Basic Economics Trivia Quiz Questions!

1. If the CPI in 2000 is 100 and the CPI in 2008 is 110, there has been:

Slight inflation

Slight deflation

Extreme inflation

Extreme deflation

Stagflation

The given answer, "slight inflation," is correct because the Consumer Price Index (CPI) in 2008 is higher than the CPI in 2000. This indicates that the average price level of goods and services has increased slightly over the years, suggesting inflation.

Explanation

The given answer, "slight inflation," is correct because the Consumer Price Index (CPI) in 2008 is higher than the CPI in 2000. This indicates that the average price level of goods and services has increased slightly over the years, suggesting inflation.

2. You own a farm that generates $100 K per year. You discover it is sitting on top of an oil field that could generate $500 K per year. Your economic cost of continuing to farm on the land is:

$100 K

$400 K

$200 K

$500 K

$1000 K

The economic cost of continuing to farm on the land is $400 K. This is because the farm currently generates $100 K per year, but if the owner were to switch to extracting oil from the oil field, it could generate $500 K per year. Therefore, the opportunity cost of continuing to farm is the potential $400 K difference in income that could be gained from extracting oil.

Explanation

The economic cost of continuing to farm on the land is $400 K. This is because the farm currently generates $100 K per year, but if the owner were to switch to extracting oil from the oil field, it could generate $500 K per year. Therefore, the opportunity cost of continuing to farm is the potential $400 K difference in income that could be gained from extracting oil.

3. Why are transfer payments not a component of GDP?

They are too large and would skew data

They are negligible in size and scope

They do not generate wealth

They only measure a producer's impact on GDP

They only measure the government's impact on GDP

Transfer payments are not considered a component of GDP because they do not generate wealth. Transfer payments are payments made by the government to individuals or other entities without any corresponding production of goods or services. These payments include welfare benefits, social security payments, and unemployment benefits, among others. While transfer payments can have an impact on individuals' purchasing power and overall economic well-being, they do not directly contribute to the production of goods and services, which is the primary focus of GDP measurement. Therefore, transfer payments are excluded from GDP calculations.

Explanation

Transfer payments are not considered a component of GDP because they do not generate wealth. Transfer payments are payments made by the government to individuals or other entities without any corresponding production of goods or services. These payments include welfare benefits, social security payments, and unemployment benefits, among others. While transfer payments can have an impact on individuals' purchasing power and overall economic well-being, they do not directly contribute to the production of goods and services, which is the primary focus of GDP measurement. Therefore, transfer payments are excluded from GDP calculations.

4. You are an artist. It always takes you an hour to produce one work of art. In other words, 1 work takes 1 hour, two works takes 2 hours, and so forth. Time is your only cost. This violates the principle of

Demand

Supply

Ownership

Equilibrium

Diminishing marginal returns

The principle of diminishing marginal returns states that as you continue to increase the input (in this case, the number of works of art produced), the additional output or benefit gained from each additional unit of input will eventually start to decrease. In this scenario, the artist is able to produce one work of art in one hour. However, if they were to continue producing more works of art, it is likely that the time required to produce each additional work would increase, indicating diminishing marginal returns.

Explanation

The principle of diminishing marginal returns states that as you continue to increase the input (in this case, the number of works of art produced), the additional output or benefit gained from each additional unit of input will eventually start to decrease. In this scenario, the artist is able to produce one work of art in one hour. However, if they were to continue producing more works of art, it is likely that the time required to produce each additional work would increase, indicating diminishing marginal returns.

5. Which of the following is not a component of demand?

Consumer spending

Investment

Government spending

Transfer payments

Exports

Transfer payments are not a component of demand because they do not directly contribute to the production of goods and services. Transfer payments refer to money or benefits given to individuals or households by the government without any corresponding production of goods or services. While consumer spending, investment, government spending, and exports all contribute to the overall demand for goods and services in an economy, transfer payments do not have a direct impact on demand as they do not result in the purchase of goods or services.

Explanation

Transfer payments are not a component of demand because they do not directly contribute to the production of goods and services. Transfer payments refer to money or benefits given to individuals or households by the government without any corresponding production of goods or services. While consumer spending, investment, government spending, and exports all contribute to the overall demand for goods and services in an economy, transfer payments do not have a direct impact on demand as they do not result in the purchase of goods or services.

6. Which of the following would cause a supply shift?

A change in consumer tastes or preferences

New technology

Consumer taxes

Employment figures

None of the above

New technology can cause a supply shift because it can lead to an increase in productivity and efficiency in the production process. This can result in a larger quantity of goods or services being supplied at each price level. As a result, the supply curve will shift to the right, indicating an increase in supply.

Explanation

New technology can cause a supply shift because it can lead to an increase in productivity and efficiency in the production process. This can result in a larger quantity of goods or services being supplied at each price level. As a result, the supply curve will shift to the right, indicating an increase in supply.

7. What is the effect of a price ceiling in the long run?

Equilibrium

Shortages

Surpluses

Inflation

Deflation

A price ceiling is a government-imposed limit on how high a price can be charged for a particular good or service. In the long run, a price ceiling creates shortages. This is because when the price is set below the equilibrium level, the quantity demanded exceeds the quantity supplied. As a result, consumers are unable to purchase as much of the good or service as they desire, leading to a shortage.

Explanation

A price ceiling is a government-imposed limit on how high a price can be charged for a particular good or service. In the long run, a price ceiling creates shortages. This is because when the price is set below the equilibrium level, the quantity demanded exceeds the quantity supplied. As a result, consumers are unable to purchase as much of the good or service as they desire, leading to a shortage.