What is correct about scarcity?
Scarcity affects low income earners only.
Scarcity forces individuals to make choices.
Scarcity is removed by periods of falling prices.
Scarcity will be abolished by advances in technology.
The fundamental economic question is how to meet unlimited wants with limited resources. What is an example of limited resources?
insufficient machinery to produce electrical goods
insufficient jobs to allow full employment
insufficient consumer goods in the local shops
insufficient tax revenue to finance building a school
What is the opportunity cost to a person of spending $20 on a new pair of sports shoes?
all the other things the person could have bought
the cost of getting to the sports shop
the current value of his old pair of shoes
the next best thing that could have been bought with the $20
What is correct for a normative statement?
It is subjective and can be reliably tested.
It is objective and can be proved correct.
It is objective and based on fact.
It is subjective and based on opinion.
Which is a positive statement?
The UK government should not renationalise the railway infrastructure.
A fall in the value of the Chinese yuan against the US dollar will make Chinese goods more price competitive in the USA.
Direct taxes are the best fiscal instrument to redistribute income in a developed economy.
The most important macroeconomic objective of the government is to reduce unemployment.
Which statement is correct?
Positive economics can be tested by data and evidence.
Normative economics concerns the description of economic models.
Positive economics is subjective and offers a value judgement.
Normative economics is objective and factual.
Which statement is correct?
In the short run at least one factor is varied; in the long run all factors are fixed.
In the short run all factors of production are fixed; in the long run all factors are varied.
In the short run at least one factor is fixed; in the long run all factors can be varied.
In the short run at least one factor is varied; in the long run at least one factor is varied.
What distinguishes the very long run from the long run?
the ability to change resource allocation
the ability to change the state of technology
the absence of government market intervention
the existence of variable factors of production
What is meant by the division of labour?
Each worker specialises in a different task in production.
Some workers work part-time and others work full-time.
The same amount of output per hour is produced by each worker.
Workers divide their time between different jobs.
A factory introduces an automated production line to take advantage of division of labour. What is most likely to increase?
average cost of production
job satisfaction of workers
range of skills of each worker
worker productivity
A government wants to move its economy away from central planning towards a market economy. Which policy would be consistent with this aim?
introduce tariffs on imported goods
privatise the ownership of electricity generation
provide free education for primary school pupils
reduce prices of foods such as wheat and rice
Which change in the way resources are allocated in an economy is consistent with moving from aplanned economy to a market economy?
A minimum price guarantee for apple producers is removed.
A new government authority is established to monitor inefficiencies in apple production.
The production of apples is subsidised to increase output.
The sale of apples has a maximum price imposed.
A planned economy is moving to a market economy. The gov. previously provided transport services but has now sold these to private firms. What is a consequence?
Government ownership of resources has increased.
Services provided by the public sector have increased.
There has been an increase in central planning.
There has been an increase in consumer sovereignty.
What is not a characteristic of a planned economy?
Consumers have limited influence on what is produced.
Profit is the motive for increasing output.
Resources are owned by the government.
There is limited competition in the market.
What does a production possibility curve show?
the maximum output that can be produced by a firm in a year
the maximum output that can be produced per worker per year in the economy
the maximum output that could be exported from a country
the maximum output of two or more goods in an economy from a given amount of inputs
What would be a determinant of a country’s production possibility curve boundary?
the capital invested in infrastructure
the level of price and wage inflation
the level of unemployed labour
the volume of imports and exports
What is correct at any point along an economy’s production possibility curve?
A
B
C
D
An economy is operating at a point inside its production possibility curve. Why is this described as inefficient?
Individuals are enjoying too much leisure.
More of one good can be produced without decreasing production of another.
The combination of labour and capital is wrong.
There are shortages of some goods and an excess supply of others.
The diagram shows a production possibility curve. What can be deduced from the shape of this curve?
decreasing marginal returns to consumption
decreasing opportunity costs of consumption
increasing opportunity costs of production
increasing returns to scale
The diagram shows the production possibility curve of a desert island economy. What explains the shape of the production possibility curve?
Coconuts and fish are perfect complements.
Coconuts and fish are perfect substitutes.
The inhabitants consume more fish than coconuts.
The opportunity cost of increasing fish production is constant.
A production possibility curve for a country is shown. What would cause the shift from PP to P1P1?
application of more machinery used in manufacturing
productivity decreases
scientific methods applied to farming
switch from production of consumer goods to capital goods
What is characterised as a free good?
one that has zero opportunity cost
one that is non-excludable and non-rivalrous
one that is supplied by the government with no charge
one that receives a 100% government subsidy
What justifies government intervention in the provision of a merit good such as education?
People who pay for education value it more than those who cannot pay.
Private schools have more merit than state schools.
Social costs of providing education outweigh social benefits of education.
Some consumers do not fully recognise the value of education.
A government wants to prevent the spread of an infectious disease by vaccinating all children. Why might vaccination be classified as a merit good?
The benefit to society is equal to the benefit received by the individual.
The good is excludable.
The good is not vital.
The good would otherwise be under-consumed.
A good’s defining quality is that its consumption by one person prevents its consumption by someone else. How is this good classified?
a free good
a non-excludable good
a non-rival good
a private good