Economics: Supply & Demand — Answer Key
Part A: Multiple Choice
Circle the best answer for each question.
1. Country A grows the best coffee beans in the world, and Country B builds the best computers. What should these countries do to benefit the most?
A) Each country should try to make both products on its own
B) They should trade so each country gets what the other makes best
C) Country A should stop growing coffee and build computers instead
D) Country B should stop making computers and grow coffee instead
Each country benefits most by specializing in what it produces best and trading for the rest, so Country A sends coffee to Country B in exchange for computers, and both end up with more than if they tried to make everything themselves.
2. Which is the best example of a capital resource?
A) A river used for fishing
B) A carpenter who builds furniture
C) An oven used in a bakery to make bread
D) The wheat a farmer harvests from a field
A bakery oven is a capital resource because it is a human-made tool used to produce goods. Natural resources come from nature and human resources are people's skills, so an oven fits neither of those categories.
3. In a command economy, who mostly decides what goods and services are produced?
A) Individual consumers based on what they want to buy
B) Business owners competing for customers
C) The government through central planning
D) Farmers and factory workers on their own
In a command economy, the government uses central planning to decide what factories produce, how much to charge, and where goods go, rather than letting individual businesses and consumers make those choices.
4. Why do nonrenewable resources like oil become more expensive over time?
A) Because the government lowers taxes on them
B) Because there is an unlimited supply underground
C) Because the supply shrinks as it is used up while demand stays high
D) Because fewer people need energy each year
Oil takes millions of years to form, so as people keep using it the supply steadily shrinks. With less oil available but just as many people needing it, the price climbs higher over time.
Part B: Fill in the Blank
Write the correct answer on each line.
1. A country that focuses on producing what it makes best is using its comparative advantage.
Comparative advantage means a country can produce a particular good more efficiently than others, so it makes economic sense to specialize in that product and trade for everything else.
2. Oil, coal, and natural gas are classified as nonrenewable resources because they cannot be quickly replaced.
Oil, coal, and natural gas are nonrenewable because they formed from ancient organisms over millions of years, making it impossible to replace them on any human timescale.
3. In a market economy, prices are mostly determined by supply and demand.
Supply and demand together set prices in a market economy: when many people want a product but little is available, the price rises, and when supply exceeds demand, the price falls.
4. Global trade allows consumers to buy products from countries all around the world.
Global trade connects buyers and sellers across every continent, letting consumers enjoy products -- like tropical fruits or foreign-made electronics -- that could never be produced locally.
5. When one country depends on another for important goods, they are economically interdependent.
Countries become economically interdependent when they rely on each other for key goods -- if one country stops exporting, the other feels the impact because it cannot easily produce that good on its own.