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Easy
What are the three basic factors of production in economics?
Land, Labor, Capital
Labor, Capital, Entrepreneurship
Land, Labor, Entrepreneurship
Capital, Technology, Money
Economic theory identifies land, labor, and capital as the core inputs used to produce goods and services. Land refers to all natural resources, labor to human effort, and capital to machinery and buildings. Entrepreneurship is often considered a separate factor but traditionally three factors are emphasized. For more details, see Investopedia.
What term describes the value of the next best alternative foregone when a choice is made?
Opportunity cost
Sunk cost
Accounting cost
Marginal cost
Opportunity cost measures the benefit of the best alternative that is given up when a decision is made. It captures the trade-off involved in allocating scarce resources. Understanding opportunity cost is key to rational decision-making in economics. Learn more at Investopedia.
Which curve shows the relationship between the price of a good and the quantity demanded?
Cost curve
Aggregate demand curve
Supply curve
Demand curve
The demand curve plots price on the vertical axis and quantity demanded on the horizontal axis, showing consumers' purchasing behavior at different price levels. It typically slopes downward, reflecting the law of demand. See more at Investopedia.
In economics, what does 'distribution' primarily refer to?
How output or income is shared among individuals
The process of producing goods
The sale of goods to consumers
The buying of intermediate goods
Distribution concerns the way in which total production or income is allocated across the members of society. It addresses who gets what share of goods, services, and income. Distribution is a key topic in welfare economics and public policy. For more, visit Investopedia.
What is marginal cost?
The additional cost of producing one more unit of output
The total cost divided by quantity
The fixed cost of production
The cost that has already been incurred
Marginal cost measures the change in total cost when output increases by one unit. It is central to a firm's production decision, where profit-maximizing output occurs where marginal cost equals marginal revenue. More details at Investopedia.
What does 'consumption' refer to in economics?
The creation of new goods
The distribution of income
The investment in capital equipment
The use of goods and services by households
Consumption is the process by which households use goods and services to satisfy their needs and wants. It is a major component of aggregate demand in macroeconomics. Data on consumption help policymakers gauge economic health. See Investopedia.
Which factor of production is best described as the physical tools and infrastructure used to produce goods and services?
Labor
Land
Capital
Entrepreneurship
Capital includes machinery, buildings, and equipment that firms use in production. It differs from land, which covers natural resources, and labor, which refers to human effort. Capital accumulation is crucial for economic growth. More at Investopedia.
What is the basic economic problem that arises because resources are limited while wants are unlimited?
Inflation
Equilibrium
Surplus
Scarcity
Scarcity refers to the fundamental economic issue that resources cannot meet all human wants. It forces individuals and societies to make choices about allocation. Addressing scarcity leads to concepts like opportunity cost and trade-offs. See Investopedia.
Medium
What economic principle states that as more units of a variable input are added to fixed inputs, the additional output eventually decreases?
Law of increasing returns
Law of supply and demand
Opportunity cost principle
Law of diminishing marginal returns
The law of diminishing marginal returns indicates that adding more of a variable input to fixed inputs will eventually yield smaller increments of output. It applies in the short run when one input is fixed. Firms use this principle to optimize production levels. For more, see Investopedia.
What is comparative advantage?
Having the lowest absolute cost of production
The ability to produce a good at a lower opportunity cost than others
Controlling the entire market for a product
The ability to produce more output with the same inputs
Comparative advantage occurs when a country or firm can produce a good at a lower opportunity cost than competitors. Even if one party is more efficient in absolute terms, trade can benefit both by specializing according to comparative costs. Learn more at Investopedia.
If the price of a product rises by 10% and the quantity demanded falls by 20%, the price elasticity of demand (in absolute value) is:
0.5
1
2
20
Price elasticity of demand is calculated as percentage change in quantity demanded divided by percentage change in price. Here, |?20%/10%| = 2, indicating elastic demand. Understanding elasticity is key to pricing strategy and tax incidence. See Investopedia.
What is consumer surplus?
