Module 1 1 of 4

Module 1 Review
Economics is the study of how people get the goods and services they need and want. It is not just
about money, although money does play a significant role. Economics is about the choices we make
every day.

Macroeconomics --- looks at the big picture of communities, nations, and global decision making.

Microeconomics --- looks at the smaller picture of individuals and businesses.

Three Economic Questions: 1) What will be produced? 2) How will it be produced? 3) For
Whom will it be produced?

Can you have it all?

The study of economics has a lot to do with choices on how we use our limited resources to satisfy
our unlimited wants.

Scarcity forces us to make choices. Scarcity is anything that is ‘limited’, whether it’s time, money,
or a specific resource. When making choices, we must consider the scarce resources.

There are trade-offs associated with any choice we make, but there are also benefits like earning an
A in Economics. Trade-offs can also be called costs of the choice made.

When we make choices, we need to give up something. The most valuable trade-off is the
opportunity cost, it is the next best option that you give up. An opportunity cost’s value is not
just money and time. Value also includes the experience that you give up.

Example 1... If you really want to go to the beach today, but you scheduled a DBA with your
instructor and you need to get some assignments complete so you don’t get dropped out of the
course – you might have to keep your appointment for the oral assessment, do FLVS work, and
give up the opportunity to go to the beach. If you make that choice then going to the beach is your
opportunity cost for staying home and doing FLVS work. The time you have to do these things is
your scarce resource.

Example 2... You receive 3 college acceptance letters from 3 colleges in Florida. One is for FSU,
one is for UCF, and the other is for UF. All 3 guarantee you a full scholarship (your mom is really
proud!!!) You cannot attend all 3 colleges. You have a scarcity of time and gas (that is a long
commute between all 3). You have to choose 1. Let’s say you choose to attend UCF (Go
Knights!!!). Your 2nd choice was UF and your 3rd choice was FSU. UF would be your opportunity
cost. It is your most valued trade-off (your number 2 choice). FSU is a trade-off as well as would
any other college that you turn down.
 Module 1 2 of 4

Demand – the total amount of a good or service that people are willing to buy at all prices. It is
the whole curve.

Quantity demanded – the amount of a good or service that will be purchased at a particular price.
It is a point on the demand curve.

o Graph #1 shows a change in quantity demanded or

movement ‘along’ the curve – from one price point to
another.
o As the price of cheeseburgers drops, the specific amount
that is purchased, actually goes up
o at $3.00 there are 50 cheeseburgers being
purchased
o the price drops to $2.00 and there are 150
cheeseburgers being purchased
o the price drops even further to $1.00 and 300
cheeseburgers are being purchased.

o Graph #2 shows a change in demand or a shift in the

curve.
o D represents the original curve and D1 represents an
increase in overall demand at all price points. People
want more cheeseburgers regardless of the price.
o Maybe this particular cheeseburger vendor has
a successful advertising campaign where he
sites that he sources all his produce from local
organic farmers to create his signature
cheeseburgers. This is something that will lead
to more people wanting, or demanding, these
cheeseburgers.

What will shift the curve?

T Tastes and People find out these cheeseburgers are made with all organic locally
Preferences grown meat. Demand increases – shift to the right (as shown)
R Related goods The price of French Fries triple. People decide to eat at the hot dog place.
and Services Demand decreases – shift to the left
I Income A new factory opens in town and everyone gets a better paying job.
Incomes increase, people can afford more cheeseburgers. Demand
increases - shift to the right.
B Buyers, number A local college shuts down for summer break. All the students go back to
of their home towns. Demand decreases – shift to the left
E Expectations of A rumor goes around that the price of cheeseburgers will be cut in ½ next
price week. People wait to buy their burgers. Demand decreases – shift to the
left.
 Module 1 3 of 4

Supply – the total amount of a good or service available for purchase at any price. It is the amount
of a good or service that producers/sellers will make available for sale.

