Economics Quiz LU1-LU4

What does the term "scarcity" mean in economics?

• Unlimited resources and unlimited wants

• Limited resources and unlimited wants

• Limited resources and limited wants

What is the opportunity cost of an item?

• The price you pay for the item

• The time it takes to produce the item

• What you give up to obtain that item

What does it mean for rational people to "think at the margin"?

• They consider the total cost and total benefit of a decision

• They make decisions based on small, incremental changes

• They ignore the costs and benefits of their decisions

Which of the following is an example of a trade-off?

• Choosing between studying for an exam or going out with friends

• Deciding to buy a car without considering the cost

• Ignoring the benefits of a decision

Why do people respond to incentives?

• Because incentives always lead to positive outcomes

• Because incentives change the marginal benefits or costs of a decision

• Because incentives are irrelevant to decision-making

What is the main benefit of trade?

• It makes one party better off at the expense of another

• It allows people to specialize and makes everyone better off

• It reduces the need for markets

What is the "invisible hand" in economics?

• A government intervention in the market

• The concept that markets are guided by prices and self-interest

• A tool used by firms to control prices

What is a market economy?

• An economy where the government controls all resources

• An economy where resources are allocated through decentralized decisions of households and firms

• An economy with no trade or specialization

What is an externality?

• The impact of one person's actions on the well-being of a bystander

• The ability of a firm to control market prices

• The total cost of producing a good or service

When might government intervention improve market outcomes?

• When markets fail to allocate resources efficiently

• When markets are perfectly competitive

• When there are no externalities or market power