Chapter 1

Which of the following is NOT a factor of production?

• Land

• Labour

• Money

• Capital

Answer explanation

Money is not a factor of production; it is a medium of exchange. The main factors of production are land, labour, and capital, which are essential for creating goods and services.

What is the return to land as a factor of production?

• Wages

• Profit

• Rent

• Interest

Answer explanation

The return to land as a factor of production is referred to as rent. Unlike wages for labor, profit for entrepreneurship, or interest for capital, rent specifically compensates landowners for the use of their land.

What is defined as the 'best alternative forgone' when a choice is made?

• Scarcity

• Opportunity cost

• PPC

• Marginal utility

Answer explanation

Opportunity cost is defined as the 'best alternative forgone' when a choice is made, highlighting the value of the next best option that is not chosen.

Which economic concept explains that society has limited resources but unlimited wants?

• Choice

• Scarcity

• Efficiency

• Profit maximization

Answer explanation

The concept of scarcity explains that resources are limited while human wants are virtually unlimited. This fundamental economic principle highlights the need for choices and trade-offs in resource allocation.

What does a movement from one point to another on the PPC indicate?

• Economic inefficiency

• Scarcity

• Opportunity cost

• Technological improvement

Answer explanation

A movement from one point to another on the PPC indicates opportunity cost, as it reflects the trade-off between two goods. Producing more of one good requires sacrificing some quantity of the other.

Which shape of the PPC indicates increasing opportunity cost?

• Convex

• Concave

• Linear

• Exponential

Answer explanation

A concave PPC indicates increasing opportunity cost because as production shifts from one good to another, more and more of the first good must be sacrificed, reflecting diminishing returns.

A shift outward of the PPC can result from:

• Decreased resources

• Technological advancement

• Increased unemployment

• Inefficient resource use

Answer explanation

A shift outward of the PPC indicates an increase in production capacity. Technological advancement enhances efficiency and resource utilization, leading to greater output, unlike decreased resources or inefficiencies.

Which economic system combines aspects of capitalism and socialism?

• Market economy

• Command economy

• Mixed economy

• Traditional economy

Answer explanation

A mixed economy combines elements of capitalism, such as private ownership and market competition, with socialism, which includes government intervention and social welfare. This balance allows for both economic freedom and social equity.

What is the focus of microeconomics?

• National income

• Global trade policies

• Individual markets and businesses

• Inflation rates

Answer explanation

Microeconomics focuses on individual markets and businesses, analyzing how they operate, make decisions, and interact. This contrasts with macroeconomics, which looks at broader economic factors like national income and inflation.

Which factor of production includes machinery and tools?

• Land

• Labour

• Capital

• Entrepreneur

Answer explanation

The factor of production that includes machinery and tools is called Capital. Capital refers to the physical assets used in the production process, which are essential for creating goods and services.