ECON 101 PRACTICE QUESTIONS
WITH ANSWERS
Economics is the
(A) study of the distribution of unlimited resources to satisfy
limited wants.
(B) study of political organization.
(C) exclusive study of financial markets and instruments.
(D) study of the consumption, production, and distribution of
goods and services. - CORRECT ANSWER-(D) study of the
consumption, production, and distribution of goods and
services.
Why:
* Many economists have many different definitions for
economics. At its core, economics is the study of the
consumption, production, and distribution of goods and
services.
* Some economists define economics as the study of the
distribution of limited resources (scarcity) to satisfy unlimited
wants.
An economy is
(A) the political organization of a nation.
(B) the geographical boundaries of a nation.
,(C) the system society uses to coordinate productive activities.
(D) the group of individuals who lead a society. - CORRECT
ANSWER-(C) the system society uses to coordinate productive
activities.
Why:
* An economy is the system by which society coordinates
productive activities. It can be a market economy where buyers
and sellers trade to determine what is produced. An economy
can also be a command economy where a central authority
decides what is produced.
Daniel has decided to open his own bakery using locally
sourced ingredients and supplies. He provides income and jobs
to local suppliers. He also provides his community with a place
to buy delicious baked goods. This is an example of
(A) the invisible hand.
(B) a command economy.
(C) market failure.
(D) a recession. - CORRECT ANSWER-(A) the invisible hand.
Why:
* Notice, though, that Daniel and his suppliers do not set out to
help society. They are motivated by profit. Despite acting
"selfishly" by trying to earn profit, they each are taking actions
that ultimately benefit society.
* The invisible hand is a term coined by Adam Smith that
describes how people acting in their own interest often make
choices that benefit society as well.
There are limited resources to satisfy all of society's wants.
(A) business cycle
(B) trade-off
(C) margins
,(D) scarcity
(E) entrepreneurship
(F) recession
Comparing the benefits and costs of engaging in an activity
(A) scarcity
(B) trade-off
(C) recession
(D) margins
(E) financial capital
(F) resources - CORRECT ANSWER-(D) and (B)
Why:
* Economics is the study of how people use their limited
resources to satisfy their unlimited wants. In other words, it is
the study of how people and society satisfy wants under
conditions of scarcity.
* Because of scarcity, people have to decide between
alternatives, and may have to give up one good in order to
have another. Such decisions involve weighing the benefits of
an activity against its costs. This is called a trade-off.
Which is NOT an example of a resource?
(A) land
(B) firms
(C) labor
(D) human capital
(E) machinery - CORRECT ANSWER-(B) firms
Why:
A resource is anything used in the production of a product or
service. The most common examples of resources are land,
labor, capital, and human capital. Firms are not examples of
, resources in the economic sense. Firms typically turn resources
into goods and services that are sold in a market.
The $15 Kelly's Big Burger gift card that your friend gave you
for your birthday expires today. You can either use the gift card
to buy yourself dinner at Kelly's Big Burger, or you can stay
home and eat a delicious home-cooked meal. What is the
opportunity cost of eating the home-cooked meal?
(A) There is no opportunity cost since you did not pay for the
gift card.
(B) The value of a $!5 meal at Kelly's Big Burger.
(C) The time it takes to eat your home-cooked meal, and the
value of a $15 meal at Kelly's Big Burger.
(D) the value of the ingredients that go into the home-cooked
meal, and the value of a $15 meal at Kelly's Big Burger.
(E) The value of the ingredients that go into the home-cooked
meal. - CORRECT ANSWER-(D) the value of the ingredients
that go into the home-cooked meal, and the value of a $15
meal at Kelly's Big Burger.
Why:
The opportunity cost of a decision is the value of the next best
alternative. In this case, your next best alternative is to get a
$15 dinner at Kelly's Big Burger, and since you didn't use the
ingredient to make dinner, you can use the ingredients later.
So, the opportunity cost includes the value of the ingredients
that went into the home-cooked meal, and the value of a $15
dinner at Kelly's Big Burger. You can think of opportunity cost a
the complete cost of doing something.
Which demonstrates a scenario with no opportunity cost?
(A) It's Friday night and you stay up late talking and hanging
out with your friends.
(B) The chemistry club is giving out free pizza for lunch to all
who come to their table to get it.
