Economics Opportunity Cost Quiz

Podcast

Play an AI-generated podcast conversation about this lesson

Questions and Answers

Which of the following best describes opportunity cost?

The profit gained from selling a product.

The total costs incurred in production.

The price of a good or service.

The value of the next best alternative that is forgone. (correct)

A free good incurs an opportunity cost when consumed.

False

What are the three main components of factors of production?

Land, Labour, Capital

In a free market system, entrepreneurs primarily respond to _____ to determine how to produce goods and services.

market demands Signup and view all the answers

Match the factor of production to its description:

Land = Natural resources used in production Labour = Physical and mental skills applied in production Capital = Manufactured goods used to make other goods Enterprise = Organizes and combines all other factors of production Signup and view all the answers

What characterizes an economic good?

It is scarce and has a positive opportunity cost. Signup and view all the answers

Scarcity is a fundamental economic problem faced by all societies.

True Signup and view all the answers

Define the term 'wealth' in the context of economics.

Wealth refers to the accumulation and distribution of valuable resources, goods, and services. Signup and view all the answers

What characterizes a merit good?

Social benefits exceed social costs Signup and view all the answers

Public goods are characterized by being rivalrous and excludable.

False Signup and view all the answers

What is the main issue described by the Tragedy of the Commons?

The rapid degradation of common resources by individuals focused on short-term benefits. Signup and view all the answers

A good is considered ______ if one person's consumption of it does not prevent others from enjoying it.

non-rivalrous Signup and view all the answers

Match the following terms with their definitions:

Merit Goods = Goods for which social benefits exceed social costs Public Goods = Non-rivalrous and non-excludable goods Tragedy of the Commons = Dilemma of resource degradation due to individual consumption Subsidies = Government financial support to encourage consumption of merit goods Signup and view all the answers

Which factor is associated with wages?

Labour Signup and view all the answers

Geographic mobility refers to the ability of resources to change their job tasks.

False Signup and view all the answers

What is a production possibility curve (PPC)?

A graphical representation showing the maximum output of two products that can be produced with given resources. Signup and view all the answers

Land is associated with __________.

rent Signup and view all the answers

Match the factor of production with its corresponding reward:

Land = Rent Labour = Wages Capital = Interest Enterprise = Profits Signup and view all the answers

Which characteristic enhances geographic mobility?

Good transport links Signup and view all the answers

All forms of land are geographically mobile.

False Signup and view all the answers

What are the three key allocation decisions in an economy?

What to produce, how to produce it, whom to produce for Signup and view all the answers

In a mixed economy, there is involvement from both the and sectors.

public, private Signup and view all the answers

Which of the following is NOT a characteristic of microeconomics?

Overall economic growth Signup and view all the answers

The production possibility curve can illustrate unattainable combinations of production.

True Signup and view all the answers

Name one reason why enterprise is considered the most mobile factor of production.

Entrepreneurs can transfer skills from one industry to another. Signup and view all the answers

In a planned economy, the government primarily decides the __________ of resources.

allocation Signup and view all the answers

Match the economic system with its level of government involvement:

Free Market = Less government involvement Planned Economy = More government involvement Mixed Economy = Moderate government involvement Signup and view all the answers

What happens to supply when the cost of factors of production increases?

Supply decreases Signup and view all the answers

Improvements in technology lead to a leftward shift in the supply curve.

False Signup and view all the answers

What determines the equilibrium price (Pe) in a market?

The price at which the quantity supplied equals the quantity demanded. Signup and view all the answers

When the price is below market equilibrium, a ______ occurs.

shortage Signup and view all the answers

Which of the following describes a perfectly elastic demand?

Demand changes infinitely with no price change Signup and view all the answers

If producers expect future prices to decrease, they tend to store their current supply.

False Signup and view all the answers

Name a factor that can enhance productivity.

Motivated workforce, methods of production, technological improvements, or managerial expertise. Signup and view all the answers

A ______ occurs when there is an excess supply in the market.

surplus Signup and view all the answers

If a good's price rises and firms produce more of it, what is this phenomenon called?

Substitution Effect Signup and view all the answers

What characterizes a capital-intensive production method?

Low ratio of workers to capital Signup and view all the answers

The supply of a product will increase when its price decreases.

False Signup and view all the answers

Define effective demand.

Effective demand is the amount that consumers are willing and able to buy at each given price, supported by purchasing power. Signup and view all the answers

A shift in the demand curve occurs due to changes in ______ factors.

non-price Signup and view all the answers

Which of the following describes the relationship stated in the Law of Demand?

Price falls, demand increases Signup and view all the answers

An increase in consumer preferences for a product will shift the demand curve to the left.

False Signup and view all the answers

What effect does an increase in the price of complements have on the demand for a product?

It decreases the demand for the product. Signup and view all the answers

Match the following concepts with their definitions:

Demand Curve = Illustrates the relationship between price and quantity demanded Ceteris Paribus = All other factors being equal Law of Supply = Producers supply more at higher prices Market Equilibrium = Where supply equals demand Signup and view all the answers

The quantity of a good that producers are willing to sell at a given price is known as ______.

supply Signup and view all the answers

Under which condition does demand increase according to the demand curve?

