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1. Tema: Basic concepts

   1. The basic economic problem arises mainly because of

   AinflationBscarcityCunemploymentDtaxation
   Solución

   B. scarcity

   • Human wants are unlimited but resources are limited.
   • This scarcity forces choices, which is the basic economic problem.

2. Tema: Basic concepts

   2. Opportunity cost is best defined as

   Athe money cost of a goodBthe next best alternative forgoneCthe cost of productionDthe price paid in the market
   Solución

   B. the next best alternative forgone

   • When you choose one option, you give up the next best one.
   • The value of that alternative is the opportunity cost.

3. Tema: Demand

   3. When the price of a good rises and the quantity demanded falls, this illustrates the

   Alaw of supplyBlaw of demandClaw of diminishing returnsDlaw of comparative advantage
   Solución

   B. law of demand

   • The law of demand states that, other things being equal, quantity demanded falls as price rises.

4. Tema: Demand

   4. Which of these is most likely to shift the demand curve for a normal good to the right?

   AA rise in the price of the goodBA rise in consumers' incomeCA fall in the price of a substituteDA rise in the cost of production
   Solución

   B. A rise in consumers' income

   • Higher income means consumers buy more of a normal good at every price, so demand shifts right.
   • A change in the good's own price causes a movement along the curve, not a shift.

5. Tema: Elasticity

   5. The price of a good rises by 10% and the quantity demanded falls by 20%. What is the price elasticity of demand?

   A0.5B1C2D20
   Solución

   C. 2

   • PED = % change in quantity demanded ÷ % change in price.
   • 20 ÷ 10 = 2 (ignoring the minus sign), so demand is elastic.

6. Tema: Factors of production

   6. The reward for land as a factor of production is

   AwagesBinterestCrentDprofit
   Solución

   C. rent

   • Land earns rent, labour earns wages, capital earns interest and the entrepreneur earns profit.

7. Tema: Market structures

   7. A market with only one seller is called

   Aperfect competitionBoligopolyCmonopolyDduopoly
   Solución

   C. monopoly

   • A monopoly has a single seller and no close substitutes.
   • A duopoly has two sellers; an oligopoly has a few.

8. Tema: Inflation

   8. Inflation is best described as

   Aa fall in the value of exportsBa persistent rise in the general price levelCa rise in the price of one goodDan increase in unemployment
   Solución

   B. a persistent rise in the general price level

   • Inflation is a sustained rise in the general level of prices, which reduces the purchasing power of money.

9. Tema: Money and banking

   9. Which of these is a function of a central bank?

   AIssuing the national currencyBGranting loans to individualsCSelling shares to the publicDCollecting income tax
   Solución

   A. Issuing the national currency

   • The central bank issues currency, acts as banker to the government and to commercial banks, and controls money supply.
   • Loans to individuals are given by commercial banks.

10. Tema: National income

    10. Gross Domestic Product (GDP) measures

    Athe total value of importsBthe total value of final goods and services produced within a country in a periodCgovernment revenue in a yearDthe income of the richest citizens
    Solución

    B. the total value of final goods and services produced within a country in a period

    • GDP is the market value of all final goods and services produced within a country's borders in a given period, usually a year.