Question 1

Which of the following best describes the concept of opportunity cost as illustrated by the production possibilities curve (PPC)?

Accepted Answer

The opportunity cost of producing more of one good is the amount of the other good that must be given up.

Question 2

Refer to the first image (PPC for smartphones and tablet devices). What does the outward shift of the PPC represent?

Accepted Answer

Economic growth due to increased resources or improved technology.

Question 3

If a country specializes in producing goods for which it has a comparative advantage, what is the expected outcome?

Accepted Answer

The country will achieve allocative efficiency and increase its standard of living.

Question 4

Which of the following is NOT a determinant of demand?

Accepted Answer

Cost of inputs

Question 5

According to the law of demand, what happens when the price of a good increases, ceteris paribus?

Accepted Answer

Quantity demanded decreases.

Question 6

Refer to the second image (market for wireless earbuds). What happens at a price of $1 per wireless earbud?

Accepted Answer

There is a shortage of wireless earbuds.

Question 7

Which equation represents the equilibrium condition in a market?

Accepted Answer

$$Q_d = Q_s$$

Question 8

If both demand and supply increase simultaneously, what happens to equilibrium quantity and price?

Accepted Answer

Equilibrium quantity increases, equilibrium price is indeterminate.

Question 9

Refer to the third image (producer surplus). What does the shaded area represent?

Accepted Answer

Total producer surplus

Question 10

Which of the following statements about price ceilings is correct?

Accepted Answer

A price ceiling set below the equilibrium price creates a shortage.

Question 11

Refer to the fourth image (consumer surplus). How is consumer surplus calculated?

Accepted Answer

The area above the demand curve and above the equilibrium price.

Question 12

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

Accepted Answer

"The unemployment rate will decrease if the government increases spending."

Question 13

What is the main function of prices in a market system?

Accepted Answer

To ration scarce resources efficiently.

Question 14

Refer to the fifth image (study time trade-off). What does the slope of the curve represent?

Accepted Answer

The opportunity cost of spending more time on mathematics versus economics.

Question 15

Which of the following is NOT a method of nonprice rationing?

Accepted Answer

Rationing by price

Question 16

What is the effect of a price floor set above the equilibrium price?

Accepted Answer

It creates a surplus.

Question 17

Refer to the sixth image (demand schedule for wireless earbuds). What is the combined quantity demanded at a price of $3?

Accepted Answer

70

Question 18

Which of the following best describes the law of increasing additional cost?

Accepted Answer

As more of a good is produced, the opportunity cost of producing additional units increases.

Question 19

Refer to the seventh image (gains from trade). What is the total gain from trade in this market?

Accepted Answer

The sum of consumer surplus and producer surplus.

Question 20

Which of the following is a plausible effect of imposing an import quota?

Accepted Answer

It restricts the quantity of imported goods, potentially raising prices.

Foundations of Economics: Scarcity, Trade-Offs, and Market Dynamics

Study Guide - Practice Questions