Question 1

Which of the following statements is true about scarcity?
A)Scarcity refers to the situation in which unlimited wants exceed limited resources.
B)Scarcity is not a problem for the wealthy.
C)Scarcity is only a problem when a country has too large a population.
D)Scarcity arises when there is a wide disparity in income distribution.

Accepted Answer

Scarcity refers to the situation in which unlimited wants exceed limited resources. This is a universal phenomenon that affects individuals, businesses, and entire economies regardless of their level of wealth or income distribution.

Question 2

An economic ________ is a simplified version of some aspect of economic life used to analyse an economic issue.
A)market
B)trade-off
C)variable
D)model

Accepted Answer

The definition provided matches the concept of an economic model, which is a simplified representation of economic phenomena used to analyze and explain economic issues. The other answer choices are relevant to economics, but they do not specifically match the definition provided. A market is a place where buyers and sellers exchange goods and services, a trade-off involves giving up one thing in exchange for another, and a variable refers to a factor that can change in value or quantity over time.

Question 3

In economics, what term means 'additional' or 'extra'?
A)Allocative
B)Marginal
C)Equity
D)Optimal

Accepted Answer

The term that means 'additional' or 'extra' in economics is 'marginal'. Marginal analysis is a key concept in economics, which refers to the analysis of the additional benefits and costs of producing or consuming one more unit of a good or service.

Question 4

Consider the following statements: 
a.Car owners purchase more petrol from a petrol station that sells petrol at a lower price than other rival petrol stations in the area.
b. Banks do not take steps to increase security since they believe it is less costly to allow some bank robberies than to install expensive security monitoring equipment.
c. Firms produce more of a particular DVD when its selling price rises.
Which of the above statements demonstrates that economic agents respond to incentives?
A)b only
B)c only
C)a and b
D)a, b, and c

Accepted Answer

All three statements illustrate how economic agents (car owners, banks, and firms) respond to incentives such as lower prices, cost savings, and higher selling prices.

Question 5

Holding all other personal characteristics-such as age, gender, and income-constant, economists would expect that________.
A)people with health insurance will be less likely to be overweight than people without health insurance.
B)people with health insurance will be more likely to be overweight than people without health insurance.
C)people with health insurance will be equally likely to be overweight as people without health insurance.
D)there is no correlation between having health insurance and being overweight.

Accepted Answer

People with health insurance may engage in riskier health behaviors, such as eating unhealthily, because they know they have coverage for medical issues, a phenomenon known as moral hazard.

Question 6

Economic agents, such as individuals, firms and nations, interact with each other________.
A)in public locations monitored by the government.
B)in any arena that brings together buyers and sellers.
C)in any physical location people where people can physically get together for selling goods, such as shopping malls.
D)in any location where transactions can be monitored by consumer groups and taxed by the government.

Accepted Answer

Economic agents interact with each other in any arena that brings together buyers and sellers, such as markets, online platforms or auctions. It does not necessarily need to be in a physical location or monitored by the government or consumer groups.

Question 7

Marginal analysis involves undertaking an activity________.
A)until its marginal costs start declining.
B)only when its marginal benefits are positive.
C)until its marginal benefits equal marginal costs.
D)only if its marginal costs are greater than its marginal benefits.

Accepted Answer

Marginal analysis involves comparing the additional benefits of an activity with its additional costs. Therefore, one should undertake an activity until its marginal benefits equal marginal costs. This is when the activity is considered to be the most efficient and maximizes overall benefit.

Question 8

What basic economic problem has always existed and will continue to exist?
A)Scarcity
B)Efficiency
C)Inflation
D)Recession

Accepted Answer

Scarcity is the basic economic problem that has always existed and will continue to exist. Scarcity refers to the limited availability of resources in relation to the unlimited wants and needs of individuals and society as a whole. This fundamental problem cannot be completely solved, as there will always be limitations on resources and human desires. It is the responsibility of economics to study how society can allocate its scarce resources more efficiently to satisfy as many wants and needs as possible.

Question 9

Suppose that some investors have decided that economic and financial uncertainty have made the prospect of investing in domestic stock markets more risky than investing in foreign stock markets, and therefore choose to invest in foreign markets.By using all available information as they act to achieve their goals, these investors are exemplifying the economic idea that________.
A)people are rational.
B)people respond to economic incentives.
C)optimal decisions are made at the margin.
D)equity is more important than efficiency.

Accepted Answer

The investors' actions are consistent with the assumption that people are rational, meaning they use all available information to make decisions that they believe will best achieve their goals.

Question 10

Economics does not study correct or incorrect behaviours but rather it assumes that economic agents behave ________, meaning they make the best decisions given their knowledge of the costs and benefits.
A)equitably
B)rationally
C)emotionally
D)selfishly

Accepted Answer

Economics assumes that economic agents behave rationally, meaning they make the best decisions given their knowledge of the costs and benefits. This does not necessarily mean selfishly, equitably, or emotionally.

Question 11

What term in economics refers to a group of buyers and sellers of a product and the arrangement by which they come together to trade?
A)Collective
B)Cooperative
C)Market
D)Trade-off

Accepted Answer

The term that refers to a group of buyers and sellers of a product and the arrangement by which they come together to trade is the market. A market can exist in a physical location, such as a grocery store, or in a virtual space, such as an online platform for buying and selling goods. Both buyers and sellers participate in the market to exchange goods and services.

