Question 1

Which of the following best describes the concept of opportunity cost in everyday decision-making?

Accepted Answer

It is the value of the next best alternative forgone when a choice is made.

Question 2

Suppose a country must decide how to allocate its limited resources. Which three fundamental questions must it answer?

Accepted Answer

What will be produced? How will it be produced? For whom will it be produced?

Question 3

Which of the following is a positive economic statement?

Accepted Answer

An increase in the minimum wage will reduce employment.

Question 4

A market economy, a centrally planned economy, and a mixed economy all require answers to which set of questions?

Accepted Answer

What, how, and for whom to produce goods and services.

Question 5

If the production possibilities frontier (PPF) is bowed outward, what does this indicate about opportunity costs?

Accepted Answer

Opportunity costs are increasing as more of one good is produced.

Question 6

Which of the following best reflects the law of supply?

Accepted Answer

As the price of a good increases, sellers will produce more of the good.

Question 7

Suppose the price of cable TV increases. What is the likely effect on the demand for satellite TV, assuming they are substitutes?

Accepted Answer

The demand for satellite TV will increase.

Question 8

Which of the following statements about scarcity is correct?

Accepted Answer

Scarcity means the amount people want exceeds what is freely available from nature.

Question 9

If a firm or nation wants to maximize its output, each productive assignment should be carried out by those who:

Accepted Answer

Have a comparative advantage in the productive activity.

Question 10

Which of the following would most likely decrease the price of beef?

Accepted Answer

Lower prices of grain used to produce cattle feed.

Question 11

Which of the following is the role of the entrepreneur in the economy?

Accepted Answer

All of the above.

Question 12

According to Adam Smith, which instrument does the 'invisible hand' use to direct economic activity?

Accepted Answer

Price

Question 13

If the market price is above the equilibrium price, what will happen?

Accepted Answer

There will be a tendency for price to decrease, causing quantity demanded to decrease and quantity supplied to increase until they are equal.

Question 14

Which of the following is an example of allocative efficiency?

Accepted Answer

Resources are used to produce goods and services most valued by society.

Question 15

Suppose over 20 years, both the quantity of health care provided and health care prices have been rising. Economic theory would suggest this is best explained by:

Accepted Answer

An increase in demand, while supply remained relatively constant.

Question 16

Which of the following best describes comparative advantage?

Accepted Answer

The ability to produce a good or service at a lower opportunity cost than other producers.

Question 17

Which of the following is a normative economic statement?

Accepted Answer

The minimum wage should be increased.

Question 18

If an economy is operating at a point inside the production possibilities curve, what does this indicate?

Accepted Answer

Resources are not being used efficiently.

Question 19

Which of the following would most likely increase the demand for peanut butter?

Accepted Answer

A decrease in the price of jelly, a good that is often used with peanut butter.

Question 20

Suppose corn and soybeans are alternatives that could be grown by most farmers. An increase in the price of corn will:

Accepted Answer

Decrease the supply of soybeans.

Fundamental Concepts and Principles in Microeconomics

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