Question 1

Suppose a country can produce the following combinations of goods and services in a given period:

Units of goods: 0, 10, 20, 30, 40, 50, 60, 70, 80, 90, 100
Units of services: 80, 79, 77, 74, 70, 64, 58, 48, 35, 19, 0

What does the shape of this production possibilities curve (PPC) suggest about the opportunity cost of producing goods?

Accepted Answer

The opportunity cost of producing goods increases as more goods are produced.

Question 2

If the country is currently producing 40 units of goods and 70 units of services, what is the opportunity cost of increasing production to 50 units of goods?

Accepted Answer

6 units of services

Question 3

Which of the following best illustrates the principle of increasing opportunity cost?

Accepted Answer

As a country produces more of one good, it must give up increasingly larger amounts of another good.

Question 4

Suppose technological progress leads to a 10% increase in the output of goods for any given number of resources. How will this affect the country’s production possibilities curve?

Accepted Answer

The PPC will shift outward, indicating an increase in productive capacity.

Question 5

A student spends 12 hours preparing for an exam. The opportunity cost of this time is best described as:

Accepted Answer

The value of the next best alternative use of those 12 hours.

Question 6

Dean is given a ticket to a sold-out concert. On the day of the event, the weather is bad and Dean decides not to go. What is the sunk cost in this scenario?

Accepted Answer

The price Dean paid for the ticket, if it cannot be refunded.

Question 7

Which of the following statements about economic profit is correct?

Accepted Answer

Economic profit takes into account both explicit and implicit costs.

Question 8

If the UK government increases the minimum wage, which of the following is a likely macroeconomic effect according to standard economic theory?

Accepted Answer

Unemployment may increase if the minimum wage is set above the equilibrium wage.

Question 9

Society faces a short-run trade-off between inflation and unemployment. This relationship is best described by which economic concept?

Accepted Answer

The Phillips Curve

Question 10

You are offered £115 to work on a Saturday, but you would be willing to work for no less than £50. The opportunity cost of working on Saturday is:

Accepted Answer

The value of the leisure or alternative activity you give up to work.

Question 11

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

Accepted Answer

"An increase in the minimum wage will reduce employment among low-skilled workers."

Question 12

Suppose the inflation rate in the UK is 10%. Which of the following is most likely to occur if the government reduces the basic rate of income tax?

Accepted Answer

Aggregate demand will increase, potentially raising inflation further.

Question 13

Which of the following best describes the concept of scarcity?

Accepted Answer

Limited resources and unlimited wants.

Question 14

If a country is operating inside its production possibilities curve, what does this indicate?

Accepted Answer

Resources are not being fully utilized.

Question 15

Which formula represents the opportunity cost of producing one more unit of goods in terms of services given up?

Let $\Delta S$ be the change in units of services and $\Delta G$ be the change in units of goods.

Accepted Answer

$\frac{\Delta S}{\Delta G}$

Question 16

Which of the following is NOT a direct implication of the principle of opportunity cost?

Accepted Answer

There is no cost to choosing one option over another.

Question 17

A country can produce either 100 units of goods or 80 units of services. If it chooses to produce 60 units of goods, what is the maximum number of units of services it can produce, according to the data provided?

Accepted Answer

58 units of services

Question 18

Which of the following statements best describes the difference between positive and normative economics?

Accepted Answer

Positive economics deals with what is; normative economics deals with what ought to be.

Question 19

If the opportunity cost of producing 10 more units of goods is 6 units of services, what is the opportunity cost per unit of goods?

Accepted Answer

$\frac{6}{10} = 0.6$ units of services per unit of goods

Question 20

Which of the following is a real-world example of opportunity cost?

Accepted Answer

Choosing to attend university instead of working full-time, thereby giving up potential earnings.

Principles of Microeconomics: Guided Study Sheet 1 – Core Concepts and Applications

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