
(a)
Income statistics show that income of 18–25-year-olds have increased
by 10 percent over the last year. (1)
(b)
Efforts of music artists wanting greater protection of their music
result in more stringent enforcement of copyrights and the shutdown
of numerous illegal, downloading sites. (1)
12. Describe and give a reason for the law of supply. (2)
13. Describe in words how one can recognize the market equilibrium point in a
graph of a demand schedule and a supply schedule. (2)
14. What is productive efficiency and how does it differ from allocative
efficiency? (2)
15. What is a price ceiling and what are its economic effects? (2)
16. What is a price floor and what are its economic effects? (2)
17. How do households dispose of their income? Identify the three major ways
income is disposed of and the relative share for each category. (3)
18. How would one decide the optimal allocation of resources between the
private and public sectors? (2)
19. Explain what is meant by the term “market failure” by giving two major types
of such failures. Then explain the reasons behind each type of failure. (3)
20. What is the difference between positive and negative externalities? (2)
21. Compare and contrast the difference in private and public goods based on
the characteristics of “rivalry” and “exclusion.” (2)
22. Describe the major sources of revenue and major types of expenditures at
each level of government. (Federal, State, Local) Complete the table. (3)
Government
Level
Federal
Sources of Revenue
Types of Expenditures
State
Local
23. What three factors have facilitated the rapid growth of international trade
since World War II? (1)
24. What is the difference between comparative advantage and absolute
advantage? (2)
25. Why might a country seek to protect an industry, even when the benefits are
greatly outweighed by the cost? (2)
26. What are the major government policies that restrict trade? (2)
27. Describe what is meant by most-favored-nation status. (1)
28. Complete the table: (3)
Organization
NAFTA
EU
WTO
Members
Purpose