Retrieval Practice - Week 3

What is the economic problem?

• How to eliminate scarcity

• How to allocate unlimited resources

• How limited resources are used to satisfy unlimited wants

• How to increase production without opportunity cost

Answer explanation

Q1. C — How limited resources are used to satisfy unlimited wants
Scarcity exists because resources are finite while human wants are unlimited. This creates the basic economic problem.

Which of the following is a factor of production?

• Money

• Labour

• Utility

• Profit

Answer explanation

Q2. B — Labour

What does opportunity cost represent?

• The monetary cost of a decision

• The next best alternative forgone

• The total cost of production

• The sunk cost of investment

Answer explanation

Q3. B — The next best alternative forgone
Opportunity cost is the value of what is given up when a choice is made.

Which statement best describes a mixed economy?

• All resources allocated by the price mechanism

• All resources allocated by government planning

• A combination of market and non-market sectors

• An economy with no government intervention

Answer explanation

Q4. C — A combination of market and non-market sectors
A mixed economy includes both private sector decision-making and government intervention.

What is derived demand?

• Demand for a good due to its low price

• Demand for a good because of advertising

• Demand for a factor of production due to demand for the final good

• Demand for a good because of government subsidy

Answer explanation

Q5. C — Demand for a factor of production due to demand for the final good
Derived demand occurs because factors of production are demanded only to produce goods and services.

Which good has perfectly inelastic demand?

• Luxury holidays

• Insulin for diabetics

• Smartphones

• Designer clothes

Answer explanation

Q6. B — Insulin for diabetics
Insulin is a necessity with very few substitutes, making demand highly inelastic.

Which statement about utility is correct?

• Utility can be measured in monetary terms

• Utility cannot be measured directly

• Utility is always constant

• Utility is irrelevant to consumer choice

Answer explanation

Q7. B — Utility cannot be measured directly
Utility is subjective and cannot be measured in numerical units, only ranked.

What does YED measure?

• Responsiveness of demand to price changes

• Responsiveness of demand to income changes

• Responsiveness of supply to price changes

• Responsiveness of demand to advertising

Answer explanation

Q8. B — Responsiveness of demand to income changes
Income elasticity of demand measures how demand changes when income changes.

Which of the following is an example of an inferior good?

• Organic vegetables

• Instant noodles

• Luxury cars

• Designer handbags

Answer explanation

Q9. B — Instant noodles
Inferior goods see demand fall as income rises, as consumers switch to better alternatives.

Which of the following is an assumption of a market economy?

• Government sets all prices

• Prices determined by supply and demand

• No private ownership of resources

• Scarcity does not exist

Answer explanation

Q10. B — Prices determined by supply and demand
Market economies rely on the price mechanism to allocate resources.