ECS1601 ASSIGNMENT 2 of
SEMESTER 1 QUESTION
AND ANSWERS 2024
1. Which of the following best describes opportunity cost?
A) The amount of money spent on a good
B) The loss of potential gain from other alternatives when one alternative is chosen
C) The amount of capital invested in a business
D) The total cost of production
Answer: B) The loss of potential gain from other alternatives when one alternative is chosen
Explanation: Opportunity cost refers to the value of the next best alternative that is forgone
when a choice is made. It represents the benefits you could have received by choosing a
different option.
2. In a perfectly competitive market, what happens when firms are making
supernormal profits?
A) Firms will leave the market
B) New firms will enter the market
C) The government will impose taxes
D) Wages will increase significantly
Answer: B) New firms will enter the market
Explanation: In a perfectly competitive market, supernormal profits attract new firms to enter
the market, increasing supply, which eventually drives down prices and profits until only normal
profits remain.
,3. What is the primary reason for a demand curve to shift to the right?
A) A decrease in consumer income
B) A fall in the price of a substitute good
C) An increase in consumer preferences for the good
D) A rise in production costs
Answer: C) An increase in consumer preferences for the good
Explanation: A demand curve shifts to the right when there is an increase in demand. This can
be caused by factors like increased consumer preferences, higher income (for normal goods),
or a fall in the price of complementary goods.
4. Which of the following is an example of a positive externality?
A) Pollution from a factory
B) Overfishing in a public lake
C) A well-educated workforce benefiting society
D) Traffic congestion in a city center
Answer: C) A well-educated workforce benefiting society
Explanation: A positive externality occurs when a third party benefits from an economic
transaction they are not directly involved in. A well-educated workforce benefits society by
improving productivity and economic growth.
5. In economics, what does "marginal cost" refer to?
A) The total cost of producing a good
B) The difference between fixed and variable costs
C) The cost of producing one more unit of a good
D) The revenue earned from selling an additional unit of a good
Answer: C) The cost of producing one more unit of a good
Explanation: Marginal cost is the additional cost incurred when producing one more unit of a
good or service. It is a key concept in decision-making for businesses.
6. What happens to the equilibrium price if there is a decrease in supply
while demand remains constant?
A) The price decreases
B) The price increases
,C) The price remains the same
D) The price becomes unpredictable
Answer: B) The price increases
Explanation: When supply decreases and demand remains constant, the scarcity of the
product drives up the equilibrium price, as fewer goods are available to meet demand.
7. Which of the following best explains the concept of inflation?
A) A sustained increase in the general price level of goods and services
B) An increase in the demand for a specific good
C) A temporary rise in the prices of certain commodities
D) A decrease in the unemployment rate
Answer: A) A sustained increase in the general price level of goods and services
Explanation: Inflation is defined as a sustained increase in the general price level over time,
which erodes purchasing power. Central banks often take measures to control inflation through
monetary policy.
8. What is the primary objective of monetary policy?
A) To reduce government spending
B) To control the money supply and interest rates
C) To increase the price of essential goods
D) To regulate the labor market
Answer: B) To control the money supply and interest rates
Explanation: The main objective of monetary policy is to manage inflation and ensure price
stability by controlling the money supply and adjusting interest rates, typically managed by a
country's central bank.
9. In the context of market structures, what characterizes a monopoly?
A) A large number of firms selling differentiated products
B) A single firm dominating the market without any close substitutes
C) Firms competing based on price only
D) Many firms selling identical products
Answer: B) A single firm dominating the market without any close substitutes
, Explanation: A monopoly occurs when there is only one firm in the market, and it is the sole
provider of a good or service with no close substitutes. This firm has significant control over
prices.
10. What is "Gross Domestic Product" (GDP) used to measure?
A) The total revenue of all firms in a country
B) The income of households
C) The value of all final goods and services produced within a country in a given period
D) The level of inflation in the economy
Answer: C) The value of all final goods and services produced within a country in a given
period
Explanation: GDP measures the total monetary value of all final goods and services produced
within a country's borders during a specific time period, usually annually or quarterly.
11. What does "elasticity of demand" measure?
A) The change in total revenue when the price changes
B) How sensitive the quantity demanded is to a change in price
C) The difference between total and marginal costs
D) How much supply responds to changes in demand
Answer: B) How sensitive the quantity demanded is to a change in price
Explanation: Elasticity of demand measures the responsiveness of quantity demanded to a
change in price. A higher elasticity means consumers are more sensitive to price changes.
12. What happens when a good has perfectly inelastic demand?
A) Demand decreases when price decreases
B) Demand remains constant regardless of price changes
C) Supply becomes more elastic
D) Total revenue decreases as price increases
Answer: B) Demand remains constant regardless of price changes
Explanation: When demand is perfectly inelastic, consumers will buy the same quantity of the
good regardless of the price. This is rare and typically applies to necessities like life-saving
medication.
