1 Basic Economic Problem

The diagram shows the choices for an individual between leisure and earnings. He currently earns $25 a day.

What is the opportunity cost for the person if he accepts more work and earns $75 a day?

• $25

• $50

• 6 hours of leisure a day

• 12 hours of leisure a day

The diagram shows a production possibility curve for agriculture (primary production) and machinery (secondary production). As a country develops and its economy become more advanced, its primary production decreases and its secondary production increases. Which movement would represent this change?

• K to L

• L to N

• M to N

• N to L

What is the basic economic problem?

• Limited resources and limited wants

• Limited resources and unlimited wants

• Unlimited resources and limited wants

• Unlimited resources and unlimited wants

Which statement best explains why drought is an economic problem?

• Rainfall cannot be predicted easily

• The effects of drought require government action

• Droughts cannot be prevented

• Water is a scarce good

New oil reserves are discovered. What has increased in supply?

• Capital

• Entrepreneurship

• Labour

• Land

A farmer pays a landowner for the use of a field. What is the income to the landowner called?

• interest

• profit

• rent

• wages

An increase in the number of manufacturing robots in the car manufacturing industry represents an increase in the quantity of which factor of production?

• capital

• enterprise

• labour

• land

Hala makes cakes she bakes in her kitchen at home. She sells them at a local market. To produce more cakes she decides to invest in a larger oven and to employ someone to help.

Which factors of production have changed?

• Labour

• Capital

• Labour and capital

• Entrepreneurship and capital

A firm can produce a number of possible combinations of two goods. It can either produce 500 of good x and 300 of good y, or 600 x and 250 y. What is the opportunity cost of producing an extra 100 of good x?

• 100 y

• 250 y

• 50 y

• The extra wages paid to the workers.

The diagram below shows the production possibility curve for an economy. Which point in the diagram represents the most efficient allocation of resources to the production of both consumer goods and capital goods in the economy?

• A

• B

• C

• D