WITH ANSWERS
Economics is the
(A) study of the distribution of unlimited resources to satisfy
limited wants.
(B) study of political organization.
(C) exclusive study of financial markets and instruments.
(D) study of the consumption, production, and distribution of
goods and services. - CORRECT ANSWER-(D) study of the
consumption, production, and distribution of goods and
services.
Why:
* Many economists have many different definitions for
economics. At its core, economics is the study of the
consumption, production, and distribution of goods and
services.
* Some economists define economics as the study of the
distribution of limited resources (scarcity) to satisfy unlimited
wants.
An economy is
(A) the political organization of a nation.
(B) the geographical boundaries of a nation.
,(C) the system society uses to coordinate productive activities.
(D) the group of individuals who lead a society. - CORRECT
ANSWER-(C) the system society uses to coordinate productive
activities.
Why:
* An economy is the system by which society coordinates
productive activities. It can be a market economy where buyers
and sellers trade to determine what is produced. An economy
can also be a command economy where a central authority
decides what is produced.
Daniel has decided to open his own bakery using locally
sourced ingredients and supplies. He provides income and jobs
to local suppliers. He also provides his community with a place
to buy delicious baked goods. This is an example of
(A) the invisible hand.
(B) a command economy.
(C) market failure.
(D) a recession. - CORRECT ANSWER-(A) the invisible hand.
Why:
* Notice, though, that Daniel and his suppliers do not set out to
help society. They are motivated by profit. Despite acting
"selfishly" by trying to earn profit, they each are taking actions
that ultimately benefit society.
* The invisible hand is a term coined by Adam Smith that
describes how people acting in their own interest often make
choices that benefit society as well.
There are limited resources to satisfy all of society's wants.
(A) business cycle
(B) trade-off
(C) margins
,(D) scarcity
(E) entrepreneurship
(F) recession
Comparing the benefits and costs of engaging in an activity
(A) scarcity
(B) trade-off
(C) recession
(D) margins
(E) financial capital
(F) resources - CORRECT ANSWER-(D) and (B)
Why:
* Economics is the study of how people use their limited
resources to satisfy their unlimited wants. In other words, it is
the study of how people and society satisfy wants under
conditions of scarcity.
* Because of scarcity, people have to decide between
alternatives, and may have to give up one good in order to
have another. Such decisions involve weighing the benefits of
an activity against its costs. This is called a trade-off.
Which is NOT an example of a resource?
(A) land
(B) firms
(C) labor
(D) human capital
(E) machinery - CORRECT ANSWER-(B) firms
Why:
A resource is anything used in the production of a product or
service. The most common examples of resources are land,
labor, capital, and human capital. Firms are not examples of
, resources in the economic sense. Firms typically turn resources
into goods and services that are sold in a market.
The $15 Kelly's Big Burger gift card that your friend gave you
for your birthday expires today. You can either use the gift card
to buy yourself dinner at Kelly's Big Burger, or you can stay
home and eat a delicious home-cooked meal. What is the
opportunity cost of eating the home-cooked meal?
(A) There is no opportunity cost since you did not pay for the
gift card.
(B) The value of a $!5 meal at Kelly's Big Burger.
(C) The time it takes to eat your home-cooked meal, and the
value of a $15 meal at Kelly's Big Burger.
(D) the value of the ingredients that go into the home-cooked
meal, and the value of a $15 meal at Kelly's Big Burger.
(E) The value of the ingredients that go into the home-cooked
meal. - CORRECT ANSWER-(D) the value of the ingredients
that go into the home-cooked meal, and the value of a $15
meal at Kelly's Big Burger.
Why:
The opportunity cost of a decision is the value of the next best
alternative. In this case, your next best alternative is to get a
$15 dinner at Kelly's Big Burger, and since you didn't use the
ingredient to make dinner, you can use the ingredients later.
So, the opportunity cost includes the value of the ingredients
that went into the home-cooked meal, and the value of a $15
dinner at Kelly's Big Burger. You can think of opportunity cost a
the complete cost of doing something.
Which demonstrates a scenario with no opportunity cost?
(A) It's Friday night and you stay up late talking and hanging
out with your friends.
(B) The chemistry club is giving out free pizza for lunch to all
who come to their table to get it.
