Section 1-5: Scarcity, Opportunity Cost, Trade

Section 1: Scarcity, Opportunity Cost, Trade (LM 1) 1. Scarcity: What does scarcity refer to in economics? A) The abundance of resources B) The unlimited wants but limited resources C) The equal distribution of goods D) The surplus of goods in the market Answer: B) The unlimited wants but limited resources 2. Opportunity Cost: Define opportunity cost. A) The price paid for a good or service B) The benefit received from a choice made C) The value of the next best alternative forgone D) The total expenses incurred in production Answer: C) The value of the next best alternative forgone 3. Trade: How does trade benefit countries according to the principle of comparative advantage? A) By reducing overall production efficiency B) By allowing each country to specialize in the production of goods they're relatively efficient at C) By decreasing total output and increasing costs D) By limiting imports and promoting self-sufficiency Answer: B) By allowing each country to specialize in the production of goods they're relatively efficient at 4. Specialization: What does specialization in economics refer to? A) Producing only one type of good or service B) Producing multiple types of goods or services C) Producing goods and services for personal use only D) Producing goods and services for export only Answer: A) Producing only one type of good or service 5. Economic Systems: Which economic system relies heavily on government intervention and control of resources? A) Capitalism B) Socialism C) Communism D) Mixed economy Answer: B) Socialism Section 2: Law of Demand (LM 2) 6. Law of Demand: According to the Law of Demand, what happens to quantity demanded when prices decrease? A) Quantity demanded decreases B) Quantity demanded increases C) Quantity demanded remains constant D) Quantity demanded becomes unpredictable Answer: B) Quantity demanded increases 7. Income Effect: Which concept explains why demand for normal goods increases as income rises? A) Substitution effect B) Income effect C) Price elasticity effect D) Production effect Answer: B) Income effect 8. Substitution Effect: How does the substitution effect influence consumer behavior? A) It leads consumers to substitute expensive goods for cheaper alternatives B) It leads consumers to substitute inferior goods for superior alternatives C) It leads consumers to spend more on luxury goods D) It leads consumers to save money instead of spending Answer: A) It leads consumers to substitute expensive goods for cheaper alternatives 9. Normal vs. Inferior Goods: Which of the following is an example of an inferior good? A) Designer clothing B) Generic brand groceries C) Organic produce D) Luxury cars Answer: B) Generic brand groceries 10. Veblen Goods: Veblen goods are those for which demand increases as price rises due to: A) Income effect B) Substitution effect C) Status or prestige associated with the higher price D) Decrease in production costs Answer: C) Status or prestige associated with the higher price Section 3: Law of Supply (LM 3) 11. Law of Supply: What does the Law of Supply state? A) As price increases, quantity supplied decreases B) As price increases, quantity supplied increases C) As price decreases, quantity supplied decreases D) As price decreases, quantity supplied increases Answer: B) As price increases, quantity supplied increases 12. Supply Curve: Which way does the supply curve slope? A) Upward B) Downward C) Horizontal D) Vertical Answer: A) Upward 13. Factors Affecting Supply: Which of the following is NOT a determinant of supply? A) Technology B) Government regulations C) Consumer preferences D) Production costs Answer: C) Consumer preferences 14. Subsidies: How do subsidies affect the supply of a good? A) They decrease supply by increasing production costs B) They increase supply by lowering production costs C) They have no effect on supply D) They decrease supply by decreasing consumer demand Answer: B) They increase supply by lowering production costs Section 4: Elasticity (LM 5) 15. Price Elasticity of Demand: Define price elasticity of demand. A) The measure of responsiveness of quantity demanded to changes in price B) The measure of responsiveness of quantity supplied to changes in price C) The measure of responsiveness of income to changes in price D) The measure of responsiveness of preferences to changes in price Answer: A) The measure of responsiveness of quantity demanded to changes in price 16. Elasticity Coefficients: If the price elasticity of demand for a good is greater than 1, the demand is: A) Inelastic B) Elastic C) Unitary D) Perfectly elastic Answer: B) Elastic 17. Cross-Price Elasticity: Cross-price elasticity measures the responsiveness of quantity demanded of one good to a change in the price of: A) A complementary good B) A substitute good C) An inferior good D) An unrelated good Answer: A) A complementary good Section 5: General Knowledge 18. Gross Domestic Product (GDP): What does GDP stand for? A) Gross Domestic Product B) Global Development Program C) Generalized Distribution Policy D) Government Debt Percentage Answer: A) Gross Domestic Product 19. Consumer Price Index (CPI): What does CPI measure? A) The cost of living for urban consumers B) The unemployment rate C) The value of exports and imports D) The stock market performance Answer: A) The cost of living for urban consumers 20. Monopoly: In economics, what is a monopoly? A) A market structure with many sellers and buyers B) A market structure with one seller and many buyers C) A market structure with few sellers and many buyers D) A market structure with few sellers and few buyers Answer: B) A market structure with one seller and