Quantity Supplied is how much will be supplied at a specific price. Suppliers will typically
produce more of a good when the price rises (looking to make the most profit possible – high
prices = high profits).
o Graph #1 shows a change in quantity supplied or
movement ‘along’ the curve – from one price point to
another.**
o As the price of the shoes goes up, the specific amount
that is offered for sale or produced goes up
o At $20 there are 200 pairs offered
o If the price increases to $50, there will be 500
pairs offered
o If the price increases to $90, there will be 1000
pairs offered

o Graph #2 shows a change in supply or a shift in the

S S1 curve. A shift to the right represents an increase in
supply.
o S represents the original curve and S1 represents an
increase in overall supply at all price points. Nike is
willing/able to produce more of the shoes regardless
of the price.
o Maybe the cost of leather to make the shoes
has dropped, allowing them to make more
shoes?
o Maybe they developed new machines that put
the shoes together faster?
**Don’t get price confused with costs when talking about supply. We are not talking about a producer’s costs, we
are simply talking about the price at which they can sell their product. So if the price they can sell it for goes up, so
do their profit margins and that is why they have an incentive to offer more and that is why quantity supplied will
increase when the price increases.

What will shift the supply curve?

R Resources: cost and
availability
O Other goods’ price
T Taxes, subsidies and
government regulation
T Technology
E Expectation
N Number of Firms
There is a shortage of the leather used to make the shoes. Nike’s supply decreases
– the curve shifts to the left.
The price of socks decreases. People are buying more socks and may be tempted
to get new shoes. Nike’s supply increases – the curve shifts to the right.
The government doubles taxes on all parts used to manufacture running shoes in
the US. Manufacturing costs increase and profits decrease. Nike’s supply
decreases – shift to the left.
Nike develops a new machine that allows the shoes to be made in ½ the time.
Nike’s supply increases – the curve shifts to the right.
Track season is starting soon. Nike expects a higher increase in the demand for
running shoes. They increase production. Supply increases – curve shifts to the
right.
Another company opens up that also creates running shoes. The overall supply
of running shoes on the market increases. Supply shifts to the right.
 Module 1 4 of 4

Equilibrium - The point where the supply and demand curves meet (also known as the
equilibrium point) identifies the equilibrium price.
When price is higher than the equilibrium
price then too much will be produced so
there is a surplus (not as many people will
want the good due to the higher price).

When price is lower than the equilibrium

price then not enough will be produced so
there is a shortage (demand will increase due
to the lower price, but supply will not due to
need to cover costs at a lower profit margin).

Money -

Four Functions of Money: “Money is a matter of functions four—a medium, a measure, a

standard, a store.”
a) Medium of Exchange: Money is accepted in exchange for another item. For example, when
you purchase gum at the store and hand over a one dollar bill, the bill is accepted as a medium of
exchange.
b) Measure of Value: Money is used to describe the worth of an item. For example, you may
estimate your CD collection as valued at $500. Your friend might say $50, given the popularity of
downloadable music. Either way, you are both describing the value of the CD collection in terms
of money.
c) Standard: Money has a consistent numerical measurement. In other words, the one dollar bill in
your shoe is worth the same as the crisp one dollar bill in your wallet. Both are also equal to the 10
dimes in your couch.
d) Store of Value: Money holds its value. So, if you find that one dollar bill in your shoe a year
later and it is very stinky, it is still worth a dollar just like the crisp dollar bill with the freshly inked
perfume.
Money is more than the currency you hope to receive as a gift. It is also debit cards and
government bonds; all share similar functions and characteristics.

Characteristics of money –
a) Divisible d) Portable
b) Stable in value e) Scarce
c) Durable f) Accepted

During the Great Depression, the U.S. government abandoned the gold standard (where the value
of money was based on gold). We have confidence that the money will hold its value because
it was issued by the government. ―Fiat currency, like U.S. currency, is money the government
declares legal for use in payment.

**Remember that money is anything that can be used as payment for goods and services.
 Module 1 Economics V14 Practice Exam and Glossary

Term Definition
Basic economic questions What to produce? How to produce? For whom to produce?
Benefits What we gain when making a choice
Characteristics of money Divisible, Stable in value, Durable, Portable, Scarce, Accepted
Counterfeit A fake copy of something valuable
Currency Coins and paper bills used in exchange for goods and services
Decrease in demand or supply Curve shifts to the left
Demand Total amount of a good or service that people are willing to buy
Demand curve slope (From left to right) slopes downward
Economic products Goods and services

Economics A study of the ways people obtain their wants with limited resources.

The point where supply and demand meet - This is how much
Equilibrium price
suppliers should charge for their product.
Like U.S. currency, is money the government declares legal for use in
Fiat currency payment. We have confidence that the money will hold its value because
it was issued by the government.

