Micro Ch_2 Review Principles of Microeconomics

Allocative efficiency is achieved when resources are distributed in a way that maximizes the overall benefit to society. Which of the following best describes this concept?

• Resources are allocated to maximize individual profits.

• Resources are distributed equally among all individuals.

• Resources are allocated to maximize overall societal welfare.

• Resources are used to minimize production costs.

A budget constraint is defined as:

• The limit on the consumption bundles that a consumer can afford.

• The total amount of money a consumer plans to spend.

• The difference between income and expenditure.

• The maximum amount a consumer is willing to pay for a good.

What is the concept of comparative advantage?

• The ability of a country to produce a good at a lower opportunity cost than another country

• The ability of a country to produce more of a good than another country using the same amount of resources

• The ability of a country to produce a good using fewer resources than another country

• The ability of a country to produce a good at a higher quality than another country

What is the invisible hand according to Adam Smith?

• A metaphor for the self-regulating nature of the marketplace

• A literal hand that guides economic transactions

• A government policy to control the economy

• A theory about the physical movement of goods

The law of diminishing marginal utility states that as a person consumes more units of a good, the additional satisfaction gained from consuming each additional unit:

• Increases

• Decreases

• Remains constant

• Fluctuates randomly

What does the law of diminishing returns state?

• As more units of a factor are added, the additional output eventually decreases.

• As more units of a factor are added, the total output always increases.

• As more units of a factor are added, the cost of production decreases.

• As more units of a factor are added, the efficiency of production increases.

The law of comparative advantage explains how countries can benefit from trade by specializing in the production of goods for which they have a lower opportunity cost. Which of the following best describes this concept?

• Countries should produce goods they can make most efficiently compared to others.

• Countries should produce goods that require the least resources.

• Countries should produce goods that are in high demand globally.

• Countries should produce goods that they can sell at the highest price.

Marginal analysis is a technique used in economics to assess the impact of small changes in decision-making. Which of the following best describes marginal analysis?

• Evaluating the total cost of production

• Analyzing the additional benefits and costs of a decision

• Studying the overall market trends

• Assessing the historical data of a company

Define normative statement.

• A statement that describes how the world is.

• A statement that prescribes how the world should be.

• A statement that is based on empirical evidence.

• A statement that is universally accepted as true.

What is opportunity cost?

• The cost of the next best alternative foregone

• The total cost of all alternatives

• The cost of the chosen option

• The monetary cost of an investment