All of the above Signup and view all the answers

Demand refers only to the desire to purchase a product.

False Signup and view all the answers

What happens to market equilibrium when demand increases?

Market equilibrium shifts to the right. Signup and view all the answers

Which of these factors would NOT lead to a shift in the demand curve?

Increase in price of the product Signup and view all the answers

What is the primary goal of firms in a market economy?

To maximize profits. Signup and view all the answers

When the price of substitutes falls, the demand for the original product will tend to ______.

decrease Signup and view all the answers

What happens to demand when there is an increase in the number and closeness of substitutes?

Demand becomes more elastic Signup and view all the answers

If the product is defined narrowly, the demand is more elastic.

False Signup and view all the answers

What is the formula for Price Elasticity of Supply (PES)?

PES = % change in quantity supplied / % change in price Signup and view all the answers

If a product has a larger proportion of income spent on it, it is considered to have ______ elasticity.

more Signup and view all the answers

Match the market situation with its description.

Market failure = Inefficient allocation of resources Overproduction = Exceeding the socially efficient level of output Underproduction = Insufficient supply for optimal welfare Information failure = Poor access to accurate data Signup and view all the answers

Which of the following is a determinant of Price Elasticity of Demand (PED)?

Time period considered Signup and view all the answers

A perfectly elastic supply curve has a PES equal to 0.

False Signup and view all the answers

What is the implication of high mobility of production factors on PES?

It makes PES more elastic. Signup and view all the answers

Social costs include both ______ costs and external costs.

private Signup and view all the answers

Match the types of market failure with their effects.

Overproduction = Negative externalities Underproduction = Loss of potential welfare Market failure when too little is provided = Insufficient provision of goods Information failure = Asymmetric information Signup and view all the answers

What outcome occurs when demand for a product is inelastic and the government imposes a tax?

There is no impact on unemployment Signup and view all the answers

Social benefits exceed private benefits during a market failure in underproduction.

True Signup and view all the answers

What happens to quantity supplied when there is an elastic supply and demand increases?

Quantity supplied rises by a greater percentage than the price change. Signup and view all the answers

The ______ curve for supply depicts the true costs to society when negative externalities occur.

social cost Signup and view all the answers

What defines a perfectly inelastic supply curve?

PES = 0 Signup and view all the answers

Study Notes

Economics Fundamentals

Economics studies human behavior regarding scarce resources with alternative uses.
"Ends" represent needs, wants, and desires; "means" are limited resources.
Scarcity arises from limited productive resources (land, labor, capital, entrepreneurship).
The basic economic problem involves scarcity and unlimited wants/needs.
Free goods are not scarce and have zero opportunity cost.
Economic goods are scarce and have an opportunity cost (greater than zero).

Wealth Allocation

Wealth involves allocation, consumption, production, distribution, and utilization of resources.

Factors of Production

Land: Natural resources (nature-derived).
Labor: Physical and mental skills used in production.
Capital: Manufactured goods used in production (tools, equipment).
Enterprise/Entrepreneurship: Organizes other factors to create goods/services; assumes market risk.
Money: Facilitates exchange, not a productive resource.

Factor Rewards

Land: Rent
Labor: Wages
Capital: Interest
Enterprise: Profit

Factors of Production Mobility

Occupational Mobility: Ability to change tasks.
Geographic Mobility: Ability to move locations.
Land is immobile geographically.
Enterprise is highly mobile.

Factor Quantity and Quality

Land: Quality varies by natural resources; quantity is affected by erosion/reclamation.
Capital: Quantity increases with investment; quality improves with technology/robotics.
Labor: Quantity affected by population, immigration, retirement age; quality depends on experience, education.
Enterprise: Quality influenced by education, risk tolerance/ motivation and access to capital.

Production Possibility Curve (PPC)

A PPC shows maximum output combinations for two goods.
Points on the curve are attainable; points outside are unattainable.
PPCs are used to represent output possibilities with available resources and technology.

Microeconomics and Macroeconomics

Microeconomics: Studies individual households and firms, and individual markets.
Macroeconomics: Studies the economy as a whole (aggregate levels).

Resource Allocation

What to produce?
How to produce it?
For whom to produce it?
Types of economies: Planned, mixed, free market.

Market Economic System

Consumer preferences guide production.
The price mechanism allocates resources.
Market equilibrium (supply = demand) ensures no shortages/surpluses.

Demand

Effective demand is backed by ability and willingness to pay.
Demand curves show inverse relationship between price and quantity demanded.
Individual and market demand are summed to determine overall market demand.

Demand Curve Shifts and Movements

Price changes cause movements along the curve.
Other factors (taste/preferences, prices of related goods, income) shift the curve.

Supply

Supply is quantity offered for sale at various prices.
The law of supply states that higher prices incentivize greater supply.
Non-price factors (costs of production, technology, prices of other goods, expectations) shift the curve.

Price Determination

Market equilibrium occurs where supply equals demand.
Equilibrium price and quantity are where supply and demand intersect.
Market disequilibrium leads to shortages or surpluses, which drive prices towards equilibrium.