Question 12

A grocery store sells a bag of potatoes at a fixed price of $2.30.Which of the following is a term used by economists to describe the money received from the sale of an additional bag of potatoes?
A)Marginal revenue
B)Gross earnings
C)Pure profit
D)Marginal costs

Accepted Answer

Marginal revenue is the additional revenue earned from selling one more unit of a product. In this case, selling one more bag of potatoes will earn the store an additional $2.30, making it the correct term used by economists. Gross earnings refers to the total revenue earned, not just the additional revenue, while pure profit takes into account all costs and expenses, not just the revenue from one bag of potatoes. Marginal costs refer to the additional cost incurred in producing one more unit of a product, which is not relevant to this scenario.

Question 13

Suppose that some teachers have decided that economic and financial uncertainty have made the prospect of retiring more risky, and therefore carry a higher cost than not retiring.By using all available information as they act to achieve their goals, these teachers are exemplifying the economic idea that________.
A)people are rational.
B)people respond to economic incentives.
C)optimal decisions are made at the margin.
D)equity is more important than efficiency.

Accepted Answer

The teachers are using all available information to make a decision that they believe is in their best interest, which aligns with the economic principle that people are rational. This principle suggests that individuals make decisions based on available information and their own self-interest.

Question 14

By definition, economics is the study of:
A)how to make money in the stock market.
B)how to make money in a market economy.
C)the choices people make to attain their goals, given their scarce resources.
D)supply and demand.

Accepted Answer

Economics is the study of how people make choices when faced with limited resources. It is a social science that analyzes the production, distribution, and consumption of goods and services. While making money can be a part of economics, it is not the sole focus. Supply and demand is a concept within economics, but it does not encompass the entire field. Therefore, the best choice is C.

Question 15

Economists assume that rational people do all of the following except:
A)use all available information as they act to achieve their goals.
B)undertake activities that benefit others and hurt themselves.
C)weigh the benefits and costs of all possible alternative actions.
D)respond to economic incentives.

Accepted Answer

Economists assume that rational people act in their own self-interest, which does not necessarily mean that they will undertake activities that hurt themselves and benefit others.

Question 16

Economists assume that individuals________.
A)behave in unpredictable ways.
B)will never take action to help others.
C)prefer to live in a society that values fairness above all else.
D)are rational and respond to incentives.

Accepted Answer

Economists generally assume that individuals are rational and respond to incentives. This means that people make decisions that maximize their own self-interest based on the information available to them and the incentives that are in place. It does not assume that individuals always act in their own self-interest, but rather that they are driven by incentives to make choices that they believe are in their best interest. This assumption is integral to many economic theories and models.

Question 17

The revenue received from the sale of ________ of a product is a marginal benefit to the firm.
A)an additional unit
B)the total number of units
C)no units
D)only profitable units

Accepted Answer

Marginal benefit refers to the additional benefit received from selling one more unit of a product. Therefore, the revenue received from selling an additional unit would be a marginal benefit to the firm.

Question 18

Economists reason that the optimal decision is to continue any activity up to the point where the________.
A)marginal benefit is zero.
B)marginal benefit is greater than the marginal cost.
C)marginal cost is zero.
D)marginal benefit equals the marginal cost.

Accepted Answer

The best choice is when the marginal benefit equals the marginal cost because it indicates that the benefits gained from the activity are equal to the costs incurred. Continuing beyond this point would mean that the costs are higher than the benefits, which is not optimal. Therefore, the optimal decision is to stop at the point where the marginal benefit equals the marginal cost.

Question 19

Economists assume that rational behaviour is useful in explaining choices people make________.
A)because irrational people do not make economic choices.
B)even though people may not behave rationally all the time.
C)because individuals act rationally all the time in all circumstances.
D)even though people rarely, if ever, behave in a rational manner.

Accepted Answer

While economists assume that individuals act rationally, they acknowledge that people may not behave rationally all the time. Therefore, choice B is the best option since it acknowledges that rational behavior is useful in explaining choices people make, even though people may act irrationally at times.

Question 20

In economics, choices must be made because we live in a world of:
A)unemployment.
B)scarcity.
C)greed.
D)unlimited resources.

Accepted Answer

Scarcity refers to the limited availability of resources in relation to unlimited wants and needs. This means that choices must be made as to how to allocate these limited resources, as it is not possible to fulfill all wants and needs. Therefore, B is the correct answer as it accurately reflects the necessity of making choices due to scarcity.

Quiz 1: Economics: Foundations and Models

Which of the following statements is true about scarcity?

An economic ________ is a simplified version of some aspect of economic life used to analyse an economic issue.

In economics, what term means 'additional' or 'extra'?

Holding all other personal characteristics-such as age, gender, and income-constant, economists would expect that________.

Economic agents, such as individuals, firms and nations, interact with each other________.

Marginal analysis involves undertaking an activity________.

What basic economic problem has always existed and will continue to exist?

Economics does not study correct or incorrect behaviours but rather it assumes that economic agents behave ________, meaning they make the best decisions given their knowledge of the costs and benefits.

What term in economics refers to a group of buyers and sellers of a product and the arrangement by which they come together to trade?

A grocery store sells a bag of potatoes at a fixed price of $2.30.Which of the following is a term used by economists to describe the money received from the sale of an additional bag of potatoes?

By definition, economics is the study of:

Economists assume that rational people do all of the following except:

Economists assume that individuals________.

The revenue received from the sale of ________ of a product is a marginal benefit to the firm.

Economists reason that the optimal decision is to continue any activity up to the point where the________.

Economists assume that rational behaviour is useful in explaining choices people make________.

In economics, choices must be made because we live in a world of: