VCE Economics U3_Unit3_Quiz1

When resources are limited but society's need and wants are unlimited this is referred to as:

• Increasing opportunity cost

• Diminishing marginal utility

• Relative scarcity

• Opportunity cost

Answer explanation

The economic problem is one of relative scarcity - were needs and wants are unlimited, whereas the factors of production (economic resources) are limited

Which of the following is NOT an indication of the PPF shifting outward at all combinations of production levels for agricultural products and service industries

• Farmers become more productive

• All workers become more productive

• The cost of transportation has decreased

• The government reduces all business taxes

Answer explanation

If farmers become more productive it points to agricultural production increasing. This is not a service industry (like tourism or education). This would only increase production of agricultural produce

If a country is producing a combination of goods and services outside the PPF in the short-run, in the long-run this will likely create:

• Higher unemployment and economic growth

• Higher unemployment and lower economic growth

• Higher inflation and higher unemployment

• Higher inflation and very low unemployment

• Lower inflation and higher unemployment

Answer explanation

Production outside the constraints of the PPF will mean that FoP are stretched (where D>S). This will create upward pressure on the average price level and inflation

Which of the following is NOT an essential requirement of a perfectly competitive market?

• Homogeneous products

• Many buyers and sellers

• Firms are price-makers

• Free or minimal barriers to entry and exit from the market

Answer explanation

In the perfectly competitive market firms are price takers not price makers. Competition means that firms may have to meet lower prices by competitors, in which case they are not price makers.

If the price of food has increased, which of the following comments is true?

• Consumers have had a favourable income effect

• Consumers have had a favourable substitution effect

• Consumers have had an unfavourable income effect

• Consumers have had an unfavourable substitution effect

• it is not possible to comment on either the income or substitution effects of the change

Answer explanation

It is not possible to comment on the substitution effect of the price change. However, it is an unfavourable effect on the incomes of consumers.

The price of bananas has decreased. In the banana market this will cause:

• An expansion in demand

• A contraction in demand

• A favourable shift in demand

• An unfavourable shift in demand

Answer explanation

A decrease in the price of the product causes an expansion in demand. At a lower price the quantity demanded increases (law of demand).

The price of green beans increases. For the product for broccoli this will cause:

• An expansion in demand

• A contraction in demand

• A favourable shift in demand

• An unfavourable shift in demand

Answer explanation

The question asks you for the effect on a substitute market. If the price of the alternative increases then this should cause the demand for the product (broccoli) to favourably shift.

Which of the following has no effect on the demand for Toyotas, ceteris paribus?

• Decreases in the personal income tax rates

• An increase in the price of steel

• A new study showing that Toyotas are cost efficient for a longer period of time

• An increase in interest rates

Answer explanation

All of the non-price factors suggested would affect consumers except the price of steel (used to make cars). This would only affect supply.

Which of the following is the correct task word meaning "Give a detailed account of why and/or how with reference to causes, effects, continuity, change, reasons or mechanisms; make the relationships between things evident."?

• Discuss

• Account for

• Outline

• Explain

Which task word means "Consider an argument, concept, debate, data point, trend or artefact in a way that identifies assumptions, possibilities and interrelationships."?

• Examine

• Explain

• Evaluate

• Outline