SEMESTER 1 QUESTION
AND ANSWERS 2024
1. Which of the following best describes opportunity cost?
A) The amount of money spent on a good
B) The loss of potential gain from other alternatives when one alternative is chosen
C) The amount of capital invested in a business
D) The total cost of production
Answer: B) The loss of potential gain from other alternatives when one alternative is chosen
Explanation: Opportunity cost refers to the value of the next best alternative that is forgone
when a choice is made. It represents the benefits you could have received by choosing a
different option.
2. In a perfectly competitive market, what happens when firms are making
supernormal profits?
A) Firms will leave the market
B) New firms will enter the market
C) The government will impose taxes
D) Wages will increase significantly
Answer: B) New firms will enter the market
Explanation: In a perfectly competitive market, supernormal profits attract new firms to enter
the market, increasing supply, which eventually drives down prices and profits until only normal
profits remain.
,3. What is the primary reason for a demand curve to shift to the right?
A) A decrease in consumer income
B) A fall in the price of a substitute good
C) An increase in consumer preferences for the good
D) A rise in production costs
Answer: C) An increase in consumer preferences for the good
Explanation: A demand curve shifts to the right when there is an increase in demand. This can
be caused by factors like increased consumer preferences, higher income (for normal goods),
or a fall in the price of complementary goods.
4. Which of the following is an example of a positive externality?
A) Pollution from a factory
B) Overfishing in a public lake
C) A well-educated workforce benefiting society
D) Traffic congestion in a city center
Answer: C) A well-educated workforce benefiting society
Explanation: A positive externality occurs when a third party benefits from an economic
transaction they are not directly involved in. A well-educated workforce benefits society by
improving productivity and economic growth.
5. In economics, what does "marginal cost" refer to?
A) The total cost of producing a good
B) The difference between fixed and variable costs
C) The cost of producing one more unit of a good
D) The revenue earned from selling an additional unit of a good
Answer: C) The cost of producing one more unit of a good
Explanation: Marginal cost is the additional cost incurred when producing one more unit of a
good or service. It is a key concept in decision-making for businesses.
6. What happens to the equilibrium price if there is a decrease in supply
while demand remains constant?
A) The price decreases
B) The price increases
,C) The price remains the same
D) The price becomes unpredictable
Answer: B) The price increases
Explanation: When supply decreases and demand remains constant, the scarcity of the
product drives up the equilibrium price, as fewer goods are available to meet demand.
7. Which of the following best explains the concept of inflation?
A) A sustained increase in the general price level of goods and services
B) An increase in the demand for a specific good
C) A temporary rise in the prices of certain commodities
D) A decrease in the unemployment rate
Answer: A) A sustained increase in the general price level of goods and services
Explanation: Inflation is defined as a sustained increase in the general price level over time,
which erodes purchasing power. Central banks often take measures to control inflation through
monetary policy.
8. What is the primary objective of monetary policy?
A) To reduce government spending
B) To control the money supply and interest rates
C) To increase the price of essential goods
D) To regulate the labor market
Answer: B) To control the money supply and interest rates
Explanation: The main objective of monetary policy is to manage inflation and ensure price
stability by controlling the money supply and adjusting interest rates, typically managed by a
country's central bank.
9. In the context of market structures, what characterizes a monopoly?
A) A large number of firms selling differentiated products
B) A single firm dominating the market without any close substitutes
C) Firms competing based on price only
D) Many firms selling identical products
Answer: B) A single firm dominating the market without any close substitutes
, Explanation: A monopoly occurs when there is only one firm in the market, and it is the sole
provider of a good or service with no close substitutes. This firm has significant control over
prices.
10. What is "Gross Domestic Product" (GDP) used to measure?
A) The total revenue of all firms in a country
B) The income of households
C) The value of all final goods and services produced within a country in a given period
D) The level of inflation in the economy
Answer: C) The value of all final goods and services produced within a country in a given
period
Explanation: GDP measures the total monetary value of all final goods and services produced
within a country's borders during a specific time period, usually annually or quarterly.
11. What does "elasticity of demand" measure?
A) The change in total revenue when the price changes
B) How sensitive the quantity demanded is to a change in price
C) The difference between total and marginal costs
D) How much supply responds to changes in demand
Answer: B) How sensitive the quantity demanded is to a change in price
Explanation: Elasticity of demand measures the responsiveness of quantity demanded to a
change in price. A higher elasticity means consumers are more sensitive to price changes.
12. What happens when a good has perfectly inelastic demand?
A) Demand decreases when price decreases
B) Demand remains constant regardless of price changes
C) Supply becomes more elastic
D) Total revenue decreases as price increases
Answer: B) Demand remains constant regardless of price changes
Explanation: When demand is perfectly inelastic, consumers will buy the same quantity of the
good regardless of the price. This is rare and typically applies to necessities like life-saving
medication.
