Gillespie: Business Economics

Chapter 02 - The fundamental economic problems

Correct answers are marked with an asterisk *

Type: true-false
Title: Chapter 02 - Question 01
01) Resources in an economy are infinite.
a. True
Feedback: There are limited resources at any moment.
Page reference: 42
*b. False
Feedback: There are limited resources at any moment.
Page reference: 42

Type: true-false
Title: Chapter 02 - Question 02
02) Any point inside the production possibility frontier is technically (productively)
inefficient because it is possible to produce more of both goods.
*a. True
Feedback: This is productive efficiency.
Page reference: 46
b. False
Feedback: This is productive efficiency.
Page reference: 46

Type: fill-in-blank
Title: Chapter 02 - Question 03
03) An economy in which resources are allocated purely by supply and demand is called a
‘____’ market economy.
Feedback: An economy in which resources are allocated purely by supply and demand is
called a ‘free’ market economy.
Page reference: 52
a. Free

Type: fill-in-blank
Title: Chapter 02 - Question 04
04) When no more of one product can be produced without producing less of another an
economy is ____________ efficient.
Feedback: When no more of one product can be produced without producing less of
another an economy is productively efficient. It occurs on the production possibility
frontier.
Page reference: 46
a. Productively

Type: true-false
Title: Chapter 02 - Question 05
05) The production possibility frontier shows what consumers would like to consume.
a. True
Feedback: It shows the maximum possible combinations of products that can be
produced.
Page reference: 44

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 Gillespie: Business Economics
Chapter 02 - The fundamental economic problems

*b. False
Feedback: It shows the maximum possible combinations of products that can be
produced.
Page reference: 44

Type: true-false
Title: Chapter 02 - Question 06
06) The output gap occurs when the actual output in the economy is less than the
potential output.
*a. True
Feedback: Correct.
Page reference: 50
b. False
Feedback: The output gap occurs when the actual output in the economy is less than the
potential output.
Page reference: 50

Type: multiple choice question

Title: Chapter 02 - Question 07
07) Complete the sentence. Scarcity and choice means that …
a. Incomes in economies are equal.
Feedback: Choices have to be made how to allocate resources.
Page reference: 44
*b. Choices have to be made on how to allocate resources.
Feedback: Well done.
Page reference: 44
c. Economies must be run by governments.
Feedback: Choices have to be made how to allocate resources.
Page reference: 44
d. Resources are allocated purely by demand.
Feedback: Choices have to be made how to allocate resources.
Page reference: 44

Type: multiple choice question

Title: Chapter 02 - Question 08
08) Complete the sentence. In a mixed economy …
a. All resources are owned by the government.
Feedback: There is a private sector and a public sector.
Page reference: 53
*b. There is a private sector and a public sector.
Feedback: Well done.
Page reference: 53
c. There are unlimited wants.
Feedback: There is a private sector and a public sector.
Page reference: 53
d. Resources are allocated purely by forces of supply and demand.
Feedback: There is a private sector and a public sector.
Page reference: 53

Type: multiple choice question

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 Gillespie: Business Economics
Chapter 02 - The fundamental economic problems

Title: Chapter 02 - Question 09

09) In a free market, what would happen if demand for a product increased?
a. Less of it would be produced.
Feedback: The price would rise encouraging more production.
Page reference: 53
Incorrect
b. The price would be likely to rise reducing the amount producers would want to supply.
Feedback: The price would rise encouraging more production.
Page reference: 53
*c. The price would rise encouraging more production.
Feedback: Correct.
Page reference: 53
d. The price would fall until more was bought.
Feedback: The price would rise encouraging more production.
Page reference: 53

Type: multiple choice question

Title: Chapter 02 - Question 10
10) Complete the sentence. The wants of consumers …
*a. Are unlimited.
Feedback: Consumer wants are unlimited but resources are limited which creates the
need to allocate resources.
Page reference: 44
b. Will never change.
Feedback: Consumer wants are unlimited but resources are limited which creates the
need to allocate resources.
Page reference: 44
c. Include land, labour, capital and finished goods.
Feedback: Consumer wants are unlimited but resources are limited which creates the
need to allocate resources.
Page reference: 44
d. Are scarce at any moment.
Feedback: Consumer wants are unlimited but resources are limited which creates the
need to allocate resources.
Page reference: 44

Type: multiple choice question

Title: Chapter 02 - Question 11
11) Which of the following characterizes a planned economy?
*a. Resources are allocated by the government.
Feedback: Well done.
Page reference: 53
b. There is a private and public sector.
Feedback: Resources are allocated by the government.
Page reference: 53
c. There are unlimited resources.
Feedback: Resources are allocated by the government.
Page reference: 53
d. The price acts as a signal and incentive for buyers and producers.
Feedback: Resources are allocated by the government.

