Introduction (Microeconomics) — Important Questions

Economics is best described as the study of:

Who defined economics as a 'science of wealth'?

The Production Possibility Frontier (PPF) represents:

Opportunity cost of a decision is:

Which of the following is NOT a central problem of every economy?

Microeconomics is primarily concerned with the study of:

Which of the following best describes 'scarcity' in economics?

The concept of opportunity cost refers to:

A Production Possibility Frontier (PPF) shows:

Which of the following is NOT one of the central problems of an economy?

In a market economy, the allocation of resources is primarily determined by:

A point lying inside the Production Possibility Frontier indicates:

In a mixed economy, which of the following statements is most accurate?

If an economy moves from a point on the PPF to a point outside it, this would most likely be caused by:

Country X produces only wheat and cloth. If it decides to produce more wheat, it must produce less cloth. This situation best illustrates which economic concept?

Distinguish between microeconomics and macroeconomics with one example of each.

What is the Production Possibility Frontier (PPF)? Why does it slope downward?

State any two features of a mixed economy.

Distinguish between positive and normative economics with one example each.

State the three central problems of an economy.

Define microeconomics and state its primary focus.

What is meant by scarcity in economics? Why does it give rise to the problem of choice?

What is opportunity cost? Give one example to illustrate your answer.

What is a Production Possibility Frontier (PPF)? What does a point inside the PPF indicate?

Why is the Production Possibility Frontier typically concave to the origin?

Explain the concept of opportunity cost and illustrate it using a Production Possibility Frontier (PPF).

Compare Adam Smith's, Lionel Robbins' and Paul Samuelson's definitions of economics.

Explain the three central problems every economy faces, and describe how a market (capitalist) economy solves them.

Explain the main features and shape of the Production Possibility Frontier.

Distinguish between microeconomics and macroeconomics.

Compare microeconomics and macroeconomics with the help of a table on five features.

1. A point representing unemployment of resources lies:
   AOn the frontier

   BOutside the frontier

   CInside the frontier

   DAt the origin
2. Moving along the PPF from more butter to more guns involves a trade-off known as:
   AEqual exchange, no cost

   BOpportunity cost

   CScarcity cost

   DMoney cost
3. What does an outward shift of the PPF indicate?

1. Deciding between roads or schools is an example of the central problem:
   AWhat to produce

   BHow to produce

   CFor whom to produce

   DWho will finance it
2. Choosing between labour-intensive and capital-intensive techniques is the central problem of:
   AWhat to produce

   BHow to produce

   CFor whom to produce

   DHow much to consume
3. How does a mixed economy solve these central problems?

1. The opportunity cost of Rohan's decision is the best alternative he gave up:
   A0 Math marks

   B20 Math marks

   C25 Eco marks

   D4 hours
2. Choice is necessary in this case primarily:
   ABecause resources are unlimited

   BBecause wants and time are limited

   CBecause Rohan is lazy

   DBecause Math is easier
3. Define opportunity cost in your own words and give one more economic example.

1. Microeconomics primarily studies the behaviour of:
   AThe entire economy as a whole

   BIndividual economic units such as consumers and firms

   CInternational trade and finance

   DGovernment fiscal and monetary policies
2. What is opportunity cost?
3. The fundamental economic problem of scarcity arises because:
   AGovernments fail to distribute resources equally

   BHuman wants are unlimited while resources are limited

   CTechnology is not advanced enough

   DMarkets do not function efficiently
4. Explain why scarcity forces every economy to make choices.

Study the three economic systems and answer:

1. Which system relies primarily on the price mechanism?
   ACapitalism

   BSocialism

   CMixed

   DBarter
2. Which system relies primarily on central planning?
   ACapitalism

   BSocialism

   CMixed

   DNeither
3. Why do most countries today follow a mixed economy?

Study the PPF schedule of an economy and answer:

1. The opportunity cost of butter is:
   AConstant

   BIncreasing

   CDecreasing

   DZero
2. Based on the schedule the PPF will be:
   AConcave to origin

   BConvex to origin

   CStraight-line

   DHorizontal
3. Explain why the opportunity cost of butter rises.

Observe the following Production Possibility Schedule for an economy producing Guns and Butter and answer the questions below:

The following table shows different combinations of two goods X and Y that an economy can produce. Study the table and answer:

Study the Production Possibility Frontier and answer:

1. A point inside the PPF represents:
   AInefficient (unemployment)

   BEfficient (full employment)

   CImpossible

   DAt maximum capacity
2. The concave shape of the PPF reflects:
   AConstant opportunity cost

   BIncreasing opportunity cost

   CDecreasing opportunity cost

   DZero opportunity cost
3. What does an outward shift of the PPF indicate?

Based on the given diagram of the Production Possibility Frontier, answer the following:

1. What does a point inside the Production Possibility Frontier (like point C) represent?
   AFull and efficient utilisation of resources

   BUnderutilisation or inefficient use of resources

   CA combination that is beyond the economy's capacity

   DOptimal allocation of resources
2. What does a point outside the PPF (like point A) indicate?
   AEfficient production

   BUnderemployment of resources

   CAn unattainable combination with current resources and technology

   DMaximum production of Good Y only
3. Why is the PPF curve concave to the origin?
4. What is the opportunity cost concept illustrated by the PPF?
5. What happens to the PPF when there is technological advancement in the economy?
   AThe PPF shifts inward

   BThe PPF remains unchanged

   CThe PPF shifts outward, indicating increased production capacity

   DThe PPF becomes a straight line

Based on the given flowchart, answer the following:

1. Which central problem deals with the choice of technique of production?
   AWhat to produce?

   BFor whom to produce?

   CHow to produce?

   DWhen to produce?
2. The problem 'For Whom to Produce?' is essentially related to:
   ASelection of production technology

   BDistribution of national product among members of society

   CDeciding which goods to produce

   DMaximising total output
3. Why do central problems arise in every economy?
4. Give one example each to explain the problems 'What to Produce?' and 'How to Produce?'
5. In a market economy, who determines the allocation of resources?
   AThe central government

   BThe price mechanism through demand and supply

   CInternational organisations

   DPublic sector enterprises
6. Which economic system combines features of both a market economy and a centrally planned economy?
   ACapitalist economy

   BSocialist economy

   CMixed economy

   DTraditional economy
7. What is the role of the price mechanism in solving the central problems of a market economy?
8. State one advantage and one disadvantage of a centrally planned economy.
9. What is opportunity cost in economics?
   AThe monetary price paid for a good or service

   BThe value of the next best alternative foregone when a choice is made

   CThe total cost of producing all goods in an economy

   DThe cost of importing goods from another country
10. According to the flowchart, what two factors together give rise to the 'Problem of Choice'?
    ADemand and Supply

    BPrice mechanism and Government policy

    CScarcity of Resources and Unlimited Human Wants

    DTechnology and Labour
11. Give a real-life example to illustrate the concept of opportunity cost.
12. How does scarcity make microeconomics relevant? Explain briefly.

Based on the given graph showing a shift in the Production Possibility Frontier, answer the following:

1. What does an outward (rightward) shift of the PPF indicate?
   AA decrease in the production of consumer goods

   BEconomic growth due to increase in resources or improvement in technology

   CInefficient use of available resources

   DA fall in the price of goods
2. Which of the following can cause the PPF to shift outward?
   AA natural disaster destroying resources

   BTechnological advancement in production

   CIncrease in unemployment

   DDecrease in consumer demand
3. What would cause the PPF to shift inward (leftward), and give one real-life example?
4. Explain how the concept of scarcity is related to the PPF.