Question 1

Which of the following best defines scarcity in economics?

Accepted Answer

A situation in which unlimited wants exceed the limited resources available to fulfill those wants.

Question 2

What is the opportunity cost of a government increasing funding for space exploration, according to the study materials?

Accepted Answer

The highest-valued alternative that must be given up, such as funding cancer research.

Question 3

Which of the following is NOT one of the three key economic ideas outlined in the materials?

Accepted Answer

All decisions are made by the government.

Question 4

A firm is deciding whether to automate its production process or continue using manual labor. This decision is an example of which fundamental economic question?

Accepted Answer

How will the goods and services be produced?

Question 5

Which of the following best describes a mixed economy?

Accepted Answer

An economy in which most decisions result from market interactions, but the government plays a significant role in resource allocation.

Question 6

Suppose the marginal benefit (MB) of watching an extra hour of TV is $$10, and the marginal cost (MC) is 8. $$According to marginal analysis, what should you do?

Accepted Answer

Watch the extra hour of TV because $$MB \u003e MC$$

Question 7

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

Accepted Answer

Raising taxes will reduce the number of people who start new businesses.

Question 8

Market economies tend to promote which two types of efficiency?

Accepted Answer

Productive efficiency and allocative efficiency

Question 9

If a government policy unintentionally causes students to borrow more money for living expenses, this is an example of:

Accepted Answer

An unintended consequence

Question 10

Which of the following best describes the role of assumptions in economic models?

Accepted Answer

Assumptions simplify reality to make models useful for analysis.

Question 11

A market is defined as:

Accepted Answer

A group of buyers and sellers of a good or service and the institution or arrangement by which they come together to trade.

Question 12

Which of the following is an example of allocative efficiency?

Accepted Answer

Production is in accordance with consumer preferences, and every good or service is produced up to the point where the last unit provides a marginal benefit equal to the marginal cost.

Question 13

Which of the following is a normative statement?

Accepted Answer

The government should reduce air pollution.

Question 14

Suppose a firm can produce a product using either more labor or more machines. If the cost of labor rises, what is the likely response according to economic theory?

Accepted Answer

The firm will switch to a production technique that uses more machines and less labor.

Question 15

Which of the following best describes productive efficiency?

Accepted Answer

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

Question 16

If the marginal cost (MC) of producing an additional unit is $$15 and the marginal benefit (MB) is 10$$, what should a rational firm do?

Accepted Answer

Do not produce the additional unit because $$MC \u003e MB$$

Question 17

Which of the following is a microeconomic issue?

Accepted Answer

How consumers react to changes in product prices

Question 18

Why do economists often find it difficult to establish causality in economic models?

Accepted Answer

Because many factors can change at the same time, making it hard to isolate the effect of one variable.

Question 19

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

Accepted Answer

Choosing to spend more on healthcare means less can be spent on education.

Microeconomics Chapter 1: Foundations and Models – Structured Study Notes

Study Guide - Practice Questions

Study Guide - Flashcards