Question 1

Which of the following best describes the economic problem of scarcity?

Accepted Answer

Scarcity exists because resources are limited and wants are unlimited.

Question 2

According to Lionel Robbins, what is the primary focus of economics?

Accepted Answer

The science which studies human behaviour as a relationship between unlimited wants and scarce resources which have alternative uses.

Question 3

Which of the following is NOT considered an economic resource?

Accepted Answer

Money

Question 4

Economists refer to the income earned from labour as:

Accepted Answer

Wages

Question 5

Which of the following is an example of capital as an economic resource?

Accepted Answer

A factory building

Question 6

What does the Production Possibilities Curve (PPC) illustrate?

Accepted Answer

The maximum output combinations of two goods given resources and technology.

Question 7

If a country is producing at a point inside its PPC, what does this indicate?

Accepted Answer

The country is experiencing unemployment or inefficiency.

Question 8

Which of the following would cause the PPC to shift outward?

Accepted Answer

Technological improvement.

Question 9

In the context of opportunity cost, if a country moves from point B to point C on its PPC, what does this represent?

Accepted Answer

The country is producing more of one good and less of another, incurring an opportunity cost.

Question 10

Which of the following is NOT a fundamental economic problem every economy must address?

Accepted Answer

How to determine the price of gold

Question 11

Which economic system is characterized by resource ownership by the community and regulation by customs?

Accepted Answer

Traditional economy

Question 12

A command economy is most likely to experience which of the following problems?

Accepted Answer

Coordination problems due to lack of price mechanism

Question 13

Which of the following is a main characteristic of a market economy?

Accepted Answer

Economic resources are privately owned

Question 14

Which of the following is a limitation of the market economy?

Accepted Answer

It may fail to provide public goods such as national defense.

Question 15

In the Circular Flow of Income and Expenditures model, what does the inner circle represent?

Accepted Answer

The flow of resources, goods, and services.

Question 16

Which of the following best explains why the market economy has survived according to the lecture notes?

Accepted Answer

It is self-organizing and emerges from a large number of decentralized decisions.

Question 17

Suppose a country can produce either 1000 units of healthcare or 400 units of education, or combinations in between. If the country moves from producing 1000 units of healthcare and 0 units of education to 800 units of healthcare and 2 units of education, what is the opportunity cost of the 2 units of education?

Accepted Answer

$$ (1000 - 800) = 200 $$ units of healthcare

Question 18

Which of the following is NOT a reason why the command economy model failed?

Accepted Answer

Freedom of choice increases innovation.

Question 19

Which of the following is a function of entrepreneurship in the economy?

Accepted Answer

Identifying market opportunities and taking investment risks.

Question 20

Which of the following best describes the role of financial sector in the market economy?

Accepted Answer

It facilitates resource allocation through the Circular Flow of Income and Expenditures.

Chapter 1 Review of Key Economic Concepts – Principles of Macroeconomics

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