Question 1

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 will receive them.

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 highest valued alternative that must be given up to engage in an activity. The other choices are not relevant to this definition.

Question 3

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 to quit her job to take care of her parents is at least $125,000, as that is the amount of income she is giving up by not working. While there may be other potential costs or benefits associated with her decision (such as the value of the satisfaction she receives from taking care of her parents), the minimum opportunity cost is the foregone income.

Question 4

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 concept of trade-off recognizes that resources are limited and producing more of one good or service necessarily means producing less of another. Optimization and efficiency are related concepts, but they do not necessarily involve a trade-off between two goods or services. Equity refers to fairness and distributional issues, which are not directly related to the trade-off concept.

Question 5

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 has to make choices and trade-offs because resources are limited. Option A is incorrect as economic equity refers to the fairness in distribution of resources, not decision-making. Option B is incorrect as trade-offs always exist, even in sales. Option D is incorrect as economics studies how individuals and societies allocate scarce resources, not the trade-offs we are forced to make because resources are unlimited.

Question 6

Optimal decisions are made at the point where marginal cost equals zero.

Accepted Answer

Optimal decisions are typically made at the point where marginal cost equals marginal benefit, not when marginal cost equals zero.

Question 7

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

Manufacturers are addressing the "What to produce?" question by deciding to produce a variety of automobiles to meet different consumer needs and preferences.

Question 8

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 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

Option C is not an economic trade-off that a firm has to make, as it is not a decision that involves a trade-off between two or more alternatives. It is an outcome that the firm hopes for, but it is not a decision that the firm can make directly. Options A, B, and D are examples of economic trade-offs, as they involve a choice between two or more alternatives, each of which has costs and benefits.

Question 9

Suppose the extra cost of producing an extra million kilograms of french fries is $1 million.Then, McCain Foods Ltd.should make the extra french fries if they generate additional revenue of $1 million.

Accepted Answer

If the extra cost of producing an extra million kilograms of french fries is $1 million and the additional revenue generated by selling that quantity of fries is also $1 million, then the cost and revenue would cancel each other out. Therefore, making the extra french fries would generate additional revenue without any net cost, making it a profitable decision for McCain Foods Ltd.

Question 10

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 determines who will receive the goods and services produced, which is the answer to the question of "for whom" in the fundamental economic questions.

Question 11

Suppose that watching one more episode of your favourite NetFlix show is worth $ 200 to you. Suppose that studying for that same amount of time will boost your mark enough to get you a bursary. What is the smallest size of the bursary that would cause you to study instead of watching another episode (assuming you are rational)?

Accepted Answer

The answer of Suppose that watching one more episode of...

Question 12

Explain the economic idea that "people respond to incentives."

Accepted Answer

The answer of Explain the economic idea that "people respond...

Question 13

If it costs Sinclair $300 to produce 3 suede jackets and $420 to produce 4 suede jackets, then the difference of $120 is the marginal cost of producing the 4th suede jacket.

Accepted Answer

Marginal cost is the additional cost of producing one more unit of a product. In this case, producing the 4th suede jacket costs $420 while producing the 3rd suede jacket costs $300. Therefore, the marginal cost of producing the 4th suede jacket is $420 - $300 = $120.

Question 14

The decision about what goods and services will be produced made 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 because the market system is based on the principles of supply and demand, where producers respond to the preferences of consumers by producing goods and services that people want to buy. As a result, the market mechanism ensures that goods and services are produced efficiently and meet the needs of consumers.

Question 15

Explain the economic assumption that "people are rational."

Accepted Answer

The answer of Explain the economic assumption that "people are...

Question 16

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, which is buying Russian tea cakes. For $2.50, you can buy 2.5 Russian tea cakes ($1.00 each). Therefore, the opportunity cost of buying a cappuccino is 2.5 Russian tea cakes or choice A.

Question 17

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 decides what goods and services will be produced with the limited resources available. The government typically has full control over economic decision-making in a centrally planned economy.

Question 18

The sales revenue a seller receives from the sale of an additional unit of goods is called the marginal benefit.

Accepted Answer

Marginal benefit refers to the additional benefit a buyer receives from the consumption of an additional unit of the good, whereas the sales revenue received by the seller is called marginal revenue.

Question 19

What is meant by the statement that "optimal decisions are made at the margin"?

Accepted Answer

The answer of What is meant by the statement that...

Question 20

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 as it benefits both the individual and the economy as a whole. In contrast, the other options involve trade-offs as limited resources and factors of production must be allocated in different ways, resulting in some groups gaining while others may lose out.

Quiz 1: Economics: Foundations and Models

The three fundamental questions that any economy must address are

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

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

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

Which of the following statements is true?

Optimal decisions are made at the point where marginal cost equals zero.

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?

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

Suppose the extra cost of producing an extra million kilograms of french fries is $1 million.Then, McCain Foods Ltd.should make the extra french fries if they generate additional revenue of $1 million.

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

Explain the economic idea that "people respond to incentives."

If it costs Sinclair $300 to produce 3 suede jackets and $420 to produce 4 suede jackets, then the difference of $120 is the marginal cost of producing the 4th suede jacket.

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

Explain the economic assumption that "people are rational."

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?

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 sales revenue a seller receives from the sale of an additional unit of goods is called the marginal benefit.

What is meant by the statement that "optimal decisions are made at the margin"?

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