Unit 1

Which of the following statements best describes the scope of positive economics?

• It involves value judgments about what the economy should be.

• It explains the causes and effects of economic phenomena.

• It prescribes policies to achieve specific economic goals.

• It is primarily concerned with moral and ethical issues in economics.

If an economy is operating on its production possibility frontier (PPF), what is the opportunity cost of producing more of one good?

• Zero, because the economy is fully efficient.

• The value of the next best alternative that is foregone.

• The total cost of all resources used in production.

• The difference between marginal cost and marginal revenue.

Which of the following represents the central economic problem of every society?

• How to achieve maximum efficiency in the use of resources.

• How to allocate scarce resources among competing uses.

• How to increase the total amount of resources available.

• How to maximize individual utility given unlimited resources.

The law of demand is violated when:

• The demand curve slopes upward due to a Giffen good.

• A decrease in price leads to an increase in quantity demanded.

• The demand curve is perfectly inelastic.

• The quantity demanded decreases as the price decreases.

Which of the following is a primary reason why economies of scale can diminish at very large scales of production?

• Technological advancements eliminate the need for management.
• Coordination and management complexities increase.
• Larger production facilities always reduce costs.
• Increased demand for products leads to higher efficiency.

The law of diminishing returns occurs in the short run because:

• Firms cannot change the quantity of all inputs.

• All factors of production are variable in the short run.

• The production function is linear in the short run.

• Capital and labor are always used in fixed proportions.

If a firm doubles all inputs and its output less than doubles, this firm is experiencing:

• Increasing returns to scale.

• Constant returns to scale.

• Decreasing returns to scale.

• Negative returns to scale.

Which of the following is a normative statement?

• A decrease in the unemployment rate will lead to higher inflation.

• The government should increase the minimum wage to reduce poverty.

• A reduction in income tax rates will boost consumer spending.

• A rise in oil prices will lead to an increase in transportation costs.

What is the primary difference between fixed costs and variable costs?

• Fixed costs change with output, while variable costs remain constant.

• Both fixed and variable costs change with production levels.
• Variable costs are incurred regardless of production, whereas fixed costs are only incurred at certain levels.
• Variable costs change with output, while fixed costs remain constant.

Which of the following best illustrates the concept of economic scarcity?

• A factory producing below its full capacity.

• Unlimited wants exceeding limited resources.

• A surplus of goods in a market.

• Resources allocated efficiently in an economy.