Quiz: Ch.1 & Ch. 2

The fundamental economic problem is best described as:

• The absence of unlimited wants

• The presence of infinite resources

• The scarcity of resources relative to human wants

• The ability to produce everything society desires

• The surplus of goods and services in an economy

Scarcity and Decision-Making: Scarcity forces individuals, businesses, and governments to:

• Maximize their resource usage to create surplus

• Prioritize resource allocation and make choices

• Ignore opportunity costs

• Choose only what is most profitable

• Rely solely on market forces without planning

Opportunity cost refers to:

• The cost of an alternative that must be foregone in order to pursue a certain action

• The monetary price of a good or service

• The benefits received from a decision

• The total costs of production

• The amount of money saved by making a specific choice

Economics is considered a social science because:

• It focuses exclusively on financial markets

• It studies human behavior and societal impacts

• It relies solely on mathematical models

• It examines natural resource distribution

• It is concerned only with government policies

Positive economic statement is:

• Based on opinions and subjective judgments

• Descriptive and based on observable facts

• Concerned with what ought to be

• Focused on ethical considerations

• Always related to government intervention

Normative Economic Statements: Which of the following is a normative statement?

• Unemployment is currently at 5%.

• Inflation reduces purchasing power.

• The government should increase the minimum wage.

• Interest rates affect consumer spending.

• A higher GDP indicates a stronger economy.

Economists use the term ceteris paribus to:

• Indicate that all other factors are constant

• Describe the economic equilibrium

• Refer to government intervention in the economy

• Denote the impact of technological change

• Explain long-term economic growth

Short Run, Long Run, Very Long Run: The short run in economics is characterized by:

• The ability to change all factors of production

• Fixed factors of production and some variable factors

• The complete flexibility of input levels

• The long-term effects of economic policies

• The longest time frame in economic analysis

In the long run, a firm can:

• Only adjust variable costs

• Change all input levels, including capital

• Operate without any fixed costs

• Ignore opportunity costs

• Make no changes to production methods

Variable costs are:

• Costs that remain constant regardless of output

• Costs that change with the level of production

• Fixed in the short run but variable in the long run

• Always higher than fixed costs

• Independent of the scale of operations