Economic Principles Quiz

Explain the role scarcity AND trade offs play in decision making.

• They eliminate the need for decision making.

• They increase available resources.

• They force choices due to limited resources.

• They reduce the importance of opportunity cost.

Describe the cost-benefit principle (including incentives) and explain the role it plays in decision making.

• It suggests ignoring costs and focusing only on benefits.

• It involves comparing the costs and benefits of a decision.

• It focuses solely on maximizing costs.

• It disregards incentives in decision making.

Describe the opportunity cost principle and explain the role it plays in decision making.

• It refers to the cost of all possible alternatives.

• It is the benefit of the next best alternative foregone.

• It is the total cost of all resources used.

• It ignores the value of alternatives.

Describe the marginal principle and explain the role it plays in decision making.

• It involves making decisions based on total costs.

• It focuses on the additional benefits of additional small decisions.

• It disregards marginal changes.

• It emphasizes fixed costs over variable costs.

Describe the interdependence principle and explain the role it plays in decision making.

• It suggests decisions are made in isolation.

• It highlights how your decisions are based on the decision of others.

• It ignores the impact of external factors.

• It focuses solely on individual choices.

Describe the law of diminishing marginal utility and explain the role it plays in decision making (include the definition of “utility”).

• Utility increases with each additional unit consumed.

• Utility remains constant regardless of consumption.

• Utility decreases with each additional unit consumed.

• Utility is irrelevant in decision making.

Identify and describe factors of production (including human capital).

• Land, labor, capital, and entrepreneurship.

• Only land and labor.

• Capital and entrepreneurship only.

• Human capital is not a factor of production.

Apply the concepts of scarcity, choice, and opportunity cost to a production possibilities frontier.

• The frontier shows unlimited resources.

• The frontier illustrates trade-offs and opportunity costs.

• The frontier ignores scarcity.

• The frontier shows only one possible outcome.

Explain the causes of shifts in the production possibilities frontier.

• Changes in technology and resources.

• Constant resource availability.

• Unchanging technology.

• Fixed production methods.

What is the principle of opportunity cost?

• The cost of all possible alternatives.

• The benefit of the next best alternative foregone.

• The total cost of all resources used.

• The value of the least preferred alternative.