Gold Standard The value of money was based on gold - money is NO LONGER backed by
gold.
Increase in demand or supply Curve shifts to the right
Macroeconomics Study of the national and global economies
Market Exchange of goods and services between buyers and sellers
measure of value Money is used to describe the worth of an item.
Medium of exchange Money is accepted in exchange for another item.

Microeconomics Study of the individual, household, and business firm economies

The most valued alternative given up when a choice is made.

Opportunity Cost
Opportunity cost = “opportunity lost” or whatever is given up.
The quantity people will purchase at a specific price - a specific point
Quantity demanded
along the curve.

Quantity supplied The quantity suppliers will produce at a specific price - a specific point on the
curve.

Reasons a supply curve would shift: Resources, Other goods' price, Taxes
ROTTEN (also subsidies and government regulation), Technology (productivity),
Expectations of the producer, Number of firms in the industry

Scarcity Limited resources, rarity

Shortage When price is lower than the equilibrium price then not enough will
be produced so there is a shortage (demand will increase due to the
lower price, but supply will not due to need to cover costs at a lower
profit margin).
Standard of money Money has a consistent numerical measurement.
Store of value Money holds its value.
Supply curve slope (from left to right) slopes upward
Total amount of a good or service available for purchase.
Supply
Supply is the whole curve, supply for goods and services at all
prices.
When price is higher than the equilibrium price then too much will
Surplus
be produced so there is a surplus (not as many people will want the
good due to the higher price).
Reasons a demand curve would shift: Tastes and preferences,
TRIBE
Related goods and services, Income, Buyers, Expectations of price.

x-axis On a supply and demand graph, the line that indicates quantity
y-axis On a supply and demand graph, the line that indicates price
 Module 1 Practice Exam – V14

1. In a week you could read two books or see four movies. The opportunity cost of choosing to read one book is

A. one book
B. two books
C. one movie
D. two movies

2.

Ezra runs a gyro stall at the local farmers' market. He would like to expand and open his own shop downtown. He has
made the chart above, listing some potential costs and benefits of expansion. Item 3 under Costs best illustrates which
concept?

A. Businesses must grow to stay competitive.

B. Fluctuations in demand cause fluctuations in supply.
C. Labor shortages drive up business costs.
D. Scarcity of resources necessitates economic choices.

3.
In the graph, a shift from point A to point B represents
which of the following?

A. A decrease in demand
B. A decrease in quantity demanded
C. An increase in demand
D. An increase in quantity demanded

4.

Use the graph to answer the following question. Which

line indicates the demand curve?

A. one
B. two
C. The x-axis
D. The y-axis
5. Which of the following best describes the concept of "equilibrium price"?

A. Sellers are happy with the price, but buyers are unhappy with the quantity.
B. Sellers are unhappy with the price, but buyers are happy with the quantity.
C. Both sellers and buyers are happy with the price and quantity.
D. Both sellers and buyers are unhappy with the price and quantity.

6. A new superhero movie has become very popular, and its toy action figures have recently hit the market.
What impact will production of the new movie's toys have on the toys of last year's superhero movie?

A. Demand for the old action heroes will decrease, causing a decrease in equilibrium quantity.
B. Demand for the old action heroes will decrease, causing an increase in market price.
C. Demand for the old action heroes will increase, causing a decrease in market price.
D. Demand for the old action heroes will increase, causing an increase in equilibrium quantity.

7.
The graph shows supply and demand for a popular
brand of coffee. A gas crisis affects shipping costs.
What would a coffee company do in anticipation of a
rise in shipping costs, and how would that effect the
equilibrium price?

A. Add D3 to the left of D2, showing decrease in

equilibrium supply and equilibrium price.
B. Add D3 to the right of D2, showing increase in
equilibrium supply and equilibrium price.
C. Add S2 to the left of S, showing decrease in supply and
increase in equilibrium price.
D. Add S2 to the right of S, showing increase in supply and
equilibrium price.

8. Lara has earned $20 mowing grass around her neighborhood. She takes her money to the bookstore and
purchases a CD for $11.99. She wants to buy a book as well, but she has to choose between the hardcover for $12
and the softcover for six dollars. Lara's use of her money and the decision she makes best illustrate which two
functions of money?