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 Gillespie: Business Economics
Chapter 02 - The fundamental economic problems

Page reference: 53

Type: multiple choice question

Title: Chapter 02 - Question 12
12) Which of the following characterizes a free market?
a. Resources are allocated by the government.
Feedback: Resources are allocated by the free market forces.
Page reference: 53
b. There is a private and public sector.
Feedback: Resources are allocated by the free market forces.
Page reference: 53
c. There are unlimited resources.
Feedback: Resources are allocated by the free market forces.
Page reference: 53
*d. Resources are allocated by forces of supply and demand.
Feedback: Well done.
Page reference: 53

Type: multiple choice question

Title: Chapter 02 - Question 13
13) What are the three fundamental economic questions?
a. How to produce, when to produce, where to produce.
Feedback: What to produce, how to produce and who to produce for.
Page reference: 57
b. Who produces, why they produce, what they produce.
Feedback: What to produce, how to produce and who to produce for.
Page reference: 57
c. Whether to produce, what to produce with and when to produce.
Feedback: What to produce, how to produce and who to produce for.
Page reference: 57
*d. What to produce, how to produce and who to produce for.
Feedback: Well done.
Page reference: 57

Type: multiple choice question

Title: Chapter 02 - Question 14
14) Complete the sentence. A free good …
a. Is any product provided by the government.
Feedback: Has no opportunity cost. There can be more for Tom without any less for
Jerry.
Page reference: 52
b. Is any product that is provided free.
Feedback: Has no opportunity cost. There can be more for Tom without any less for
Jerry.
Page reference: 52
*c. Has no opportunity cost. There can be more for Tom without any less for Jerry.
Feedback: Has no opportunity cost. There can be more for Tom without any less for
Jerry.
Page reference: 52
d. Is any unprofitable product.

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 Gillespie: Business Economics
Chapter 02 - The fundamental economic problems

Feedback: Has no opportunity cost. There can be more for Tom without any less for
Jerry.
Page reference: 52

Type: multiple choice question

Title: Chapter 02 - Question 15
15) Complete the sentence. On a production possibility frontier …
a. Production is inefficient.
Feedback: The economy is productively efficient so that more of one product can only be
produced if less of another is made
Page reference: 45
b. An economy can produce more of both products.
Feedback: The economy is productively efficient so that more of one product can only be
produced if less of another is made.
Page reference: 45
*c. More of one product can only be produced if less of the other product is produced.
Feedback: Well done.
Page reference: 45
d. Prices of both products are equal on a PPF.
Feedback: The economy is productively efficient so that more of one product can only be
produced if less of another is made.
Page reference: 45

Type: multiple choice question

Title: Chapter 02 - Question 16
16) Which of the following is not a resource?
a. Labour
Feedback: This is a resource
Page reference: 45
b. Land
Feedback: This is a resource
Page reference: 45
*c. Profit
Feedback: This is an objective not a resource
Page reference: 45
d. Capital equipment
Feedback: This is a resource
Page reference: 43

Type: true-false
Title: Chapter 02 - Question 17
17) Most business activity is in the service sector. This means the UK business is mainly
operating in the primary sector.
a. True
Feedback: It means the UK economy is mainly based on the tertiary sector
Page reference: 59
*b. False
Feedback: It means the UK economy is mainly based on the tertiary sector
Page reference: 59

OXFORD Higher Education

© Oxford University Press, 2010. All rights reserved.
 Gillespie: Business Economics
Chapter 02 - The fundamental economic problems

Type: true-false
Title: Chapter 02 - Question 18
18) In the public sector businesses are privately owned
a. True
Feedback: they are owned by the government
Page reference: 58
*b. False
Feedback: they are owned by the government
Page reference: 59

Type: multiple choice question

Title: Chapter 02 - Question 19
19) The opportunity cost of studying for your degree is
a. The cost of the degree
Feedback: It is the sacrifice made by your decision to study
Page reference: 44
*b. The earnings or other activities that you sacrifice whilst studying
Feedback: Well done.
Page reference: 44
c. The extra earnings you get when you graduate
Feedback: It is the sacrifice made by your decision to study
Page reference: 44
d. The interest rate you pay on your loan
Feedback: It is the sacrifice made by your decision to study
Page reference: 45

Type: true-false
Title: Chapter 02 - Question 20
20) All economies are mixed to some extent
*a. True
Feedback: All economies have a private and public sector
Page reference: 53
b. False
Feedback: All economies have a private and public sector
Page reference: 53

OXFORD Higher Education

© Oxford University Press, 2010. All rights reserved.