Question 1

Which of the following best defines economics?

Accepted Answer

The study of how societies allocate scarce resources to meet unlimited wants.

Question 2

Which concept is illustrated by the Production Possibility Curve (PPC)?

Accepted Answer

Opportunity cost

Question 3

If a society moves from point inside the PPC to a point on the PPC, what does this indicate?

Accepted Answer

Resources are being used more efficiently.

Question 4

Which of the following is an example of opportunity cost?

Accepted Answer

The next best alternative forgone when a choice is made.

Question 5

Which equation represents the relationship between expenditure, income, and value of production in macroeconomics?

Accepted Answer

$$ Expenditure = Income = Value\ of\ Production $$

Question 6

Which of the following statements is TRUE about positive economics?

Accepted Answer

It is concerned with propositions that can be tested by empirical evidence.

Question 7

A point outside the PPC represents:

Accepted Answer

An unattainable combination of goods with current resources.

Question 8

Which of the following is NOT one of the five fundamental economic questions?

Accepted Answer

Why are goods and services produced?

Question 9

If the quantity of money in an economy increases faster than production, what is likely to occur?

Accepted Answer

Inflation

Question 10

Which of the following best describes Pareto Efficiency?

Accepted Answer

A situation where it is not possible to make someone better off without making someone else worse off.

Question 11

Which of the following is a microeconomic perspective?

Accepted Answer

A choice is a trade-off and choices are made at the margin.

Question 12

Which of the following is a normative economic statement?

Accepted Answer

"The unemployment rate should be lower."

Question 13

If a market is in equilibrium, which condition must be met?

Accepted Answer

$$ Q_d = Q_s $$

Question 14

Which of the following is an example of diminishing returns as shown by a PPC with increasing opportunity cost?

Accepted Answer

Producing more of one good requires increasingly larger sacrifices of the other good.

Question 15

Which of the following is a key idea of the economic way of thinking?

Accepted Answer

Exchange is voluntary and markets are an efficient way of exchange.

Question 16

Which of the following best explains why the price of diamonds is higher than the price of water?

Accepted Answer

Diamonds are scarcer and have a higher marginal utility than water.

Question 17

Which of the following is NOT a method used in economic analysis?

Accepted Answer

Guessing outcomes without evidence

Question 18

Which of the following is a reason why economists may differ in their views?

Accepted Answer

Differences in values and market versus non-market perspectives.

Question 19

Which of the following is a real-world example of opportunity cost?

Accepted Answer

Choosing to spend money on a vacation instead of saving for a new car.

Question 20

Which of the following best describes consumer sovereignty?

Accepted Answer

Consumer demand determines what goods and services are produced.

The Nature and Scope of Economics: Foundations of Microeconomics

Study Guide - Practice Questions