A. Measure of value and standard

B. Medium of exchange and measure of value
C. Standard and store of value
D. Store of value and medium of exchange

9. Which situation best illustrates the basic economic questions?

A. Your sister decides to make beaded bracelets and give them to friends.
B. Your sister decides to make beaded bracelets and wear them all herself.
C. Your sister hand beads the bracelets and sells them to neighbors
D. Your sister goes to the store and purchases beaded bracelets from the jewelry department.
10 . Which situation best illustrates ALL THREE of the basic economic questions?

A. You start your own shirt design company and sell your services to local businesses.
B. You start your own shirt design company for fun, making shirts for your friends.
C. You pay a shirt design company to make shirts for you.
D. You start a shirt design company using your own equipment and serve local businesses.

11. Your friend wanted a big screen TV and a class ring for birthday gifts. When her mom said she could only have
one, she chose the class ring. Her opportunity cost is the

A. The enjoyment of having a big screen TV. C. The enjoyment of having a class ring.
B. Price of the big screen TV. D. Price of the class ring.

12. You have to choose between being in the school play or being on the baseball team because the practices overlap.
This choice exemplifies that

A. Time is scarce. C. Music lessons are scarce.

B. Demand is scarce. D. Sports teams are scarce.

13. A cookie costs $2 and a shirt costs $20. If your allowance is $20 and you choose to purchase a shirt, your
opportunity cost is

A. One cookie. C. One shirt.

B. Ten cookies. D. Ten shirts.

14. There is a shortage of milk at $1 per gallon. The equilibrium price for milk is

A. $1 per gallon. C. More than $1 per gallon.

B. Less than $1 per gallon. D. Not calculable.

15. On a supply and demand graph, the line that indicates quantity is

A. The longest line. C. The x-axis.

B. The line equal to zero. D. The y-axis.

16. Stores are overflowing with the latest car racing video game at $20. Store managers are frustrated with the
lack of sales. The equilibrium price for this video game is

A. More than $20.

B. Less than $20.
C. $20.
D. Not calculable.

17. A decrease in demand causes the demand curve to

A. Shift to the left. C. Increase its slope.

B. Shift to the right. D. Decrease its slope.

18. When price decrease, quantity supplied

A. Decreases. C. Becomes zero.

B. Increases. D. Stays the same.
19. Which may occur as a result of a decrease in the price of minivans?

A. Increase in demand C. Decrease in demand

B. Increase in quantity demanded D. Decrease in quantity demanded

20. Use the graph to answer the following question

Which line indicates an increase in supply?

A. 1
B. 2
C. 3
D. 4

21. Use the graph to answer the following question.

Which of the following may occur as a result of a

decrease in the price of cell phones?

A. Shift from line 1 to line 2

B. Move from point S to point U
C. Shift from line 2 to line 1
D. Move from point U to point S

22. Your teacher says your history book is worth about fifty dollars. Your teacher is using money as a

A. Standard. C. Measure of value.

B. Store of value. D. Medium of exchange.

23. The gold standard is:

A. What United States paper money is “backed” by

B. The weight of US paper money.
C. Government stores of valuables.
D. No longer in use – money is backed by public and government acceptance.
 24. You chose to study for your final exam rather than go to the movies with your friends. You made the choice
with the lowest?

A. Demand C. Benefit
B. Supply D. Opportunity Cost

25. Which economic question is addressed by targeting shoppers that age from 30-40?

A. What to produce? D. How to produce?

B. Where to produce? E. For whom to produce?
C.

26. The point where supply and demand meet is the?

A. X-axis C. Equilibrium
B. Y-axis D. Minimum price

27. Can you draw a conclusion as to what will happen to the quantity supplied when the price increase?

A. It will decrease. C. It will increase.

B. It will stay the same. D. Nothing.

28. Please analyze the following scenario paying special attention to the wording.

Dominic is opening a pizzeria in which he will make pizzas from scratch as they are ordered. He is located on the
boardwalk. Which of the three economic questions has he not considered?