The total amount consumers spend on goods
The additional cost of producing an extra unit
The revenue firms receive above production cost
The difference between what consumers are willing to pay and what they actually pay
Consumer surplus measures the benefit to consumers who pay less than their maximum willingness to pay. Graphically, it is the area under the demand curve above the market price. It reflects consumer welfare in market transactions. More at Investopedia.
What is producer surplus?
The difference between the market price and the minimum price at which producers are willing to sell
The extra cost of an additional unit
Total revenue minus total cost
The cost to firms for producing goods
Producer surplus is the area above the supply curve and below the market price, indicating the extra benefit producers receive by selling at a higher price than their minimum acceptable price. It measures producer welfare. For more information, see Investopedia.
What is a price floor?
A maximum legal price below equilibrium
A legally imposed minimum price above the equilibrium price
A tax on goods to raise revenue
A subsidy paid to consumers
A price floor sets a minimum legal price for a good or service, often above market equilibrium, leading to excess supply or surpluses. Minimum wage laws are examples of price floors in labor markets. Price floors can cause inefficiency if set too high. See Investopedia.
Which market structure is characterized by many firms selling identical products without individual price control?
Monopoly
Monopolistic competition
Perfect competition
Oligopoly
Perfect competition features numerous small firms selling homogeneous products, with no single firm able to influence market price. Firms are price takers and earn zero economic profit in the long run. This model provides a benchmark for efficiency. More at Investopedia.
What term describes an allocation of resources where no one can be made better off without making someone else worse off?
Allocative inefficiency
Economic equilibrium
Pareto efficiency
Productive efficiency
An allocation is Pareto efficient if no reallocation can improve one individual's welfare without reducing another's. It is a key concept in welfare economics and policy evaluation. Pareto efficiency does not address equity of distribution. See Investopedia.
Hard
What does the Lorenz curve illustrate?
The distribution of income or wealth among a population
The cost structures of firms
The relationship between supply and demand
The production possibilities frontier
The Lorenz curve plots the cumulative share of income or wealth against the cumulative share of population, highlighting inequality. A perfectly equal distribution would be a straight line, while deviations show inequality levels. It is used alongside the Gini coefficient. Read more at Investopedia.
Which coefficient measures income inequality on a scale from 0 to 1?
Herfindahl-Hirschman Index
Gini coefficient
Consumer Price Index
Kuznets ratio
The Gini coefficient quantifies income or wealth inequality, where 0 indicates perfect equality and 1 indicates maximal inequality. It is derived from the Lorenz curve. Policymakers use it to assess distributional outcomes. More at Investopedia.
In third-degree price discrimination, how are prices determined?
A single price for all consumers
Prices that increase with quantity
Discounts for early buyers only
Different prices for different consumer groups based on elasticity
Third-degree price discrimination charges different groups different prices according to their price sensitivity (elasticity). Examples include student discounts and senior citizen rates. It requires the seller to segment markets and prevent resale. Learn more at Investopedia.
What happens to average cost when marginal cost is less than average cost?
Marginal cost equals average cost
Average cost increases
Average cost decreases
Average cost remains constant
When marginal cost is below average cost, each additional unit produced pulls down the average cost. Conversely, if marginal cost exceeds average cost, the average cost rises. This relationship is crucial in determining the minimum efficient scale. Read at Investopedia.
Which type of economies of scale arise from the expansion of an entire industry rather than a single firm?
External economies of scale
Financial economies
Internal economies of scale
Technical economies
External economies of scale occur when firms benefit from the growth of their industry, such as improved supplier networks or infrastructure. Internal economies are firm-specific. External economies lead to lower costs across all firms in an industry. More at Investopedia.
Which model uses a matrix to show interindustry flows of goods and services in production?
Input-output model
AD-AS model
Solow growth model
IS-LM model
The input-output model, developed by Wassily Leontief, uses a matrix to represent how industries supply inputs to and demand outputs from each other. It helps analyze economic interdependencies and the impact of changes in one sector on others. For more information, see Investopedia.
In the short run production function, which factor is considered fixed?
Energy
Capital
Raw materials
Labor
In the short run, at least one factor of production is fixed - typically capital such as machinery or plant size. Labor and raw materials are variable inputs. This distinction underpins the concept of diminishing marginal returns. More details at Investopedia.
