Question 1

A(n)_________________ cost is the highest valued alternative that must be given up to engage in an activity.
A)economic equity
B)opportunity cost
C)marginal benefit
D)marginal cost

Accepted Answer

Opportunity cost is the cost of the next best alternative foregone. It is a fundamental concept in economics and is used to measure the cost of decision-making. The opportunity cost of an activity is the benefit that could have been gained from the next best alternative. Therefore, option B is the best choice as it defines the concept of opportunity cost.

Question 2

The distribution of income primarily determines which of the fundamental economic questions?
A)What goods and services are to be produced?
B)How are the goods and services to be produced?
C)Who will receive the goods and services produced?
D)How will the economy be planned?

Accepted Answer

The distribution of income determines who will receive the goods and services produced, thus answering the fundamental economic question of "who gets what."

Question 3

Which of the following statements is true?
A)Anytime you have to decide which action to take, you are experiencing economic equity.
B)Trade-offs do not apply when the consumers purchase a product for which there is excess supply, such as a stock clearance sale.
C)Every individual, no matter how rich or poor, is faced with making trade-offs.
D)Economics is a social science that studies the trade-offs we are forced to make because resources are unlimited.

Accepted Answer

Every individual, regardless of their financial status, must make choices and trade-offs because resources are limited. A does not represent economic equity as it refers to decision-making in general rather than fairness or justice in the distribution of resources. B is incorrect because trade-offs always apply, even in cases of excess supply as consumers still have to decide whether the discounted product is worth the price. D is incorrect because economics studies how individuals, societies, and governments allocate resources, not just trade-offs.

Question 4

Who receives the most of what is produced in a market economy?
A)Lawmakers and other politically favoured groups.
B)Those who are willing and able to buy them.
C)People who earn the highest incomes.
D)Everyone receives an equal amount.

Accepted Answer

In a market economy, goods and services are distributed based on the principle of supply and demand. This means that those who are willing and able to buy them receive the most of what is produced, as they are the ones who drive the market. While people who earn higher incomes may be able to afford more, the overall distribution is determined by consumer choices rather than income levels, meaning that even those with lower incomes can access basic goods and services. Politically favored groups, on the other hand, may receive special privileges or benefits, but this is not a core feature of a market economy. Finally, the notion of everyone receiving an equal amount would imply either a system of extensive redistribution or a command economy, neither of which are typically associated with market-based systems.

Question 5

Which of the following is not an example of an economic trade-off that a firm has to make?
A)Whether it is cheaper to produce with more machines or with more workers.
B)Whether it is cheaper to outsource the production of a good or service.
C)Whether or not consumers will buy its products.
D)Whether it should produce more of its product.

Accepted Answer

The decision of whether or not consumers will buy a firm's products is not an economic trade-off that the firm has control over or can actively choose to make. It is based on market demand and consumer behavior, which the firm can influence but not entirely control. The other options all involve choices that the firm can make in order to optimize production and profits.

Question 6

How are the fundamental economic questions answered in a market economy?
A)The government alone decides the answers.
B)Individuals, firms and the government interact in markets to decide the answers to these questions.
C)Households and firms interact in markets to decide the answers to these questions.
D)Large corporations alone decide the answers.

Accepted Answer

In a market economy, the fundamental economic questions of what to produce, how to produce, and for whom to produce are answered through the interactions of households and firms in markets. This system relies on the forces of supply and demand to allocate resources efficiently.

Question 7

Consider the following economic agents:
A.the government
B.consumers
C.producers
Who, in a centrally planned economy, decides what goods and services will be produced with the scarce resources available in that economy?
A)the government
B)producers
C)consumers
D)consumers and producers

Accepted Answer

In a centrally planned economy, the government has the power to decide what goods and services will be produced with the scarce resources available. This is in contrast to market economies where consumers and producers have a greater influence over what goods and services are produced.

Question 8

The Coffee Korner, a small cafe near campus, sells lattes for $3.00 and biscotti for $1.50 each. What is the opportunity cost of buying a biscotti?
A)2 lattes
B)1/5 of a latte
C)$3.00
D)$1.50

Accepted Answer

The opportunity cost of buying a biscotti is what you give up to buy it instead of something else. Since a biscotti costs $1.50 and a latte costs $3.00, buying a biscotti means giving up 1/2 of a latte ($1.50/$3.00 = 1/2), not 1/5 as stated. Therefore, there seems to be a misunderstanding in the interpretation of the choices provided, as none directly reflect the correct calculation based on the given prices. The correct calculation based on the provided information should result in 1/2 of a latte, not 1/5.

