9.30 AcDec Economics, Math and Science Quiz

What is the primary economic benefit of free trade?

• It eliminates taxes.

• It promotes specialization based on comparative advantage.

• It reduces consumer surplus.

• It increases the need for government intervention.

Answer explanation

The primary economic benefit of free trade is that it promotes specialization based on comparative advantage, allowing countries to produce goods more efficiently and trade for others, leading to overall economic gains.

Which of the following describes the opportunity cost?

• The financial cost of producing a good

• The profit a business makes from selling a product

• The value of the next best alternative forgone

• The cost of materials used in production

Answer explanation

Opportunity cost refers to the value of the next best alternative forgone when making a decision. It highlights what is sacrificed in order to pursue a particular choice, making it the correct answer.

What happens when a price ceiling is set below the equilibrium price?

• Surplus

• Shortage

• No effect

• Increased demand

Answer explanation

When a price ceiling is set below the equilibrium price, it leads to a shortage. This occurs because the lower price increases demand while discouraging supply, resulting in more consumers wanting the product than what is available.

What is the primary purpose of a carbon tax?

• To generate government revenue

• To encourage the use of fossil fuels

• To reduce carbon dioxide emissions

• To increase energy production

Answer explanation

The primary purpose of a carbon tax is to reduce carbon dioxide emissions by making fossil fuels more expensive, thereby encouraging businesses and individuals to seek cleaner energy alternatives.

What does the law of diminishing returns state?

• Adding more of one input increases output indefinitely.

• Output decreases as more inputs are added.

• Each additional input contributes less to output than the previous one.

• The cost of inputs increases as production expands.

Answer explanation

The law of diminishing returns states that as more of one input is added, each additional input contributes less to output than the previous one, leading to decreased efficiency in production.

What is the effect of a price floor set above the equilibrium price?

• Shortage

• No effect

• Surplus

• Decreased production

Answer explanation

A price floor set above the equilibrium price leads to a surplus because it causes the quantity supplied to exceed the quantity demanded at that price, resulting in excess supply in the market.

Which of the following best describes comparative advantage?

• Producing a good with lower input costs than competitors

• Producing the same amount as competitors

• Producing goods at the highest opportunity cost

• Specializing in goods where opportunity cost is lowest

Answer explanation

Comparative advantage refers to the ability to produce goods at a lower opportunity cost than others. Thus, specializing in goods where opportunity cost is lowest allows for more efficient production and trade.

How do carbon markets work to reduce emissions?

• By setting price controls on carbon

• By capping emissions and allowing trading of permits

• By banning fossil fuel production

• By subsidizing renewable energy

Answer explanation

Carbon markets work by capping total emissions and allowing companies to trade permits. This creates a financial incentive to reduce emissions, as companies can sell excess permits if they pollute less than their cap.

What does the elasticity of demand measure?

• The number of goods sold at a given price

• The change in supply based on price

• The responsiveness of quantity demanded to changes in price

• The cost of producing an additional unit of a good

Answer explanation

The elasticity of demand measures how much the quantity demanded of a good changes in response to a change in its price. Thus, the correct choice is the responsiveness of quantity demanded to changes in price.

What is the effect of a tax on a good?

• It increases both consumer and producer surplus.

• It reduces both consumer and producer surplus.

• It only reduces consumer surplus.

• It only reduces producer surplus.

Answer explanation

A tax on a good raises its price, leading to a decrease in quantity demanded and supplied. This results in a loss of both consumer and producer surplus, as consumers pay more and producers receive less for their goods.