Question 1

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

Accepted Answer

Scarcity means that resources are limited and cannot satisfy all human wants.

Question 2

A student is deciding whether to spend an extra hour studying for an exam or watching TV. According to economic theory, what should the student compare to make an optimal decision?

Accepted Answer

The marginal benefit of studying versus the marginal cost of not watching TV.

Question 3

Which of the following is an example of a trade-off faced by society?

Accepted Answer

Increasing funding for space exploration means less funding is available for cancer research.

Question 4

What is the opportunity cost of attending a concert if you could have worked at your job and earned $80 instead?

Accepted Answer

$80, because it is the highest-valued alternative forgone.

Question 5

Which of the following statements about market economies is correct?

Accepted Answer

Market economies allocate resources through the decisions of households and firms interacting in markets.

Question 6

A government imposes a tax on high incomes to fund welfare programs. This is an example of a trade-off between:

Accepted Answer

Efficiency and equity.

Question 7

Which of the following best defines productive efficiency?

Accepted Answer

Every good or service is produced at the lowest possible cost.

Question 8

Allocative efficiency occurs when:

Accepted Answer

Production is in accordance with consumer preferences, and the last unit provides a marginal benefit equal to the marginal cost.

Question 9

Which of the following is a positive economic statement?

Accepted Answer

An increase in the minimum wage will lead to higher unemployment among teenagers.

Question 10

A firm is deciding whether to use more machines or more workers in its production process. This decision is an example of which economic question?

Accepted Answer

"How will the goods and services be produced?"

Question 11

Suppose the price of pizza decreases from $$14 to 12$$, and the quantity demanded increases from 55 to 65 per week. What is the slope of the demand curve between these two points?

Accepted Answer

$$\frac{65-55}{12-14} = \frac{10}{-2} = -5$$

Question 12

If a firm sells 125,000 bottles of water at $2.00 each, what is its total revenue?

Accepted Answer

$$125,000 	imes 2.00 = 250,000$$

Question 13

Which of the following is an example of voluntary exchange?

Accepted Answer

A consumer buys a coffee from a café, and both the consumer and the café are better off.

Question 14

Which of the following is NOT a step in building an economic model?

Accepted Answer

Ignoring all available data to avoid bias.

Question 15

A percentage change is calculated using which of the following formulas?

Accepted Answer

$$\frac{	ext{Value in the second period} - 	ext{Value in the first period}}{	ext{Value in the first period}} 	imes 100$$

Question 16

Which of the following best describes a mixed economy?

Accepted Answer

An economy in which most decisions result from the interaction of buyers and sellers in markets, but the government plays a significant role.

Question 17

Which of the following is a normative statement?

Accepted Answer

"The government should provide free healthcare to all citizens."

Question 18

If the area of a triangle on a graph has a base of 25,000 and a height of $0.50, what is the area?

Accepted Answer

$$\frac{1}{2} 	imes 25,000 	imes 0.50 = 6,250$$

Question 19

Which of the following is an example of how economic incentives can lead to unintended consequences?

Accepted Answer

Colleges may increase tuition if student loan repayment rules make it easier for students to borrow more money.

Microeconomics Chapter 1: Foundations and Models – Study Notes

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