Question 1

How are the fundamental economic decisions determined in North Korea?
A)Individuals, firms, and the government interact in a market to make these economic decisions.
B)These decisions are made by the country's elders who have had much experience in answering these questions.
C)The government decides because North Korea is a centrally planned economy.
D)The United Nations decides because North Korea is a developing economy.

Accepted Answer

North Korea has a centrally planned economy, which means that the government is responsible for making fundamental economic decisions, such as what goods and services to produce and how they should be distributed. Individuals and firms do not have a significant role in making these decisions.

Question 2

Arlene quits her $125,000-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 $125,000
D)the value she attributes to the satisfaction she receives from taking care of her parents

Accepted Answer

The opportunity cost is the value of the next best alternative that is forgone as a result of the current decision. In this case, Arlene's next best alternative was to continue working and earning $125,000 a year. Therefore, the opportunity cost of her decision to quit her job is at least $125,000. Option A is incorrect because even though she will no longer be earning a salary, the opportunity cost is still $125,000 as it represents the amount she could have earned if she had continued to work. Option B is not the best choice because the "going rate" for home-care providers is irrelevant to the question as the question is asking about the opportunity cost of Arlene's decision. Option D is incorrect because the value she attributes to the satisfaction she receives from taking care of her parents is a part of her decision-making process, and not the opportunity cost of her decision.

Question 3

The Coffee Nook, a small cafe near campus, sells cappuccinos for $2.50 and Russian tea cakes for $1.00 each.What is the opportunity cost of buying a cappuccino?
A)2 1/2 Russian tea cakes
B)2/5 of a Russian tea cake
C)$2.50
D)$1.00

Accepted Answer

The opportunity cost is the alternative that must be given up in order to choose a certain item. In this case, if you choose to buy a cappuccino, the opportunity cost is the value of the Russian tea cakes that you could have bought instead. In this case, $2.50 ÷ $1.00 = 2.5, so for the cost of one cappuccino, you could buy 2.5 Russian tea cakes. Therefore, the opportunity cost of buying a cappuccino is 2 1/2 Russian tea cakes.

Question 4

Which of the following is not an example of an economic trade-off that a firm has to face?
A)whether it is cheaper to produce with more machines or with more workers
B)whether it is 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 choice of whether or not consumers will buy a firm's products is not an economic trade-off that the firm has direct control over. It is dependent on factors such as market demand, pricing, advertising, and competition. The other choices listed involve decisions that a firm can make about its production process and resource allocation.

Question 5

The three fundamental questions that any economy must address are:
A)What will be the prices of goods and services; how will these goods and services be produced; and who will receive them?
B)What goods and services to produce; how will these goods and services be produced; and who receives them?
C)Who gets jobs; what wages do workers earn; and who owns what property?
D)How much will be saved; what will be produced; and how can these goods and services be fairly distributed?

Accepted Answer

The three fundamental questions that any economy must address are what goods and services to produce, how will these goods and services be produced, and who receives them. This choice accurately represents these three questions.

Question 6

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 to produce goods that consumers want?
B)Why produce a variety of automobiles?
C)What to produce?
D)Who to produce automobiles for?

Accepted Answer

By producing a range of automobiles, manufacturers are addressing the question of "What to produce?" as they decide on the types of vehicles to offer in the market to meet diverse consumer needs and preferences.

Question 7

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.
E)consumers dictating to firms what they need most.

Accepted Answer

In a market economy, the decision about what goods and services will be produced is made by consumers and firms choosing which goods and services to buy or produce. This is done through market demand and supply, where firms produce goods and services that are in high demand by consumers, and consumers buy the goods and services that they need or want. The market price of goods and services also plays a key role in determining what is produced, as firms will only produce goods and services that are profitable to them.

Question 8

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

All economic agents, including individuals, firms, and governments face the problem of scarcity in making economic decisions. Scarcity is the fundamental problem of economics that arises from the limited resources and unlimited wants. Therefore, option B is false because firms and governments also face the problem of scarcity.

Question 9

Suppose a town can earn an additional $10,000 per year in revenue if it installs a red-light camera at its busiest intersection.At what additional cost would installing this camera not be considered economically rational?

Accepted Answer

The answer of Suppose a town can earn an additional...

Question 10

Which of the following statements is true?
A)Any time 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 with a stock clearance sale.
C)Every individual, no matter how rich or poor, is faced with situations that require trade-offs.
D)Economics is a social science that studies the trade-offs we are forced to make because resources are unlimited.

Accepted Answer

The statement is true because trade-offs refer to making a decision and giving up one option for another. This applies to all individuals, regardless of their economic status. Option A is incorrect because economic equity is the fair distribution of resources among individuals and is not always related to decision-making. Option B is incorrect because trade-offs still apply in a clearance sale, as the consumer is making a decision to purchase the product at a lower price and giving up the option to wait for a better price or purchase a different product. Option D is incorrect because economics studies the allocation of scarce resources to satisfy unlimited human wants, not just trade-offs.

