Question

1. A low value of opportunity cost of a resource reflects its scarcity.

1. True
2. False

2. Which of the following is an example of a macroeconomic question?

1. How will a consumer react if their income decreases?
2. What would be the likely impact of an increase in business taxes on the overall level of inflation in the country?
3. How many smartphones should Samsung produce this quarter?
4. Who are the winners and losers from the imposition of a tax on cigarettes?
5. What is the optimal number of workers for an ice cream shop to employ during the summer months?

3. Which of the following best describes the idea of the fundamental economic problem?

1. Lack of demand for limited resources
2. Unlimited resources and unlimited wants
3. Infinite resources and limited wants
4. Limited resources and unlimited wants
5. Limited wants and limited resources

4. Two countries with identical resources can each make the same two goods: cars and computers. Which of the following best describes the idea of absolute advantage for these two countries?

1. One country has higher opportunity costs of one good, and the other country has higher opportunity costs of the other good.
2. One country is able to produce more of a good or service than another country given the same resources.
3. Both countries have identical opportunity costs.
4. One country has a lower opportunity cost of one good, and another country has a lower opportunity cost of a different good.
5. One country is able to produce less of a good or service than another country.

5. Assume that the typical household in Country X will spend 80% of any additional increase in income. How much will real GDP change as a result of a $4 billion increase in investment in this country?

1. Real GDP decreases by $4 billion
2. Real GDP increases by $20 billion
3. Real GDP increases by $4 billion
4. Real GDP increases by $5 billion
5. Real GDP decreases by $16 billion

6. Which of the following best describes why we cannot always compare living standards between countries using real GDP per capita?

1. It might not represent living conditions of the typical household
2. It doesn't consider that there might be population differences between countries
3. It might overstate living standards if there are a lot of non-market transactions
4. It doesn't include government spending on social programs
5. It includes externalities like pollution

7. According to the circular flow model, how is the GDP of a nation determined?

1. By adding the total income of households to the total expenditures by households and the total revenues of firms
2. By adding the total income of households to the total revenues of firms
3. By adding the total expenditures of households to the total income of households
4. By determining either total household income, total household expenditures, or the total revenues of all the firms in the nation
5. By adding the total revenues of firms to the total expenditures of households

8. Which of the following best describes a market in equilibrium?

1. At the current price, quantity supplied is less than quantity demanded.
2. At the current quantity, the price sellers charge is more than what buyers are willing to pay.
3. At the current price, quantity supplied is greater than quantity demanded.
4. At the current price, quantity supplied equals quantity demanded.
5. At the current quantity, buyers are willing to pay more than sellers receive.

9. Which of the following best describes what happens in the long run when a firm anticipates that the price of their good will always be less than average total cost (ATC)?

1. The firm will shut down.
2. The firm will produce as long as price is greater than average variable cost.
3. The firm will exit the industry.
4. The firm will enter the industry.
5. The firm will produce as long as price is less than average variable cost.

10. The Alibaba Company produces widgets. Its average variable cost at its current output level is $35 per unit. Its current average total cost per unit is $60. If the market price is $30:

1. it should focus to minimize marginal cost
2. it should stay in business in the short-run
3. it should shut-down immediately
4. none is correct
5. it should stay in business in the long-run

Answer 1

Question 1

False

Opportunity cost is the cost of choosing something over choosing its next best alternative. It is the cost incurred for not choosing that alternative. For example, suppose a person leaves his salaried job for starting his own business. Thus the opportunity cost of starting his own business will be the salary that he has foregone from his job. Lower opportunity cost means that the forgone cost is lower and it does not represent scarcity of resources.

Question 2

Option B is correct - What would be the likely impact of an increase in business taxes on the overall level of inflation in the country

Macroeconomics is the study of Economics at the macro level. Thus the factors that affect the economy as a whole are included in macroeconomics like growth rate, inflation rate, unemployment in an economy, etc.

On the other hand, Microeconomics is the study of the decisions of single individuals and firms. And they do not include factors that affect the whole economy.

Question 3

Option D is correct - Limited resources and unlimited wants

We know that resources are scarce or limited in our world and our wants keep on increasing day by day which has led to depletion of many resources. Thus, in economics, we study how the individuals, firms and the whole country makes production and consumption decisions with these limited resources available to them.

Question 4

Option C is correct - Both countries have an identical opportunity cost

Both countries have identical resources and they can make the same two goods. That means that both can produce the same quantity of cars and computers given their resources, thus they have an identical opportunity cost.