Question 1

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

Accepted Answer

The value of the next best alternative foregone when a choice is made.

Question 2

Suppose a country can produce either 100 units of health care or 50 units of education. If the country moves from producing 100 units of health care and 0 units of education to producing 80 units of health care and 10 units of education, what is the opportunity cost of producing the additional 10 units of education?

Accepted Answer

$$20$$ units of health care

Question 3

Which of the following statements about the Production Possibility Frontier (PPF) is correct?

Accepted Answer

Points on the PPF represent efficient use of resources.

Question 4

If the price of coffee increases and the quantity demanded decreases, this is an example of:

Accepted Answer

A movement along the demand curve.

Question 5

Which of the following would cause a rightward shift in the demand curve for electric cars?

Accepted Answer

An increase in the price of gasoline (a substitute).

Question 6

Suppose the government imposes a subsidy on the production of solar panels. What is the most likely effect on the supply curve for solar panels?

Accepted Answer

The supply curve shifts to the right.

Question 7

If the price of a good is set below the equilibrium price, what is the likely market outcome?

Accepted Answer

A shortage will occur.

Question 8

Which of the following factors would NOT shift the supply curve for wheat?

Accepted Answer

A change in the price of wheat.

Question 9

The price elasticity of demand (PED) is defined as:

Accepted Answer

The percentage change in quantity demanded divided by the percentage change in price.

Question 10

If $$|PED| \u003e 1$$, which of the following is true?

Accepted Answer

Demand is elastic.

Question 11

A business increases the price of its product, and as a result, its total revenue decreases. What does this indicate about the price elasticity of demand for the product?

Accepted Answer

Demand is elastic.

Question 12

Suppose the price of a necessity such as insulin increases by 10%, and the quantity demanded falls by only 2%. What is the price elasticity of demand (PED) for insulin, and how would you classify it?

Accepted Answer

$$PED = \frac{-2\%}{10\%} = -0.2$$, inelastic

Question 13

Which of the following best illustrates the concept of ceteris paribus?

Accepted Answer

Assuming all other factors remain constant when analyzing the effect of a change in price on quantity demanded.

Question 14

If a new technology reduces the cost of producing smartphones, what is the likely effect on the market for smartphones?

Accepted Answer

The supply curve shifts to the right, leading to a lower equilibrium price and higher equilibrium quantity.

Question 15

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

Accepted Answer

Spending more on healthcare means less can be spent on education.

Question 16

If the price elasticity of demand for a product is $$|PED| = 1$$, what happens to total revenue if the price increases?

Accepted Answer

Total revenue remains unchanged.

Question 17

Which of the following would most likely cause a leftward shift in the demand curve for movie tickets?

Accepted Answer

A decrease in consumer income, assuming movie tickets are normal goods.

Question 18

A market is in equilibrium when:

Accepted Answer

Quantity supplied equals quantity demanded.

Question 19

Suppose the price of tea increases, and as a result, the demand for coffee increases. What is the relationship between tea and coffee?

Accepted Answer

They are substitutes.

Question 20

If a firm faces a perfectly inelastic demand curve, what will happen to total revenue if it increases its price?

Accepted Answer

Total revenue will increase.

Foundations of Economics: Scarcity, Choice, and Market Dynamics

Study Guide - Practice Questions

Study Guide - Flashcards