Question 11

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
E)the government, consumers, and producers

Accepted Answer

In a centrally planned economy, the government makes all the decisions about what goods and services will be produced, how they will be produced, and for whom they will be produced, based on the government's assessment of society's needs and priorities. Consumers and producers have no say in this decision-making process.

Question 12

Society faces a trade-off in all of the following situations except
A)when deciding who will receive the goods and services produced.
B)when deciding what goods and services will be produced.
C)when deciding how goods and services will be produced.
D)when some previously unemployed workers find jobs.

Accepted Answer

When previously unemployed workers find jobs, it does not necessarily involve a trade-off. It is a positive outcome that benefits individuals and society as a whole by reducing unemployment and increasing productivity. However, in the other situations listed, society must weigh the costs and benefits of different options, and choose what is most efficient and equitable.

Question 13

Billie's Billiard Barn has seen its business slow down ever since Patti's Ping Pong Parlour opened up across the street.Since the opening of Patti's Ping Pong Parlour, the opportunity cost of shooting pool at Billie's Billiard Barn has ________ for Billie's customers who also like to play ping pong.
A)decreased
B)increased
C)fallen to zero
D)not changed

Accepted Answer

The opening of Patti's Ping Pong Parlour has given Billie's customers another option for entertainment. Therefore, the opportunity cost of shooting pool at Billie's has increased, as customers may choose to play ping pong at Patti's instead.

Question 14

What is a marginal cost?

Accepted Answer

The answer of What is a marginal cost?...

Question 15

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 will lead to drastic shortages of all goods and services.
D)Failure to do this could reduce efficiency and lead to an inequitable allocation of output.

Accepted Answer

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

Question 16

The distribution of income primarily determines which of the fundamental economic questions?
A)What goods and services are to be produced?
B)How the goods and services are 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. The other fundamental economic questions are determined by factors such as consumer demand, resource availability, and production efficiency.

Question 17

The highest-valued alternative that must be given up to engage in an activity is the definition of
A)economic equity.
B)marginal benefit.
C)opportunity cost.
D)marginal cost.

Accepted Answer

Opportunity cost is the highest-valued alternative that must be given up to engage in an activity. Economic equity is a concept related to fairness in the distribution of resources. Marginal benefit is the additional benefit received from consuming one additional unit of a good or service, while marginal cost is the additional cost incurred from producing one additional unit of a good or service. Therefore, option C is the correct answer as it accurately defines opportunity cost.

Question 18

The idea that because of scarcity, producing more of one good or service means producing less of another good or service refers to the economic concept of
A)optimization.
B)efficiency.
C)a trade-off.
D)equity.

Accepted Answer

This economic concept is known as a trade-off. It refers to the fact that when resources are scarce, producing more of one good or service requires sacrificing the production of another good or service. Therefore, individuals, businesses, and societies face trade-offs when making choices about how to allocate their resources.

Question 19

The Coffee Nook, a small cafe near campus, sells cappuccinos for $2.50 and Russian tea cakes for $1.00 each.What is the opportunity cost of buying a Russian tea cake?
A)2 1/2 cappuccinos
B)2/5 of a cappuccino
C)$2.50
D)$1.00

Accepted Answer

The opportunity cost of buying a Russian tea cake is the value of the next best alternative foregone, which is the cost of a cappuccino. Therefore, for the price of one Russian tea cake, a customer could have bought 2/5 of a cappuccino ($1.00 divided by $2.50). This is the best choice because it accurately reflects the opportunity cost of choosing the Russian tea cake over the cappuccino.

Question 20

Who receives the most of what is produced in a market economy?
A)lawmakers and other politically favored groups
B)those who are most willing and able to buy them
C)everyone receives an equal amount
D)people who earn the highest incomes

Accepted Answer

In a market economy, goods and services are distributed based on the principle of supply and demand. Those who are most willing and able to purchase goods and services receive the most of what is produced because they are able to pay for it. This often includes people who earn higher incomes since they have more disposable income to spend on goods and services. However, it is important to note that market economies also allow for economic mobility and opportunity for individuals to increase their income and access goods and services.

Quiz 1: Economics: Foundations and Models

How are the fundamental economic decisions determined in North Korea?

Arlene quits her $125,000-a-year job to take care of her ailing parents.What is the opportunity cost of her decision?

The Coffee Nook, a small cafe near campus, sells cappuccinos for $2.50 and Russian tea cakes for $1.00 each.What is the opportunity cost of buying a cappuccino?

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

The three fundamental questions that any economy must address are:

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?

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

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

Suppose a town can earn an additional $10,000 per year in revenue if it installs a red-light camera at its busiest intersection.At what additional cost would installing this camera not be considered economically rational?

Which of the following statements is true?

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?

Society faces a trade-off in all of the following situations except

What is a marginal cost?

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?

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

The highest-valued alternative that must be given up to engage in an activity is the definition of

The idea that because of scarcity, producing more of one good or service means producing less of another good or service refers to the economic concept of

The Coffee Nook, a small cafe near campus, sells cappuccinos for $2.50 and Russian tea cakes for $1.00 each.What is the opportunity cost of buying a Russian tea cake?

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