Expert
In the Edgeworth box, what does the contract curve represent?
All Pareto efficient allocations between two agents
The production possibility frontier
The initial endowments of goods
The locus of consumer indifference curves
The contract curve in an Edgeworth box shows the set of allocations where indifference curves of two agents are tangent, indicating Pareto efficiency. No further mutually beneficial trades are possible along this curve. It is a fundamental concept in general equilibrium theory. See Investopedia.
Which social welfare function weights all individuals equally and sums their utilities?
Utilitarian social welfare function
Nash bargaining solution
Pareto social choice rule
Rawlsian maximin function
The utilitarian social welfare function aggregates individual utilities by summing them, treating each person's utility equally. It focuses on maximizing total societal welfare. Critics argue it may neglect distributional concerns. For more, see Investopedia.
What does Walras' Law assert in general equilibrium theory?
Supply always equals demand in each market
Prices adjust only in response to changes in money supply
Output is always at full employment
The sum of value of excess demands across all markets is zero
Walras' Law states that if all but one market in an economy are in equilibrium, then the last one must also be in equilibrium because the value of aggregate excess demand is zero. It underscores the interdependence of markets. For deeper insight, visit Investopedia.
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Study Outcomes
Understand Production, Distribution & Consumption -
Grasp the fundamental processes by which goods and services are produced, distributed, and consumed in an economy, reinforcing concepts tested in the free economics quiz.
Analyze Supply and Demand Dynamics -
Interpret how shifts in supply and demand affect market equilibrium, price fluctuations, and resource allocation through targeted multiple-choice questions.
Differentiate Microeconomics vs. Macroeconomics -
Distinguish between microeconomics quiz questions and broader macroeconomics quiz topics to identify the scope and impact of each level of analysis.
Apply Economic Reasoning to Quiz Scenarios -
Use core economic principles to solve quiz problems, reinforcing critical thinking and decision-making skills in production, distribution, and consumption contexts.
Evaluate Personal Knowledge Gaps -
Identify strengths and areas for improvement in basic economics by reviewing quiz results and targeted supply and demand quiz feedback.
Cheat Sheet
Law of Supply and Demand -
The fundamental model in any basic economics quiz, where Qd = a - bP and Qs = c + dP determines equilibrium price and quantity. Remember the mnemonic "Down for Demand, Up for Supply" to recall that demand curves slope downward and supply curves slope upward (source: MIT OpenCourseWare). Practice plotting shifts to see how changes in income or production costs move equilibrium.
Price Elasticity of Demand -
Calculated as %ΔQd / %ΔP, elasticity shows how responsive consumers are to price changes, with |Ed|>1 indicating elastic and |Ed|<1 inelastic demand (Harvard Economic Review). Try the "Big Ticket vs. Bread" example - luxury cars are elastic, staple goods are inelastic - to cement the concept. This metric is key for forecasting total revenue changes when prices shift.
Production Function & Diminishing Returns -
The general form Q = f(L, K) (often Cobb - Douglas: Q = ALαKβ) illustrates output based on labor and capital inputs. According to USDA research, as you add additional units of one input while holding the other constant, marginal output eventually falls - this is the Law of Diminishing Marginal Returns. Use the "More Hands, Less Punch" phrase to remember that extra labor yields smaller gains over time.
Market Structures and Pricing Power -
From perfect competition (P=MC) to monopoly (MR=MC), each structure dictates how firms set prices and output levels (source: University of Chicago Booth School). Sketch simple diagrams comparing many small firms versus a single price-maker to visualize differences in consumer surplus and producer surplus. Recognize real-world examples: agricultural markets for competition and utilities for regulated monopoly.
Distribution Channels & Supply Chain Efficiency -
Understanding direct vs. indirect channels is crucial - direct sales (e-commerce) often cut costs, while wholesalers and retailers add reach (OECD report). Track metrics like inventory turnover (Cost of Goods Sold ÷ Average Inventory) to evaluate efficiency. Remember "Cross-Dock to Stock Rock" for the practice of cross-docking that speeds delivery and lowers holding costs.
