G11 Economics Unit 1 Review MCQ

The concept of opportunity cost is best described as:

• The money cost of a good or service

• The benefit received from the chosen alternative

• The next best alternative forgone

• The total cost of production

Answer explanation

The concept of opportunity cost refers to the value of the next best alternative that is forgone when a choice is made. Thus, the correct answer is 'The next best alternative forgone'.

Which of the following statements is a normative economic statement?

• The inflation rate last year was 3.2%.

• Higher interest rates lead to reduced borrowing.

• Unemployment should be reduced to 3%.

• A decrease in supply causes prices to rise.

Answer explanation

The statement 'Unemployment should be reduced to 3%' expresses a value judgment about what ought to happen, making it a normative economic statement, unlike the other options which are descriptive or causal.

Which of the following is not a characteristic of a public good?

• non-excludability

• Rivalry

• non-rivalry

• Often provided by the government

Answer explanation

Rivalry is not a characteristic of a public good. Public goods are defined by non-excludability and non-rivalry, meaning one person's use does not reduce availability for others. They are often provided by the government.

The economic problem of scarcity arises because:

• Resources are unlimited

• Wants are limited

• Resources are unlimited and wants are limited

• Resources are limited and wants are unlimited

Answer explanation

The economic problem of scarcity occurs because resources are limited while human wants are virtually unlimited. This imbalance creates the need for choices and prioritization in resource allocation.

Which of the following pairs correctly matches the factor of production with its reward?

• Land - Profit

• Labour - Interest

• Capital - Rent

• Enterprise - Profit

Answer explanation

The correct pairing is Enterprise - Profit, as enterprise is the factor of production that organizes the other factors and takes on risk, earning profit as its reward. The other pairs incorrectly match the factors with their respective rewards.

Which point on a production possibility curve (PPC) represents inefficient use of resources?

• A point on the curve

• A point inside the curve

• A point outside the curve

• A point at the origin

Answer explanation

A point inside the production possibility curve (PPC) indicates inefficient use of resources, as it shows that not all resources are being utilized effectively. Points on the curve represent efficient use, while points outside are unattainable.

In the short run, which factor of production is typically variable?

• Land

• Capital

• Labour

• Enterprise

Answer explanation

In the short run, labour is the variable factor of production, as it can be adjusted more easily compared to land, capital, and enterprise, which are typically fixed. This flexibility allows firms to respond to changes in demand.

Which of the following best describes a merit good?

• A good that is provided free of charge

• A good that is under-consumed due to information failure

• A good that has high production costs

• A good that cannot be produced by the market

Answer explanation

A merit good is under-consumed due to information failure, meaning people may not realize its benefits, leading to less consumption than is socially optimal. This choice accurately captures the essence of a merit good.

In which type of economic system are most resource allocation decisions made by central planning authorities?

• Market economy

• Mixed economy

• Planned economy

• Free enterprise economy

Answer explanation

In a planned economy, central planning authorities make most resource allocation decisions, contrasting with market or mixed economies where such decisions are influenced by supply and demand.

Which concept explains why a firm might stop producing a good if the marginal cost exceeds the marginal benefit?

• Ceteris paribus

• The margin

• Opportunity cost

• Specialisation

Answer explanation

The concept of 'the margin' explains that a firm will stop producing a good when the marginal cost exceeds the marginal benefit, as it indicates that producing more would lead to losses.