Question 1

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)trade-off.
D)equity.

Accepted Answer

The economic concept of trade-off states that because of scarcity, producing more of one good or service means producing less of another good or service. This is because resources are limited and cannot be used to produce an unlimited amount of both goods or services.

Question 2

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 cost of a decision measured in terms of the next best alternative foregone, which is the highest valued alternative that must be given up. Economic equity is the fairness in the distribution of economic benefits and Marginal benefit is the additional benefit received from consuming one more unit of a good or service. Marginal cost is the additional cost incurred in production or consumption of one more unit of a good or service. Therefore, the correct option is C.

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 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 4

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 of Arlene's decision is the value of the next best alternative that she gave up, which in this case is her $125,000-a-year job. Therefore, the opportunity cost is at least $125,000. Choices A and D are not correct because the value of the satisfaction she receives from taking care of her parents and the fact that she is no longer earning a salary are not the relevant factors to determine the opportunity cost of her decision. Choice B is not the best answer because although the going rate for home-care providers might be a relevant factor to determine the cost of alternative care, it does not necessarily represent the opportunity cost of Arlene's decision, which is the value of the next best alternative she gave up.

Question 5

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, there is no trade-off being made. In fact, it is a desirable outcome for society as it leads to a decrease in unemployment and an increase in productivity. Therefore, the best choice is D.

Question 6

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 is the primary economic agent that makes decisions regarding the production and distribution of goods and services. This is typically done through a central planning authority that sets production targets, allocates resources, and determines prices. Consumers and producers may have some input, but ultimately the government has the final say in what is produced and how it is distributed.

Question 7

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. Just like individuals, firms and governments also face scarcity and have to make trade-offs in their economic decisions.

Question 8

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 they will be produced, and who will receive them. These questions involve decisions about allocation of resources and distribution of output, which are fundamental to any economy. Answer B captures all three questions accurately.

Question 9

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 of buying a cappuccino is the value of the next best alternative that must be given up. Since the Russian tea cakes cost $1.00 each, $2.50 worth of cakes would be 2 1/2 cakes. Therefore, the best choice is A.

Question 10

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 option C is not an example of an economic trade-off that a firm has to face. It is not a decision that the firm makes strategically, but rather an outcome of whether or not the product is in demand by consumers. The other options, A, B, and D, all involve trade-offs that firms have to consider in order to make decisions that maximize profits and minimize costs.

Question 11

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 reduce efficiency and lead to an inequitable allocation of output.

Accepted Answer

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

Question 12

Who receives the most of what is produced in a market economy?
A)lawmakers and other politically favored groups
B)those who are 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, those who are willing and able to buy the goods and services receive the most of what is produced. This is because the exchanges and transactions are based on voluntary agreements between buyers and sellers, and the prices of goods reflect the demand and supply conditions. As a result, the producers who can offer goods and services that are in demand will earn more profits, while consumers who value those goods and services enough to pay the market price will get to enjoy them. The lawmakers and politically favored groups may have some influence over the rules and regulations that affect the market, but they do not necessarily receive the most of what is produced. Everyone does not receive an equal amount in a market economy, as the distribution of income and wealth depends on various factors such as skills, education, entrepreneurship, and luck. People who earn the highest incomes may benefit from their contributions to the economy, but their rewards are not guaranteed or fixed.

Question 13

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 decisions about what goods and services will be produced are made by consumers and firms choosing which goods and services to buy or produce. This is because in such an economy, the forces of demand and supply dictate what gets produced and how much of it gets produced. Producers aim to produce goods and services that are in high demand as this is what yields profits, while consumers choose to buy goods and services that satisfy their needs and wants the best. This interplay between producers and consumers ensures that resources are used efficiently and that the economy is able to allocate goods and services in a manner that benefits society.

Question 14

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 a centrally planned economy, the government controls the allocation of resources and sets production targets. This can lead to the production of too little of certain goods and services, particularly those that are low-cost and high-quality. The government may prioritize the production of goods that serve political interests over those that meet the needs and wants of consumers. This can result in shortages and market inefficiencies.

Question 15

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 products, automobile manufacturers are addressing the fundamental economic question of what to produce. They are making decisions about which products to manufacture based on market demand, production costs, and profitability. Choosing to produce a variety of automobiles allows manufacturers to cater to different segments of the market and appeal to a wider range of consumers.

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 to plan the economy?

Accepted Answer

The distribution of income refers to how the income generated from the production of goods and services is divided among individuals and households. This determines who will receive the goods and services produced, as those with higher incomes will have more purchasing power and access to a greater range of goods and services.

Question 17

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 Palace, 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 opportunity cost of shooting pool at Billie's Billiard Barn has increased because now customers have a new alternative option of playing ping pong at Patti's Ping Pong Parlour. This means that customers must now consider the benefits and costs of both options and choose which one has the greatest value to them. As a result, the opportunity cost of shooting pool at Billie's has increased as the decision becomes more complex.

Question 18

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

The answer of How are the fundamental economic questions answered...

Question 19

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 is a centrally planned economy, meaning that the government controls and makes fundamental economic decisions. Individuals and firms do not play a significant role in determining these decisions. Additionally, the United Nations does not have the authority to make economic decisions for North Korea.

Question 20

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

Every individual, regardless of their wealth, is faced with situations that require trade-offs. This is because resources are scarce, and individuals have unlimited wants and needs. As a result, individuals must choose how to allocate their resources, which involves making trade-offs. Option A is incorrect because economic equity refers to fairness in the distribution of economic resources, whereas decision-making is not always related to fairness. Option B is incorrect because trade-offs always occur, even in situations of excess supply, as consumers may still have to sacrifice something to obtain the product (e.g. time, effort, alternative use of money). Option D is incorrect because economics studies the allocation of scarce resources among competing uses and the consequences of those choices, rather than solely the trade-offs involved.

Quiz 1: Economics: Foundations and Models

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

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

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

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?

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

The three fundamental questions that any economy must address are:

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?

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?

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

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

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

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

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 Palace, the opportunity cost of shooting pool at Billie's Billiard Barn has ________ for Billie's customers who also like to play ping pong.

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

How are the fundamental economic decisions determined in North Korea?

Which of the following statements is true?