1. In a market economy, resources are allocated by: (Points: 5)

The centralized decisions of the government 

The decentralized decisions of many firms and households as they interact in markets for goods and services 

The centralized decisions of workers’ unions and local governments 

Either supply or demand, but not demand and supply simultaneously 

2. The study of how households and firms make decisions and how they interact in specific markets is called: (Points: 5)

The invisible hand 

Circular Flow of Income 

Production Possibilities Frontier 

Microeconomics 

3. An oncoming hurricane is announced on the evening news. The next morning, many customers go to the stores to buy plywood, but lumber yard owners had already doubled the price of plywood. Although not very happy, customers still buy the plywood. Which graph best explains this story? (Points: 5)

Graph A 

Graph B 

Graph C 

Graph D 

There is not enough information to answer. 

4. To develop economic models, economists make assumptions. The purpose of this is: (Points: 5)

To include as many aspects of reality as possible 

To develop a universal macroeconomic theory 

To simplify reality, so the models can help us see the most important aspects. 

None of the above 

5. The people in the village are happy. Their incomes have risen and the shops in town are filled with new, imported goods. (Points: 5)

Graph A 

Graph B 

Graph C 

Graph D 

There is not enough information to answer the question.