ECO2013 Economic Principles Quiz

Questions and Answers

Economic choice is the result of?

scarcity

What do economists mean when they say a good is scarce?

The amount of the good that people would like exceeds the supply freely available from nature.

Which one of the following states a key economic idea?

Incentives matter: human choice is influenced in predictable ways by changes in personal costs and benefits.

The expression, 'There's no such thing as a free lunch,' implies that?

opportunity costs are incurred when resources are used to produce goods and services. Signup and view all the answers

Which of the following is not one of the basic economic questions that all economies must answer? (Select one)

Which government agency will set the prices of the goods and services? Signup and view all the answers

What types of economies require that we answer the questions of what, how, and for whom to produce goods and services? (Select one)

All of the above Signup and view all the answers

Which of the following terms best relates to a fair distribution of economic benefits? (Select one)

Equity Signup and view all the answers

Positive economics differs from normative economics in that? (Select one)

Positive economics deals with how people react to changes in benefits, and normative economics deals with how people react to changes in costs. Signup and view all the answers

The basic difference between macroeconomics and microeconomics is that? (Select one)

Macroeconomics is concerned with the forest (aggregate markets), while microeconomics is concerned with the individual trees (subcomponents). Signup and view all the answers

Which one of the following is a positive economic statement? (Select one)

An increase in the minimum wage will reduce employment. Signup and view all the answers

If the production possibilities frontier is linear, then? (Select one)

Opportunity costs are constant as more of one good is produced. Signup and view all the answers

Which of the following sayings best reflects the concept of opportunity cost? (Select one)

'Time is money.' Signup and view all the answers

In the following graph, which combination is unattainable with the current resources available in this economy? (Select one)

Combination G Signup and view all the answers

If an economy is operating at a point inside the production possibilities curve, it means? (Select one)

Its resources are not being used efficiently. Signup and view all the answers

With voluntary exchange, who benefits? (Select one)

Both the buyer and seller will be made better off. Signup and view all the answers

Absolute advantage is the ability of an individual, firm, or country to? (Select one)

Produce more of a good or service than competitors using the same amount of resources. Signup and view all the answers

If a firm or a nation desires to maximize its output, each productive assignment should be carried out by those persons who? (Select one)

Have a comparative advantage in the productive activity. Signup and view all the answers

What is the role of the entrepreneur? (Select one)

All of these. Signup and view all the answers

According to Adam Smith, which of the following is the instrument the invisible hand uses to direct economic activity? (Select one)

Price Signup and view all the answers

Which of the following will most likely occur under a system of clearly defined and enforced private property rights? (Select one)

Resource owners will gain by discovering and employing their resources in ways that are highly valued by others. Signup and view all the answers

People make decisions at the margin. Thus, when deciding whether to purchase a second car, they would compare? (Select one)

The additional benefits of the second car with the additional costs of the second car. Signup and view all the answers

Study Notes

Economic Choice and Scarcity

Economic choice arises from scarcity, where resources are limited compared to desires.
Scarcity indicates that demand for a good exceeds the available natural supply.

Key Economic Concepts

Incentives play a crucial role in shaping human decision-making based on personal costs and benefits.
The phrase "There's no such thing as a free lunch" highlights the concept of opportunity costs involved in resource allocation.

Basic Economic Questions

Fundamental economic queries include what will be produced, how goods/services will be produced, and who will receive them.
The selection of a government agency for price-setting is not a fundamental economic question.

Types of Economies

Market, centrally planned, and mixed economies all require addressing fundamental economic questions regarding production.

Fair Distribution of Economic Benefits

Equity refers to a fair distribution of economic benefits, ensuring everyone receives an equal share.

Positive vs. Normative Economics

Positive economics focuses on measurable statements, while normative economics deals with subjective statements about what should happen.

Macroeconomics vs. Microeconomics

Macroeconomics analyzes aggregate markets, whereas microeconomics studies individual components or markets.

Positive Economic Statements

A positive economic statement can be tested, such as "An increase in the minimum wage will reduce employment."

Production Possibilities Frontier

A linear production possibilities frontier indicates constant opportunity costs when increasing the output of one good.
Points inside the production possibilities curve represent inefficiencies in resource utilization, while points outside are unattainable.

Opportunity Cost

Opportunity cost is exemplified by the saying "Time is money," emphasizing the trade-offs involved in economic decisions.

Voluntary Exchange

Voluntary exchange benefits both parties involved, resulting in mutual gains.

Absolute Advantage

Absolute advantage refers to producing more of a good with the same resources compared to competitors.

Comparative Advantage

To maximize output, tasks should be assigned to individuals with a comparative advantage, performing activities they excel in relative to others.

Role of Entrepreneurs

Entrepreneurs unite factors of production, take risks, and manage businesses to create goods and services.

Invisible Hand

Adam Smith's concept of the "invisible hand" uses price as the mechanism to guide economic activities.

Private Property Rights

Clearly defined and enforced private property rights encourage resource owners to optimize resource value, considering future demand.

Marginal Decision-making

Decision-making at the margin involves comparing the additional benefits and costs related to the next unit, such as the second car's costs versus its benefits.

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Description

Test your understanding of fundamental economic concepts with this ECO2013 quiz. Explore questions about scarcity, economic choices, and the influence of incentives on decision-making. Prepare to deepen your grasp of essential economic ideas!