1. Which of the following is the best example of a fixed cost? a. a monthly car payment b. a credit card payment c. a payment on an adjustable rate mortgage d. the price of a new DVD 2. Which of the following terms refers to the extra or additional cost of producing one additional unit of output? a. total cost b. variable cost c. fixed cost d. marginal cost 3. Which of the following is a market economy primarily based on? a. capitalism and free enterprise b. traditionalism and command c. incentives and traditionalism d. informed judgment 4. Which term would economists use to describe a low initial interest rate on a credit card? a. obligation b. incentive c. voluntary exchange d. marginal benefit 5. Which of the following best defines informed judgment? a. choosing the next best alternative when choosing to do one thing rather than another b. the attitudes that most people hold about the relationship between the government and the economy c. choosing an alternative that has the greatest value from among comparable products d. choosing to limit the amount of goods produced in order to increase prices 6. What are the factors of production? a. natural resources, labor, capital, and money b. natural resources, capital, goods, and services c. natural resources, labor, capital, and entrepreneurs d. natural resources, money, labor, and entrepreneurs 7. Which of the following is an example of a capital good? a. a box of cereal b. a pair of shoes c. a television d. a hammer 8. Which of the following best defines Gross Domestic Product (GDP)? a. the total value of any goods and services produced in a single year b. the total value of all final goods and services produced in a single year c. the total value of all capital good and services produced in a single year d. the total value of all labor produced in a single year 9. Capitalism thrives on competition. What is the main benefit of competition? a. lower prices b. better decision making c. a successful democracy d. marginal costs and benefits 10. What are the major characteristics of capitalism? a. competition, profit, and government ownership of resources b. government set prices and private property c. competition, profit, and production based on custom and tradition d. markets, private property, competition, and profits 11. Who wrote the book Wealth of Nations, which provides the basic philosophy for the capitalist system? a. Karl Marx b. Milton Friedman c. Adam Smith d. John Keynes 12. Which term describes the money left over after all costs of production have been paid? a. revenue b. marginal expense c. profit d. loss