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, which forces choices about allocation.

Question 2

A government program that redistributes income from the wealthy to the poor is an example of which economic tradeoff?

Accepted Answer

Efficiency vs. equality

Question 3

Which of the following is the best definition of opportunity cost?

Accepted Answer

The value of the next best alternative that must be given up to obtain something.

Question 4

Suppose you spend $$10,000 on tuition and 5$$,000 on living expenses to attend college for a year, and you could have earned $20,000 working instead. What is your opportunity cost of attending college for the year?

Accepted Answer

$$35,000 = 10$$,000 + $$5,000 + 20$$,000$

Question 5

Rational people make decisions by evaluating costs and benefits of marginal changes. Which scenario best illustrates this principle?

Accepted Answer

A firm decides to hire one more worker after calculating the additional revenue and cost.

Question 6

Which of the following is an example of an incentive affecting behavior?

Accepted Answer

A law increases the penalty for speeding, leading to fewer speeding violations.

Question 7

If you have already spent $$1,000 on car repairs and now face a 600 $$transmission repair, which cost should be considered when deciding whether to repair the transmission?

Accepted Answer

Only the $600 transmission repair, as it is the marginal cost

Question 8

Which of the following best explains how trade can make everyone better off?

Accepted Answer

Trade enables people and countries to specialize in what they do best and exchange for other goods.

Question 9

According to Adam Smith's 'invisible hand' concept, how are resources allocated in a market economy?

Accepted Answer

By the interaction of buyers and sellers determining prices.

Question 10

Which of the following is a cause of market failure?

Accepted Answer

Externalities, such as pollution

Question 11

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

Accepted Answer

Productivity, the amount of goods and services produced per unit of labor

Question 12

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

Accepted Answer

A decrease in the value of money and higher inflation

Question 13

Which equation best represents the opportunity cost of attending college for a year?

Accepted Answer

$$Opportunity\ Cost = Tuition + Living\ Expenses + Foregone\ Earnings$$

Question 14

Which of the following is NOT a tool policymakers use to moderate the business cycle?

Accepted Answer

Trade policy

Question 15

A monopoly is an example of which type of market failure?

Accepted Answer

Market power

Question 16

Which of the following statements about markets is correct?

Accepted Answer

Markets organize economic activity by determining what, how, and for whom to produce.

Question 17

Suppose a new law increases the minimum wage. According to the study materials, what is the likely impact on living standards?

Accepted Answer

It will have a far smaller impact than productivity.

Question 18

Which of the following best describes inflation?

Accepted Answer

An increase in the general level of prices caused by excessive growth in the quantity of money.

Question 19

Which principle explains why people respond to changes in opportunity cost even when money costs remain unchanged?

Accepted Answer

The cost of something is what you give up to get it.

Question 20

Which of the following is a real-world example of an externality?

Accepted Answer

A factory pollutes a river, affecting nearby residents.

The Ten Big Ideas in Economics: Foundations and Principles

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