Basic Economic Concepts

Scarcity is when...

• we have unlimited wants and unlimited resources

• our wants are greater than available resources

• our resources are greater than our wants

• resources are employed fully to minimize waste

Answer explanation

Scarcity is when our wants are greater than the available resources.

Instead of studying for your test, you could have cooked dinner, went to the movies, or exercised. These alternatives represent your...

• scarcity

• resources

• trade-offs

• time value of money

Answer explanation

Trade-offs are the alternatives to a specific choice we make. (The next best option to the choice you make is your opportunity cost.)

A point located inside the production possibilities curve is thought of as...

• an inefficient use of resources

• an efficient use of resources

• not possible given current resources

• a better use of resources

Answer explanation

A point inside the PPC represents an inefficient use of resources, like high unemployment. (recession)

A PPC that is bowed outward represents...

• decreasing opportunity costs

• constant opportunity costs

• no opportunity costs

• increasing opportunity costs

Answer explanation

A bowed out PPC means that with each additional unit of good A that is produced, you must give up an increasing number of units of good B. This shape typically means that the resources used to produce both goods vary (for example, bicycles and tacos).

Producer A can produce either 5 units of chocolate or 10 aloe plants per day. Producer B can produce either 3 units of chocolate or 12 aloe plants per day. Based on this information, which of the following is true?

• producer A has the absolute advantage in producing aloe

• producer B has the absolute advantage in chocolate

• producer B has the comparative advantage in producing chocolate

• producer B has the comparative advantage in producing aloe

Answer explanation

Producer B's per-unit opportunity cost to produce a unit of aloe is 1/4 of a unit of chocolate, which producer A's per-unit opportunity cost of producing 1 unit of aloe is 1/2 unit of chocolate. Since producer B has the lower per-unit opportunity cost in producing aloe, it should specialize in the production of aloe and trade for chocolate.

Which if the following is NOT a characteristic of a well-functioning command economy?

• central decision-making body  

• property rights

• scarce resources

• supply

Answer explanation

In a pure command (socialist) economy, all resources are owned by the government and shared.

The factors of production include land, labor, capital and...

• entrepreneurship

• supply and demand

• externalities

• deficits

Answer explanation

4 factors of production: land, labor, capital and entrepreneurship; entrepreneurs take risks in return for potential rewards.

The study of how people try to satisfy what appears to be seemingly unlimited and competing wants through the careful use of relatively scarce resources

• Consumer Sovereignty

• Economics

• Opportunity Cost

• Competition

A basic requirement for survival-i.e, food, clothing, shelter

• Durable Good

• Consumer Good

• Need

• Want

The tools, equipment, machinery, and factories used in the production of goods and services

• Capital

• Tools

• Durable Goods

• Consumer Goods