Question 1

High and persistent inflation is caused by excessive growth in the quantity of money in the economy.

Accepted Answer

High and persistent inflation is mainly caused by an excess supply of money in the economy, which leads to an increase in demand for goods and services, and consequently, a rise in their prices. This is a basic principle of the Quantity Theory of Money, which states that the general price level in an economy is proportional to the amount of money circulating in it. Therefore, if the central bank prints too much money or if the commercial banks are too liberal in their lending practices, inflation is likely to increase over time.

Question 2

Rational people act only when the marginal benefit of the action exceeds the marginal cost.

Accepted Answer

This is a fundamental principle of microeconomic theory. Rational individuals make decisions based on weighing the costs and benefits of each option and choosing the one with the highest net benefit. This means that they will only act when the benefit of taking an action is greater than the cost of taking that action.

Question 3

The European Union will benefit economically if we eliminate trade with Asian countries because EU citizens will be forced to produce more of their own cars and clothes.

Accepted Answer

Eliminating trade with Asian countries would result in the loss of cheaper goods and services, making it more expensive for EU citizens to produce their own cars and clothes. This could lead to decreased consumption and spending, negatively impacting the EU economy.

Question 4

Economics is the study of how:

Accepted Answer

Economics is the study of how society manages its scarce resources, meaning there are limited resources and unlimited wants, leading to the need for trade-offs and choices.

Question 5

Resources are:

Accepted Answer

Resources are limited or scarce for both households and economies. This is due to the fact that our wants and needs are unlimited while resources are finite.

Question 6

A rational person does not act unless:

Accepted Answer

A rational person weighs the costs and benefits of their actions, and will only act if the benefits outweigh the costs. Therefore, choice C is the correct answer as it states that the action produces marginal benefits that exceed marginal costs.

Question 7

Which of the following involve a trade-off?

Accepted Answer

All choices involve a trade-off, as each one requires sacrificing something else. Therefore, the best answer is B.

Question 8

When the government redistributes income with taxes and welfare, the economy becomes more efficient.

Accepted Answer

Redistribution of income through taxes and welfare can address inequality but may introduce inefficiencies by distorting incentives and reducing the overall economic output.

Question 9

When a jet flies overhead, the noise it generates is an externality.

Accepted Answer

The noise generated by the jet is a negative externality because it affects people who are not involved in the transaction of flying the jet, such as residents in the surrounding community.

Question 10

Trade-offs are required because wants are unlimited and resources are:

Accepted Answer

Resources are scarce, which means that there are not enough resources available to satisfy all of our unlimited wants. This necessitates trade-offs, or the decision to give up one thing to obtain something else that we want or need more. So, the best choice is E - scarce.

Question 11

Adam Smith's "invisible hand" concept describes how corporate business reaches into the pockets of consumers like an "invisible hand."

Accepted Answer

The concept of the invisible hand refers to the idea that in a market economy, self-interest and competition can lead to economic benefits for society as a whole, without a central authority directing economic activity. It does not specifically refer to corporations reaching into the pockets of consumers.

Question 12

Choices must be made in the use of resources:

Accepted Answer

Resources are limited in supply, hence choices must be made in their use to ensure they are used efficiently, sustainably and equitably.

Question 13

Anneka is better at cleaning and Jurgen is better at cooking. It will take fewer hours to eat and clean if Jurgen specializes in cooking and Anneka specializes in cleaning than if they share the household duties evenly.

Accepted Answer

Since Anneka is better at cleaning and Jurgen is better at cooking, they should specialize in their respective areas of expertise. This will result in a more efficient division of labor and likely take fewer hours to complete household duties than if they shared responsibilities evenly.

Question 14

There are three questions that any economy has to face: What goods and services should be produced? How should these goods and services be produced? ___________________?

Accepted Answer

The third question that any economy has to face is "Who should get the goods and services that have been produced?" This question pertains to the distribution of goods and services among the members of society. The other options, such as how many goods and services should be produced, when they should be produced and why they should be produced, are important considerations as well, but they do not fully address the issue of distribution.

Question 15

The opportunity cost of building an additional car park at your university is:

Accepted Answer

The opportunity cost of building an additional car park at the university is the value of the land used in its next best alternative use, and the cost of the labour, concrete, etc. used to build the car park. By building the car park, the university foregoes the potential benefits of using the land for other purposes, such as building additional academic buildings or recreational facilities. Therefore, the opportunity cost includes both the explicit cost (the cost of building the car park) and the implicit cost (the foregone opportunity to use the land in its next best alternative use).

Question 16

In the short run, a reduction in inflation tends to cause a reduction in unemployment.

Accepted Answer

In the short run, a reduction in inflation often leads to an increase in unemployment due to the inverse relationship described by the Phillips Curve.

Question 17

Workers in the countries of Western Europe have a relatively high standard of living because those countries have relatively high minimum wage rates.

Accepted Answer

A high standard of living in Western Europe is influenced by various factors, including economic stability, social welfare systems, and productivity, not just minimum wage rates.

Question 18

Suppose you are considering going to the cinema, and you place a €12 value on your anticipated enjoyment of the film. The ticket price is €6 and you would be giving up two hours of work, where you earn €5 per hour. You would go to:

Accepted Answer

The answer of Suppose you are considering going to the...

Question 19

When economists say, "There is no such thing as a free lunch," they mean that all economic decisions involve trade-offs.

Accepted Answer

The statement "There is no such thing as a free lunch" means that every choice or action has an opportunity cost or trade-off. It implies that obtaining something apparently free comes at the cost of giving up something else that could have been chosen instead.

Question 20

Economics deals primarily with the concept of:

Accepted Answer

Economics is the study of how society allocates scarce resources to satisfy unlimited wants and needs. Scarcity is the fundamental concept in economics as it generates the need for rational decision-making to allocate resources efficiently. Money, poverty, and banking are some of the topics studied in economics, but they are secondary to the concept of scarcity.

Quiz 1: What Is Economics