Question 9

When production reflects consumer preferences, ________ occurs.
A)allocative efficiency
B)productive efficiency
C)equity
D)efficient central planning

Accepted Answer

Allocative efficiency occurs when production reflects consumer preferences, meaning that resources are being allocated in the most efficient way to satisfy consumer demand. This results in the production of the goods and services that consumers want the most, leading to higher overall welfare in society. Productive efficiency, on the other hand, is achieved when the production of goods and services is done at the lowest cost possible while maintaining quality. Equity refers to fairness and equality in the distribution of resources, while efficient central planning is a theoretical concept in which a central authority could efficiently allocate resources without the need for a market system.

Question 10

Which of the following is a problem inherent in centrally planned economies?
A)Households and firms make poor decisions in choosing how resources are allocated.
B)There is too little production of low-cost, high-quality goods and services.
C)Production managers are more concerned with satisfying consumer wants than with satisfying government's orders.
D)Exports tend to exceed imports.

Accepted Answer

In centrally planned economies, the government decides what goods and services are produced, how they are produced, and who gets them. This often leads to inefficiencies, including the production of goods that do not meet the quality and cost expectations of consumers, as the system lacks the flexibility and responsiveness of market-driven economies.

Question 11

The Coffee Korner, a small cafe near campus, sells lattes for $3.00 and biscotti for $1.50 each. What is the opportunity cost of buying a latte?
A)2 biscotti
B)2/5 of a biscotti
C)$3.00
D)$1.50

Accepted Answer

The opportunity cost of buying a latte is the value of the next best alternative that you could have purchased with that $3.00. Since a biscotti costs $1.50, you could have purchased two biscotti instead of one latte. Therefore, the opportunity cost of buying a latte is 2 biscotti.

Question 12

Automobile manufacturers produce a range of automobiles such as sports utility vehicles, luxury sedans, pickup trucks and compact cars. What fundamental economic question are they addressing by making this range of products?
A)How will goods that consumers want be produced?
B)Why should a variety of automobiles be produced?
C)What will be produced?
D)For whom will automobiles be produced?

Accepted Answer

The fundamental economic question being addressed with this range of products is "what will be produced?" as the manufacturers are deciding on the specific products they will produce for the market.

Question 13

Why is it necessary for all economic systems to not only provide people with goods and services, but also restrict them from getting as much of these goods and services as they wish?
A)Failure to do this could reduce the efficiency of the system by producing some goods and services that are not as highly valued as others.
B)Failure to do this could lead to an inequitable allocation of goods and services produced.
C)Failure to do this could lead to drastic shortages of goods and services.
D)Failure to do this could reduces efficiency and leads to an inequitable allocation of output.

Accepted Answer

The answer of Why is it necessary for all economic...

Question 14

Productive efficiency is achieved when:
A)firms add a low profit margin to the goods and services they produce.
B)firms produce the goods and services that consumers value most.
C)firms produce goods and services at the lowest cost.
D)there are no shortages or surpluses in the market.

Accepted Answer

Productive efficiency is achieved when firms are able to produce goods and services at the lowest cost possible. This means they are using their resources efficiently and not wasting any inputs. By producing at the lowest cost, firms are also able to offer their goods and services at a lower price, making them more accessible to consumers.

Question 15

'Allocative efficiency' is achieved when firms produce goods and services:
A)at the lowest possible cost.
B)that consumers value most.
C)at the lowest opportunity cost.
D)at a marginal cost of zero.

Accepted Answer

Allocative efficiency is achieved when firms produce goods and services that consumers value most. This means that resources are allocated to the production of goods and services that satisfy the wants and needs of consumers most effectively. Producing goods and services at the lowest possible cost (A) or lowest opportunity cost (C) does not necessarily mean that resources are being allocated efficiently if consumers do not value those goods and services. A marginal cost of zero (D) is not realistic as there will always be some cost associated with production.

Question 16

Annie quits her $150 000-a-year job to take care of her ailing parents. What is the opportunity cost of her decision?
A)Zero, since she will no longer be earning a salary.
B)It depends on the 'going rate' for home-care providers.
C)At least $150 000.
D)The value she attributes to the satisfaction she receives from taking care of her parents.

