Econ Unit 1 Review

What is the basic condition that exists when unlimited wants exceed limited productive resources?

• Abundance

• Scarcity

• Surplus

• Inflation

Answer explanation

The basic condition of scarcity arises when unlimited wants exceed limited productive resources. This means there are not enough resources to satisfy all desires, making scarcity the correct answer.

Which of the following is NOT considered a scarce resource?

• Land

• Labor

• Air

• Capital

Answer explanation

Air is abundant and generally available for free, making it a non-scarce resource. In contrast, land, labor, and capital are limited in supply and require allocation, thus they are considered scarce resources.

What must individuals, businesses, and governments make due to scarcity?

• Unlimited resources

• Choices

• Surpluses

• Inflation rates

Answer explanation

Due to scarcity, individuals, businesses, and governments must make choices about how to allocate limited resources effectively, as they cannot have everything they want.

What is the term for the cost of the next best alternative when a choice is made?

• Opportunity cost

• Fixed cost

• Variable cost

• Sunk cost

Answer explanation

The term 'opportunity cost' refers to the value of the next best alternative that is forgone when a decision is made. It highlights the trade-offs involved in any choice.

What is the main difference between scarcity and a shortage?

• Scarcity is temporary, while a shortage always exists.

• Scarcity always exists, while a shortage is temporary.

• Both scarcity and shortage are temporary.

• Both scarcity and shortage always exist.

Answer explanation

Scarcity refers to the limited nature of resources, which is a constant condition in economics. In contrast, a shortage occurs when demand exceeds supply for a specific period, making it temporary. Thus, scarcity always exists, while a shortage is temporary.

Which allocation strategy involves distributing goods to those who are willing and able to pay?

• Lottery

• Price

• Majority rule

• First-come-first-served

Answer explanation

The price allocation strategy distributes goods to those who are willing and able to pay, ensuring that resources go to those who value them most. Other strategies like lottery or majority rule do not consider willingness to pay.

What is an example of a good allocated by price?

• Public parks

• Concert tickets

• National defense

• Public schools

Answer explanation

Concert tickets are allocated by price, as their cost reflects demand and willingness to pay. In contrast, public goods like parks and schools are typically funded through taxes and not directly priced.

What is an example of a contest allocation strategy?

• Scholarships awarded to the valedictorian

• Resources taken by force

• Random selection of farmland recipients

• First come, first served basis

Answer explanation

Scholarships awarded to the valedictorian exemplify a contest allocation strategy, as they reward academic achievement based on merit, distinguishing them from random selection or first-come methods.

Which allocation strategy involves using autocratic decisions or coercion?

• Contest

• Force

• Sharing

• Lottery

Answer explanation

The 'Force' allocation strategy involves making decisions autocratically or through coercion, where one party imposes their will on others, unlike 'Contest', 'Sharing', or 'Lottery' which involve more collaborative or random methods.

What is a potential downside of sharing resources?

• Overuse or lack of upkeep

• Quick decision-making

• Equal odds of obtaining resources

• Favoring skilled groups

Answer explanation

A potential downside of sharing resources is overuse or lack of upkeep. When multiple parties use the same resources, they may be depleted or neglected, leading to deterioration and reduced availability for everyone.