Question 1

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

Accepted Answer

Opportunity cost is the value of the next best alternative forgone. In this scenario, Arlene is giving up her $125,000 job to take care of her parents, so the opportunity cost is at least $125,000 because that is the salary she could have earned if she continued working. It is important to note that the opportunity cost in this case does not take into account any emotional or personal value that Arlene may place on taking care of her parents, as that is subjective and cannot be quantified.

Question 2

A problem inherent in centrally planned economies is:

Accepted Answer

In centrally planned economies, the government controls the allocation of resources and production decisions. This often leads to a lack of competition and innovation, resulting in a shortage of low-cost, high-quality goods and services.

Question 3

Which of the following statements is true?

Accepted Answer

Every individual, no matter how rich or poor, is faced with making trade-offs. This statement accurately describes the economic concept of trade-offs and applies to all individuals, regardless of their economic status or circumstances. Option A is incorrect because economic equity refers to fairness in the distribution of resources and income, not the concept of trade-offs. Option B is incorrect because trade-offs always apply, regardless of the supply and demand of a product. Option D is incorrect because economics is a social science that studies the allocation of scarce resources, not unlimited resources.

Question 4

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

Accepted Answer

The distribution of income determines who will receive the goods and services produced, reflecting the question of "for whom" the goods and services are produced.

Question 5

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?

Accepted Answer

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

Question 6

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?

Accepted Answer

The opportunity cost is the value of the next best alternative, which in this case is a cappuccino. For the price of one Russian tea cake, you could buy one-fourth of a cappuccino, which is equivalent to 2/5 of a cappuccino ($2.50 divided by 4 = $0.625 or $2.50 x 2/5 = $1.00). Therefore, the best choice is to buy the Russian tea cake and have an opportunity cost of 2/5 of a cappuccino.

Question 7

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

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. These entities make decisions based on supply and demand, prices, and self-interest, without central planning by the government or domination by large corporations.

Question 8

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

Accepted Answer

Consumers buying a firm's products is not a trade-off decision that a firm has to make. It is a result of the firm's decisions regarding production, pricing, marketing, etc. The other options listed involve trade-offs where the firm must weigh the costs and benefits of different options and make a decision.

Question 9

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?

Accepted Answer

Manufacturers decide on the variety of automobiles to produce based on market demand, consumer preferences, and other factors, addressing the fundamental economic question of "What will be produced?"

Question 10

Allocative efficiency is achieved when firms produce goods and services________.

Accepted Answer

Allocative efficiency occurs when firms produce the goods and services that consumers value the most. This is achieved when the price of the good or service equals the marginal cost of production, indicating that resources are being used efficiently to produce the most desired goods and services. Therefore, the best choice is B, that firms produce goods and services that consumers value most.

Question 11

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

Accepted Answer

Productive efficiency occurs when a good or service is produced at the lowest possible cost, using the most efficient production methods and technologies. This means that resources are being used in the most efficient way to create the maximum amount of output possible. Allocative efficiency, on the other hand, refers to the distribution of resources among different goods and services to give as much benefit as possible to society, while equity refers to fairness in the distribution of resources. Optimal marginalism is a concept in economics that refers to the idea that people will continue to consume a good or service as long as the marginal benefit is greater than or equal to the marginal cost. While this concept is related to efficiency, it does not refer specifically to the lowest possible cost of production.

Question 12

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

Accepted Answer

Opportunity cost is the highest valued alternative that must be given up to engage in an activity, which is a fundamental concept in economics. Economic equity refers to fairness in the distribution of resources, while marginal benefit and marginal cost refer to the additional benefit or cost of an additional unit of a good or service.

Question 13

What occurs when production reflects consumer preferences?

Accepted Answer

Allocative efficiency occurs when production reflects consumer preferences, meaning that resources are being used to produce goods and services that people actually want and need. This leads to a more efficient allocation of resources and a better match between supply and demand, resulting in higher levels of satisfaction for both producers and consumers.

Question 14

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

Accepted Answer

In a market economy, the decision about what goods and services will be produced is based on demand and supply. Consumers and firms decide what they want to buy or produce based on their preferences and profit motives. This is different from a command economy where the government decides what will be produced. Therefore, Choice D is the correct option.

Question 15

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?

Accepted Answer

In a centrally planned economy, the government controls all aspects of the economy, including production, distribution, and pricing of goods and services. The government determines what goods and services will be produced and in what quantities based on their predetermined goals and objectives. Consumers and producers have little to no say in what is produced or how it is distributed.

Question 16

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

Accepted Answer

In a market economy, goods and services are distributed according to the principle of supply and demand. The individuals who are willing and able to pay the highest price will receive the most of what is produced. This means that those with the highest incomes will have greater purchasing power and will be able to acquire more goods and services. However, it is not limited to people with high incomes, as anyone who is able to afford the goods and services can acquire them.

Question 17

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

Accepted Answer

This statement is false. Both firms and the government face scarcity as they have limited resources and must make choices on how to allocate them.

Question 18

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?

Accepted Answer

The opportunity cost of buying a cappuccino is what you give up to buy it instead of something else. Since a cappuccino costs $2.50 and each Russian tea cake costs $1.00, you give up the opportunity to buy 2.5 Russian tea cakes ($2.50 / $1.00 each = 2.5 tea cakes).

Question 19

When is productive efficiency achieved?

Accepted Answer

Productive efficiency is achieved when firms produce goods and services at the lowest cost possible. This means using the most efficient methods and technologies available to produce a given level of output. When firms achieve productive efficiency, they are able to produce goods and services at the lowest possible cost, which means they can offer these goods and services to consumers at lower prices.

Question 20

What do markets promote?

Accepted Answer

Markets promote competition by allowing different producers to offer their products at different prices, giving consumers the ability to choose the best options for them through voluntary exchange. While markets may not inherently promote equity and equality, they do often result in greater efficiency and lower prices, which can benefit consumers of all income levels.

Quiz 1: Economics: Foundations and Models