A. For whom to produce? C. What to produce?

B. How to produce? D. When to produce?

29. What is the effect of the demand for a product or service increasing on the demand curve?

A. It shifts to the right. C. It does not shift.

B. It shifts to the left. D. It is deleted.

30.
Look at the graph. Where P is price and Q is quantity,
what might cause a move from d to e?

A. The cost of raw materials to manufacture the

product increases.
B. A National price celling was lifted.
C. Machinery was shut down for repair.
D. Minimum wage was increased.
31. The supply and demand curves reflect the availability and cost of a smart phone. If the smart phone market is currently
at Demand and Supply, which change to the graph, would have to occur to increase equilibrium price while lowering
equilibrium quantity?
A. Add Demand 1 to left of Demand. C. Add Supply 2 to left of Supply.
B. Add Demand 1 to right of Demand. D. Add Supply 2 to right of Supply.

32. Jen has a twenty dollar bill in her pocket but she needs change. Shea gives her a ten dollar bill, a five dollar bill
and four ones and four quarters. Jen takes the one dollar to by some chips from the vending machine. Which
characteristics of money has Jen best demonstrated?
A. Medium, scarcity, and value C. Durability, portability, and standard
B. Scarcity, and stability of value, divisibility D. Acceptability, divisibility, and portability

33. After working very hard at your after school job you have managed to save $1000! You can invest your money into
the stock market or you can spend your money on a trip this summer with your friends. If you decide to invest your
money into the stock market, what is your opportunity cost?
A. $1000 C. Investing in the stock market
B. Going to college D. Going on a trip with your friends

34. The new IPhone has come out and is better than ever. All of your friends have the new phone and it makes you
want to have the new IPhone that much more. Which part of TRIBE is impacted in this example?

A. Taste and Preferences C. Income

B. Related goods D. Buyers in the market

35. Interpret the graph below for Kookie cookies and pick an explanation as to why the line shifts because of
ROTTEN
Cookies
Price
S

S1

Quantity

A. Minimum wage increased to $10 an hour resulting in the cost to produce Kookie cookies to increase.
B. Next week is cookie appreciation week. People come from all over to purchase Kookie cookies
C. For every Kookie cookie produced a $1 tax must be paid to the government
D. The oven used to produce Kookie cookies broke.
36. Aaron heads to the store on a Wednesday to purchase the latest book in a series he enjoys. He doesn’t get
paid again until Friday, and uses the last 20 dollars he has to pay for the book, which costs 15 dollars. When he hands
the cashier the 20 dollar bill, she inspects it with her counterfeit marker, determines it is a real bill, and then gives
Aaron back his 5 dollars in change. Which characteristics of money are best demonstrated in Aaron’s scenario?

A. Scarcity, acceptability, and divisibility

B. Medium, value, store
C. Divisibility, stability, portability
D. Standard, durability, scarcity

37. Louise wants to go to the Imagine Dragons concert next Saturday but her sister reminds her it is also their
dad’s birthday that day. Which of these is an opportunity cost of Louise choosing to spend her dad’s birthday with
him?

A. Her dad will be disappointed

B. She will save the cost of buying her dad a present
C. Enjoying the Imagine Dragons concert
D. The price of the Imagine Dragons ticket 38.

38. Use the equilibrium graph to help answer the

question. Which situation would cause a shift
from line 4 to line 3?

A. A decrease in the cost of rubber to make the

soles
B. A factory worker strike
C. A decrease in the price of Nikes
D. Kobe Bryant creating his own line of shoes

39. Mark has been given an invite by friends to attend the opening night of a movie but has also received tickets
to the upcoming football game on the same night, creating a dilemma as to which event to attend. From this scenario,
distinguish what is the scarcity most likely creating the dilemma Mark is currently facing?
A . The choices
B. Location
C. Time
D. Number of friend
40. Mark has been given an invite by friends to attend the opening night of a movie but has also received tickets to
the upcoming football game on the same night, creating a dilemma as to which event to attend. In assessing the
scenario above, Mark’s opportunity cost for choosing the football game would be….?

A. Cost of food
B. Going to the football game
C. Time spent
D. Going to the movie

41. Kalli has increased the sales of her jewelry business since setting up an online website for people to shop from.
With Valentine’s Day coming up, Kalli has decided to introduce a new line heart shaped necklaces and charms. Within
weeks her profits have increased by 20%. In analyzing the scenario, what type of graph would best display Kalli’s choice
to introduce a new line of product?

A. Demand
B. Supply
C. Marginal Cost and Revenue
D. PPC

For the answers to the practice exam along with explanations for each question go to:
http://learn.flvs.net/educator/common/00Schmidt/Module1PracticeTestV14AnswerKey.pdf