Question 1

Which of the following best describes the concept of scarcity in economics?

Accepted Answer

Scarcity is the limited nature of society's resources, requiring choices about allocation.

Question 2

A government program that redistributes income from the wealthy to the poor is most likely to illustrate which economic tradeoff?

Accepted Answer

Efficiency vs. equality

Question 3

You are deciding whether to attend college for a year. Which of the following is an example of an opportunity cost?

Accepted Answer

The income you could have earned by working instead of attending college

Question 4

Suppose you have already spent $$1000 repairing your car. The transmission dies and costs 600 to $$fix. The car's value is $$6500 if fixed, 5700 if $$not. Should you repair the transmission? Calculate the net benefit.

Accepted Answer

Yes, because the net gain from repairing is $$800: 6500$$ - $$5700 = 800$$, which is greater than the $600 cost.

Question 5

Which formula best represents the calculation of opportunity cost?

Accepted Answer

$$ Opportunity\ Cost = Value\ of\ Next\ Best\ Alternative $$

Question 6

Which of the following scenarios best illustrates the concept of marginal change?

Accepted Answer

A worker considers working one extra hour to earn additional income.

Question 7

Why do rational people respond to incentives?

Accepted Answer

Because incentives change the costs and benefits associated with a decision.

Question 8

Which of the following is an example of an unintended consequence resulting from a new law?

Accepted Answer

A ban on plastic bags leads to increased use of paper bags, which also have environmental impacts.

Question 9

According to the principle of comparative advantage, why does trade make everyone better off?

Accepted Answer

Because trade enables specialization, allowing countries to focus on producing goods where they have a lower opportunity cost.

Question 10

Which statement best describes the 'invisible hand' in a market economy?

Accepted Answer

It describes how self-interested individuals unintentionally promote society's economic well-being through market interactions.

Question 11

Which of the following is a cause of market failure?

Accepted Answer

Externalities, such as pollution affecting bystanders

Question 12

What is the most important determinant of a country's standard of living according to the study materials?

Accepted Answer

The productivity of its workers

Question 13

If the government increases the quantity of money rapidly, what is the likely long-run effect?

Accepted Answer

Inflation will increase as the value of money falls.

Question 14

Which equation best represents the relationship between money supply growth and inflation?

Accepted Answer

$$ Inflation\ Rate \propto Growth\ Rate\ of\ Money\ Supply $$

Question 15

What does the business cycle refer to?

Accepted Answer

The irregular and unpredictable fluctuations in economic activity, such as employment and production.

Question 16

Which policy tools are used to moderate the ups and downs of the business cycle?

Accepted Answer

Monetary and fiscal policy

Question 17

A country with high productivity is likely to have which of the following characteristics?

Accepted Answer

High average income and improved living standards

Question 18

Which of the following is NOT a direct function of the price system in a market economy?

Accepted Answer

Setting wages by government decree

Question 19

If a monopoly exists in a market, which type of market failure is present?

Accepted Answer

Market power

Question 20

Which of the following best explains why sunk costs should not affect future economic decisions?

Accepted Answer

Sunk costs represent past expenditures that cannot be changed and are irrelevant to marginal analysis.

Ten Big Ideas in Economics: Foundations for Macroeconomics

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