Principles Of Economics Questions!

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Principles Of Economics Questions! - Quiz

Economics is the study of how societies, governments, businesses, households, and individuals allocate their scarce resources. One of how we get to ensure that the company we set up ensures we understand the factors affecting the economy we operate in. The quiz below is on economics principles, take it up and see what you have understood so far.


Questions and Answers
  • 1. 

    The phenomenon of scarcity stems from the fact that...

    • A.

      Most economies’ production methods are not very good.

    • B.

      In most economies, wealthy people consume disproportionate quantities of goods and services.

    • C.

      Governments restricts production of too many goods and services.

    • D.

      Resources are limited.

    • E.

      People are greedy

    Correct Answer
    D. Resources are limited.
    Explanation
    The correct answer is "resources are limited." The phenomenon of scarcity arises because there are not enough resources available to satisfy all the wants and needs of individuals and society. This scarcity forces individuals and societies to make choices and prioritize their needs, leading to the allocation of resources in the most efficient and effective way possible.

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  • 2. 

    The opportunity cost of going to college is...

    • A.

      The total spent on food, clothing, books, transportation, tuition, lodging, and other expenses.

    • B.

      The value of the best opportunity a student gives up to attend college.

    • C.

      Zero for students who are fortunate enough to have all of their college expenses paid by someone else.

    • D.

      Zero, since a college education will allow a student to earn a larger income after graduation.

    • E.

      None of the above

    Correct Answer
    B. The value of the best opportunity a student gives up to attend college.
    Explanation
    The opportunity cost of going to college refers to the value of the best opportunity that a student gives up in order to attend college. This means that by choosing to go to college, the student is foregoing the potential benefits and opportunities that they could have gained from pursuing a different path or opportunity. The other options provided in the question do not accurately define the concept of opportunity cost in relation to attending college.

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  • 3. 

    The opportunity cost of an item is...

    • A.

      What you give up to get that item.

    • B.

      The dollar value of the item.

    • C.

      Usually less than the dollar value of the item.

    • D.

      The number of hours needed to earn money to buy the item.

    • E.

      None of the above

    Correct Answer
    A. What you give up to get that item.
    Explanation
    The opportunity cost of an item refers to the value of the next best alternative that is forgone in order to obtain that item. It represents what a person must give up or sacrifice in order to acquire a particular item or pursue a certain course of action. It is not necessarily tied to the dollar value of the item or the number of hours needed to earn money to buy it. Therefore, the correct answer is "what you give up to get that item."

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  • 4. 

    In a market economy, economic activity is guided by...

    • A.

      The government.

    • B.

      Corporations.

    • C.

      Central planners.

    • D.

      The president

    • E.

      Self-interest and prices.

    Correct Answer
    E. Self-interest and prices.
    Explanation
    In a market economy, economic activity is guided by self-interest and prices. This means that individuals and businesses make decisions based on their own self-interest, such as maximizing profits or personal welfare, and these decisions are influenced by the prices of goods and services in the market. Self-interest drives competition, innovation, and efficiency, while prices serve as signals of supply and demand, helping to allocate resources effectively. Unlike in a planned economy, where decisions are made by the government or central planners, a market economy relies on the decentralized actions of individuals and the forces of supply and demand.

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  • 5. 

    Which of the following observations was made famous by Adam Smith in his book The Wealth of Nations?

    • A.

      There is no such thing as a free lunch.

    • B.

      People buy more when prices are low than when prices are high.

    • C.

      No matter how much people earn, they tend to spend more than they earn.

    • D.

      Households and firms interacting in markets are guided by an "invisible hand" that leads them to desirable market outcomes.

    • E.

      None of the above

    Correct Answer
    D. Households and firms interacting in markets are guided by an "invisible hand" that leads them to desirable market outcomes.
    Explanation
    Adam Smith's famous observation in his book The Wealth of Nations is that households and firms interacting in markets are guided by an "invisible hand" that leads them to desirable market outcomes. This concept suggests that individuals pursuing their own self-interest in a competitive market will inadvertently promote the well-being of society as a whole. The invisible hand metaphorically represents the self-regulating nature of the market, where supply and demand interact to determine prices and allocate resources efficiently.

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  • 6. 

    Which of the following is not among the reasons why we need the government?

    • A.

      The government provides social welfare services for the poor and the needy

    • B.

      The government provides public goods and services

    • C.

      The government regulates markets when there is a market failure

    • D.

      The government provides free food for everyone

    • E.

      The government imposes laws and controls to protect competitiveness of the industry

    Correct Answer
    D. The government provides free food for everyone
    Explanation
    The government providing free food for everyone is not among the reasons why we need the government. While the government does play a role in providing social welfare services for the poor and the needy, public goods and services, regulating markets in case of market failure, and protecting the competitiveness of the industry through laws and controls, providing free food for everyone is not a typical function of the government.

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  • 7. 

    An outward shift of the PPF means:

    • A.

      Increased size of the government

    • B.

      Economic growth

    • C.

      More consumption

    • D.

      More equality among citizens

    • E.

      None of the above

    Correct Answer
    B. Economic growth
    Explanation
    An outward shift of the PPF represents economic growth. This means that an economy is able to produce more goods and services over time. It indicates an increase in the productive capacity of the economy, which can be due to factors such as technological advancements, increased investment, or improved efficiency. As a result, the economy can experience higher levels of output and potentially higher standards of living for its citizens.

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  • 8. 

    The PPF of a nation shows:

    • A.

      How much people consume

    • B.

      How much production takes place with the existing resources

    • C.

      The prices of products

    • D.

      The population

    • E.

      All of the above

    Correct Answer
    B. How much production takes place with the existing resources
    Explanation
    The correct answer is "how much production takes place with the existing resources". The PPF (Production Possibility Frontier) is a graphical representation that shows the maximum amount of goods and services that a nation can produce given its existing resources and technology. It illustrates the trade-off between producing different goods and services, showing the different combinations that can be produced efficiently. It does not directly show how much people consume, the prices of products, or the population.

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  • 9. 

    Suppose a gardener produces both green beans and corn in her garden. If she must give up 14 bushels of corn to get 5 bushels of green beans, then her opportunity cost of 1 bushel of green beans is

    • A.

      0.36 bushel of corn.

    • B.

      2.4 bushels of corn.

    • C.

      2.8 bushels of corn.

    • D.

      70 bushels of corn.

    • E.

      1 bushel of corn

    Correct Answer
    C. 2.8 bushels of corn.
    Explanation
    The opportunity cost of a good is the value of the next best alternative that must be given up to obtain it. In this case, the gardener must give up 14 bushels of corn to obtain 5 bushels of green beans. To find the opportunity cost of 1 bushel of green beans, we divide the number of bushels of corn given up (14) by the number of bushels of green beans obtained (5). Therefore, the opportunity cost of 1 bushel of green beans is 2.8 bushels of corn.

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  • Current Version
  • Feb 22, 2024
    Quiz Edited by
    ProProfs Editorial Team
  • Sep 10, 2007
    Quiz Created by
    Cypriot5
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