Price Elasticity of Demand (PED)

PED measures responsiveness of quantity demanded to price changes.
PED can be elastic, inelastic, unitary, perfectly elastic, or perfectly inelastic.
Determinants of PED include availability of substitutes, necessity of the good, and time frame.

Price Elasticity of Supply (PES)

PES measures responsiveness of quantity supplied to price changes.
PES can be elastic, inelastic, unitary, perfectly elastic, or perfectly inelastic.
Determinants of PES include factors like production costs, unused capacity, and time frame.

Market Failure

Market failure occurs when free markets fail to allocate resources efficiently.
Causes include information failure, lack of merit goods, and public goods.
Social benefits and costs may differ from private benefits & costs when there is market failure.

Overproduction and Underproduction

Overproduction results in social costs exceeding social benefits.
Underproduction results in social benefits exceeding social costs.

Information Failure

Incomplete or inaccurate information affecting market efficiency.

Lack of Merit and Public Goods

Merit goods have social benefits exceeding costs.
Public goods are non-rivalrous and non-excludable.

Studying That Suits You

Use AI to generate personalized quizzes and flashcards to suit your learning preferences.

Description

Test your knowledge of key economic concepts, including opportunity cost, factors of production, and the characteristics of goods. This quiz covers fundamental ideas in economics that are crucial for understanding market dynamics. Challenge yourself and see how well you understand these important topics!

Economics Opportunity Cost Quiz

Choose a study mode

Podcast

Questions and Answers

Which of the following best describes opportunity cost?

A free good incurs an opportunity cost when consumed.

What are the three main components of factors of production?

In a free market system, entrepreneurs primarily respond to _____ to determine how to produce goods and services.

Match the factor of production to its description:

What characterizes an economic good?

Scarcity is a fundamental economic problem faced by all societies.

Define the term 'wealth' in the context of economics.

What characterizes a merit good?

Public goods are characterized by being rivalrous and excludable.

What is the main issue described by the Tragedy of the Commons?

A good is considered ______ if one person's consumption of it does not prevent others from enjoying it.

Match the following terms with their definitions:

Which factor is associated with wages?

Geographic mobility refers to the ability of resources to change their job tasks.

What is a production possibility curve (PPC)?

Land is associated with __________.

Match the factor of production with its corresponding reward:

Which characteristic enhances geographic mobility?

All forms of land are geographically mobile.

What are the three key allocation decisions in an economy?

In a mixed economy, there is involvement from both the __________ and __________ sectors.

Which of the following is NOT a characteristic of microeconomics?

The production possibility curve can illustrate unattainable combinations of production.

Name one reason why enterprise is considered the most mobile factor of production.

In a planned economy, the government primarily decides the __________ of resources.

Match the economic system with its level of government involvement:

What happens to supply when the cost of factors of production increases?

Improvements in technology lead to a leftward shift in the supply curve.

What determines the equilibrium price (Pe) in a market?

When the price is below market equilibrium, a ______ occurs.

Which of the following describes a perfectly elastic demand?

If producers expect future prices to decrease, they tend to store their current supply.

Name a factor that can enhance productivity.

A ______ occurs when there is an excess supply in the market.

If a good's price rises and firms produce more of it, what is this phenomenon called?

What characterizes a capital-intensive production method?

The supply of a product will increase when its price decreases.

Define effective demand.

A shift in the demand curve occurs due to changes in ______ factors.

Which of the following describes the relationship stated in the Law of Demand?

An increase in consumer preferences for a product will shift the demand curve to the left.

What effect does an increase in the price of complements have on the demand for a product?

Match the following concepts with their definitions:

The quantity of a good that producers are willing to sell at a given price is known as ______.

Under which condition does demand increase according to the demand curve?

Demand refers only to the desire to purchase a product.

What happens to market equilibrium when demand increases?

Which of these factors would NOT lead to a shift in the demand curve?

What is the primary goal of firms in a market economy?

When the price of substitutes falls, the demand for the original product will tend to ______.

What happens to demand when there is an increase in the number and closeness of substitutes?

If the product is defined narrowly, the demand is more elastic.

What is the formula for Price Elasticity of Supply (PES)?

If a product has a larger proportion of income spent on it, it is considered to have ______ elasticity.

Match the market situation with its description.

Which of the following is a determinant of Price Elasticity of Demand (PED)?

A perfectly elastic supply curve has a PES equal to 0.

What is the implication of high mobility of production factors on PES?

Social costs include both ______ costs and external costs.

Match the types of market failure with their effects.

What outcome occurs when demand for a product is inelastic and the government imposes a tax?

Social benefits exceed private benefits during a market failure in underproduction.

What happens to quantity supplied when there is an elastic supply and demand increases?

The ______ curve for supply depicts the true costs to society when negative externalities occur.

What defines a perfectly inelastic supply curve?

Study Notes

Economics Fundamentals

Wealth Allocation

Factors of Production

Factor Rewards

Factors of Production Mobility

Factor Quantity and Quality

Production Possibility Curve (PPC)

Microeconomics and Macroeconomics

Resource Allocation

In a mixed economy, there is involvement from both the and sectors.