Question 1

Which of the following best describes the concept of opportunity cost?

Accepted Answer

The highest-valued alternative that must be given up to engage in an activity.

Question 2

Suppose you spend $3 to buy a sandwich instead of a salad that costs $2. The opportunity cost of buying the sandwich is:

Accepted Answer

$2, the price of the salad you gave up.

Question 3

Which of the following statements is a normative statement?

Accepted Answer

The government should increase the minimum wage to help workers.

Question 4

A market economy is characterized by:

Accepted Answer

Households and firms interacting in markets to allocate resources.

Question 5

Which of the following best illustrates the principle that 'people respond to economic incentives'?

Accepted Answer

A student studies more when the cost of failing a class is high.

Question 6

If the marginal benefit (MB) of consuming a third glass of lemonade is $2.00 and the marginal cost (MC) is $2.00, what should a rational consumer do?

Accepted Answer

Buy the third glass, because $MB = MC$

Question 7

Which of the following is NOT one of the three fundamental economic questions every society must answer?

Accepted Answer

How will profits be maximized for firms?

Question 8

Productive efficiency occurs when:

Accepted Answer

Goods and services are produced at the lowest possible cost.

Question 9

Allocative efficiency is achieved when:

Accepted Answer

Production is in accordance with consumer preferences, i.e., $MB = MC$.

Question 10

Which of the following best describes equity in economics?

Accepted Answer

The fair distribution of economic benefits.

Question 11

A centrally planned economy differs from a market economy in that:

Accepted Answer

Resource allocation is determined by government decisions.

Question 12

Suppose the marginal benefit of a fourth unit of a good is $1.00 and the marginal cost is $2.00. According to the principle of optimal decision-making, what should the consumer do?

Accepted Answer

Not purchase the fourth unit, because $MB < MC$

Question 13

Which of the following is an example of a positive economic statement?

Accepted Answer

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

Question 14

In a mixed economy:

Accepted Answer

Most decisions are made by households and firms, but with significant government involvement.

Question 15

If a society is producing goods and services at the lowest possible cost, but not in accordance with consumer preferences, the society is:

Accepted Answer

Productively efficient but not allocatively efficient.

Question 16

Which of the following best illustrates a trade-off?

Accepted Answer

A student chooses to work part-time instead of taking an extra class.

Question 17

Which of the following is true about efficiency and equity?

Accepted Answer

Efficiency does not guarantee equity.

Question 18

Suppose a government wants to ensure both productive and allocative efficiency in the healthcare sector. Which of the following must be true?

Accepted Answer

Healthcare services are produced at the lowest possible cost and in accordance with consumer preferences, i.e., $MB = MC$.

Question 19

A rational agent will continue to engage in an activity as long as:

Accepted Answer

$MB \geq MC$

Question 20

Which of the following scenarios best demonstrates the concept of marginal analysis?

Accepted Answer

A business decides whether to produce one more unit of output by comparing the additional revenue to the additional cost.

Foundations and Models in Economics: Chapter 1 Study Notes

Study Guide - Practice Questions

Study Guide - Flashcards