At a young age, Eliza's coaches were confident she had the potential to be a world-class swimmer. They encouraged her parents to do as much as they could to further develop her skills, because a future in Olympic swimming could set her up for life, including promotional endorsements and coaching positions when her competitive days were over. After four years on an athletic scholarship and Olympic experience under her belt, she chose a different path. With her savings and personal connections, she rented a corner building in a bustling San Francisco neighborhood and pursued her dream: a surf shop business. After several successful years, Eliza was certain that Adam Smith would smile because ______________.

a) he laid the foundation for her success: she had freedom of choice

b) Eliza chose a career where there was very little competition

c) unlike most business owners, owning private property was not her concern

d) Eliza deliberately set out to help others

Answer: a

What's going on here? As soon as Dewey Cheatum and Howe Motors increase the prices on their SUVs, then so does their only competitor, You Betcha Motors! Their prices are basically the same for similar vehicles, although their advertising says their products are really very different. What kind competition exists here?

a) Monopolistic competition

b) Perfect competition

c) Oligopolistic competition

d) Limited competition

Answer: c

When President Obama was elected, the U.S. economy was in trouble, and had slid into a recession. Consumer spending was low and getting worse. In an effort to stop the decline, President Obama proposed an economic stimulus package which included government spending on roads, bridges, and schools, among other things, and a tax cut that each U.S. worker would see in her or his paycheck. Apparently, President Obama was a proponent of:

a) communist economic theory

b) Malthusian economics

c) Keynesian economic theory

d) monetary policy

Answer: c

In a free-market economic system, if consumers perceive the price for a state-of-the-art smartphone as too high for the value received, they are likely to avoid buying it. In the same light, if the __________.

a) consumer's desired price is too low, producers will want to produce an abundance of the product

b) seller's price is too low, consumers will definitely consider it of poor quality

c) consumer's desired price is too low, producers will refuse to make a substitute

d) consumer's desired price is too low, producers may limit the amount produced

Answer: d