Economic Questions Quiz

Scarcity and Production Possibility Curve

• The economic principle most involved in the analysis of scarcity using a production possibility curve is opportunity cost.

Cost and Efficiency

• The additional cost resulting from a small increase in an activity is called marginal cost.
• Production efficiency occurs when production is at a point on the production possibility curve, where the economy is producing the maximum possible output.

Opportunity Cost and PPF

• If an economy moves from producing 20 units of mobiles and 4 units of computers to producing 15 mobiles and 5 computers, the opportunity cost of the 5th computer is the 5 units of mobiles sacrificed.
• If an economy is operating inside its current PPF, then it must be experiencing inefficiency.

Supply and Demand

• A change in quantity supplied of a product is the result of a change in price.
• A shift of the demand curve or increase in demand is the result of a change in consumer preferences, income, or population.
• The price elasticity of demand is calculated by dividing the percentage change in quantity demanded by the percentage change in price.

Elasticity and Supply

• In the case of perfectly elastic demand, the demand curve is horizontal.
• A shift of the supply curve to the right is the result of a decrease in production costs or an increase in technology.
• If supply is perfectly elastic, the price elasticity of supply is equal to infinity.

Demand and Total Revenue

• If the elasticity of demand for a product is 0.5 (Inelastic demand), then an increase in price will increase total revenue.
• If a 4% increase in price results in an 8% decrease in quantity demanded, then the price elasticity of demand is equal to 2.

Income Elasticity and Diminishing Marginal Returns

• The ratio of the percentage changes in quantity demanded to the percentage change in income is known as the income elasticity of demand.
• When the total product curve is falling, the marginal product of labor is decreasing.
• Diminishing marginal returns implies that the marginal product of labor decreases as the quantity of labor increases.

Inputs and Economic Costs

• An input is indivisible if it cannot be divided into smaller units.
• Economic cost is equal to the sum of explicit costs and implicit costs.
• The change in output from one additional unit of labor is called the marginal product of labor.

Economic Questions and Thinking at the Margin

• The 3 key economic questions are: what to produce, how to produce, and for whom to produce.
• Which of the following is not related to the 3 key economic questions? What is the best way to produce shoes?
• A normative question is an example of a question that involves value judgments, such as "What is the best way to produce shoes?"
• The Latin expression 'ceteris paribus' means "other things being equal" when studying the relationship between two variables.
• In the decision-making process, thinking at the margin means considering the additional costs and benefits of a small change in a decision.

Opportunity Cost and Production

• The opportunity cost of watching a football match when your economics exam is very near and the cost of watching the game is paid by your friend is the potentially lost grade on the exam.
• If you run a small copy shop with one copying machine and one worker who can copy 500 pages per hour, adding another worker while keeping the copying machine the same will not increase the total output.