The questions below come from a test used to measure the economic literacy of U.S. high school students. The test is administered by the Joint Council for Economic Education, a not-for-profit founded in 1949 "to get our kids ready to accept their place in the world as informed voters, workers, and consumers," explains vice-president Robert Strom. "As acute as the need for this type of education was back in 1949, it's even greater today. Let's face it, most of our kids just aren't prepared for the volatility of the marketplace they'll be entering." As for the test, it is occasionally given to adults as well. "Businesspeople score pretty high," says Strom, "but legislators don't fare so well. When it comes to even rudimentary economic skills, our elected officials leave something to be desired." Rudimentary, you say? Take our short version of the test and judge for yourself. Choose the one best answer to each question. The correct answers appear at the bottom.
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1. Sandy Smith can take a job paying $10,000 a year when she graduates from high school, or she can go to college and pay $5,000 a year for tuition. Measured in dollars, what is her opportunity cost of going to college next year? A. $0 B. $5,000 C. $10,000 D. $15,000
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2. "Economic demand" for a product refers to how much of the product A. is available for purchase from business at each price. B. people are willing and able to buy at each price. C. people want, whether they can buy it or not. D. consumers can afford.
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3. Suppose that Teen Power, a teenage organization, proposed that the minimum wage for teens should be increased. What effect would this increase most likely have on teen wages and employment in a market economy? A. Wage rates would go up, and teen employment would go up. B. Wage rates would go up, and teen employment would go down. C. Wage rates would go down, and teen employment would go up. D. Wage rates would go up, and teen employment would stay the same.
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4. A newspaper reports, "Coffee Growers' Monopoly Broken into Several Competing Firms." If this is true, we would expect the coffee-growing industry to A. increase output and decrease prices. B. decrease output and increase prices. C. use more capital goods and hire fewer workers. D. use fewer capital goods and hire fewer workers.
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5. Which one of the following groups typically is hurt the most by unexpected inflation? A. Manufacturers B. Bondholders C. Borrowers D. Farmers
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6. If from time to time, total spending declines relative to productive capacity, the growth rate of the economy over a long period will be A. lower because some productive resources will not be fully employed. B. lower because of a heavier reliance on the raw materials of foreign countries. C. higher because inefficient plants, equipment, and labor no longer need be employed. D. higher because production will be concentrated on necessary goods rather than luxuries. Just so you don't go away feeling like a total jerk, here's one more:
7. Profits are equal to A. sales minus taxes and depreciation. B. sales minus wages and salaries. C. assets minus liabilities. D. revenues minus costs. Seven correct: Go directly to Washington, D.C.; assume post as first pro-small-business member of the Fed.
Six: Go on National Public Radio; debate Robert Reich on national industrial policy.
Five: Get tenure at Harvard B-School; advise Poland on move to free-market economy.
Four: Get tenure at Harvard B-School; advise Lithuania on move to free-market economy.
Three: Get tenure at Harvard B-School; advise Bush on domestic economic policy.
Two: Cancel all public speaking engagements; stop lecturing your kids about capitalism.
One: Not qualified to advise elected officials; run for office instead.
None: Big deal. Nobody knows cash flow the way you do.
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The answers: 1 -- D. 2 -- B. 3 -- B. 4 -- A. 5 -- B. 6 -- A.7 -- D.