Question 1

Which of the following best defines the concept of 'scarcity' in economics?

Accepted Answer

Scarcity is the limited nature of society's resources.

Question 2

A student decides to attend college full-time. What is the opportunity cost of this decision?

Accepted Answer

The value of the student's time, such as wages foregone from not working, plus tuition and other expenses.

Question 3

Which equation correctly represents the concept of productivity?

Accepted Answer

$$ Productivity = \frac{Total\ Goods\ and\ Services\ Produced}{Total\ Hours\ Worked} $$

Question 4

Which principle explains why 'there is no such thing as a free lunch'?

Accepted Answer

People face tradeoffs.

Question 5

If the government imposes a tax on producers, which of the following is most likely to occur?

Accepted Answer

The price of the good will likely rise, and consumers may buy less.

Question 6

Which of the following best describes 'market failure'?

Accepted Answer

A situation in which a market left on its own fails to allocate resources efficiently.

Question 7

Adam Smith's 'invisible hand' refers to:

Accepted Answer

The self-interested actions of individuals leading to positive economic outcomes.

Question 8

Which of the following is an example of a marginal change?

Accepted Answer

Deciding to take one more class next semester.

Question 9

Suppose a government wants to improve equity in the economy. Which policy is most consistent with this goal?

Accepted Answer

Distributing tax dollars to improve public education and healthcare.

Question 10

Which of the following statements about efficiency and equity is correct?

Accepted Answer

Efficiency is about maximizing output from resources, while equity is about fair distribution among society.

Question 11

If the marginal benefit of an action exceeds the marginal cost, a rational decisionmaker will:

Accepted Answer

Take the action.

Question 12

Which of the following best describes 'market power'?

Accepted Answer

The ability of a single economic actor (or small group) to have a substantial influence on market prices.

Question 13

Which formula represents the opportunity cost of attending college?

Accepted Answer

$$ Opportunity\ Cost = Tuition + Books + Foregone\ Wages $$

Question 14

Which of the following is NOT a reason why productivity is important for a country's standard of living?

Accepted Answer

Productivity has no effect on living standards.

Question 15

Which of the following is an example of a tradeoff?

Accepted Answer

A government increases spending on education, which means less money is available for defense.

Question 16

Which principle states that 'markets are usually a good way to organize economic activity'?

Accepted Answer

Principle #6: Markets Are Usually a Good Way to Organize Economic Activity

Question 17

If a market is left on its own and fails to allocate resources efficiently, what is this situation called?

Accepted Answer

Market failure

Question 18

Which of the following is a direct result of a government-imposed price ceiling?

Accepted Answer

A shortage of goods in the market.

Question 19

Which of the following best describes the role of incentives in economic decision-making?

Accepted Answer

Incentives motivate people to respond to changes in costs and benefits.

Question 20

Suppose a country increases its productivity. What is the most likely outcome?

Accepted Answer

The standard of living will increase.

Fundamental Principles of Microeconomics: Scarcity, Decision-Making, and Market Interactions

Study Guide - Practice Questions