Accepted Answer

The opportunity cost of Annie quitting her job to take care of her parents is at least $150,000, which is the amount she could have earned if she had continued working. Opportunity cost is the value of the next best alternative that is forgone when a decision is made. Since Annie has given up her job, she has forgone the opportunity to earn her salary, which is her next best alternative. Therefore, the opportunity cost of her decision is $150,000 or more. Choice A is incorrect because opportunity cost is not just about salary; it also considers the value of the forgone alternative. Choice B is incorrect because the going rate for home-care providers is not relevant to the opportunity cost of Annie's decision. Choice D is incorrect because satisfaction is not a monetary value and does not represent the opportunity cost of Annie's decision.

Question 17

A situation in which a good or service is produced at the lowest possible cost is:
A)productive efficiency.
B)allocative efficiency.
C)equity.
D)optimal marginalism.

Accepted Answer

Productive efficiency occurs when a good or service is produced at the lowest possible cost, minimizing waste and maximizing output. It is focused on using the available resources in the most efficient manner, regardless of whether these resources are being used to produce the optimal amount or type of output. Allocative efficiency, on the other hand, is focused on producing the optimal amount and type of output that benefits society the most, not necessarily at the lowest possible cost. Equity refers to fairness or justice in the distribution of resources or outcomes. Optimal marginalism is a concept that suggests that resources should be allocated based on the benefit they provide relative to their cost, but it is not directly related to efficiency.

Question 18

The decision about what goods and services will be produced in a market economy is made by:
A)lawmakers in the government voting on what will be produced.
B)workers deciding to produce only what the boss says must be produced.
C)producers deciding what society wants most.
D)consumers and firms choosing which goods and services to buy or produce.

Accepted Answer

In a market economy, the decision about what goods and services will be produced is made by consumers and firms who choose which goods and services to buy or produce. This is based on individual preferences and demand in the market, as well as the availability and cost of resources needed for production. The government and producers may have some influence on what is produced, but ultimately it is the choices of consumers and firms that determine the allocation of resources in the economy.

Question 19

What does the existence of markets promote?
A)equity and competition
B)voluntary exchange and competition
C)equity and equality
D)competition and equality

Accepted Answer

The answer of What does the existence of markets promote?
A)equity...

Question 20

Which of the following statements about the economic decisions consumers, firms and the government have to make is false?
A)Governments face the problem of scarcity in making economic decisions.
B)Only individuals face scarcity; firms and the government do not.
C)Both firms and individuals face scarcity.
D)Each faces the problem of scarcity which necessitates trade-offs in making economic decisions.

Accepted Answer

This statement is false because both firms and the government also face scarcity as they have limited resources to allocate towards their goals and objectives, just like individuals.

Quiz 1: Economics: Foundations and Models

A(n) _________________ cost is the highest valued alternative that must be given up to engage in an activity.

The distribution of income primarily determines which of the fundamental economic questions?

Which of the following statements is true?

Who receives the most of what is produced in a market economy?

Which of the following is not an example of an economic trade-off that a firm has to make?

How are the fundamental economic questions answered in a market economy?

Consider the following economic agents: A.the government B.consumers C.producers Who, in a centrally planned economy, decides what goods and services will be produced with the scarce resources available in that economy?

The Coffee Korner, a small cafe near campus, sells lattes for $3.00 and biscotti for $1.50 each. What is the opportunity cost of buying a biscotti?

When production reflects consumer preferences, ________ occurs.

Which of the following is a problem inherent in centrally planned economies?

The Coffee Korner, a small cafe near campus, sells lattes for $3.00 and biscotti for $1.50 each. What is the opportunity cost of buying a latte?

Automobile manufacturers produce a range of automobiles such as sports utility vehicles, luxury sedans, pickup trucks and compact cars. What fundamental economic question are they addressing by making this range of products?

Why is it necessary for all economic systems to not only provide people with goods and services, but also restrict them from getting as much of these goods and services as they wish?

Productive efficiency is achieved when:

'Allocative efficiency' is achieved when firms produce goods and services:

Annie quits her $150 000-a-year job to take care of her ailing parents. What is the opportunity cost of her decision?

A situation in which a good or service is produced at the lowest possible cost is:

The decision about what goods and services will be produced in a market economy is made by:

What does the existence of markets promote?

Which of the following statements about the economic decisions consumers, firms and the government have to make is false?