Reviews of MCQ For Chapter 1 (AS): Basic Economic Ideas

 

Answer A:

The roles of an entrepreneur are managing the other three factors of production and accepting the risks involved in a business

Option B, C and D are all related to management

 

Answer B:

Division of labour or specialisation means a worker/ group of people will perform the same small tasks repetitively. If a market is small e.g. small population or less buying interest, then fewer output will be produced and that means lesser repetitions. A worker may still gain the skill but it would have been better if he or she produces more

Option A and C are irrelevant. Option D is incorrect. Division of labour increases productivity not lowers it

 

Answer C:

Straight forward question. Civil engineers refer to human capital/ labour. Rail, road and electricity infrastructure are known as capital goods because they are man-made resources that aid us in the production process

Option A, B and D are all irrelevant

 

Answer B:

This is a straight forward question. Resources are scarce/ limited/ finite but human wants are unlimited/ infinite. Therefore, all economic agents are forced to make a choice on how to possibly best use the scarce resources. If they choose one, they may not be able to have the other. This means the need to carefully allocate resources in between uses

Option A is wrong. That is more of a macroeconomic aim by a government

Option C is incorrect. This would probably be a typical goal for an enterprise

Option C has the same nature with A. This is the common goal for all governments. 

 

Answer A:

Before technological progress, to produce OX consumer goods, the opportunity cost is YF capital goods. After technological progress, the PPC will shift outward from EF to GH. To produce the same number of OX consumer goods, MH capital goods will be forgone

B is wrong. It will be the opportunity cost of producing OG units of consumer goods

D is incorrect. That is the original opportunity cost before technological progress

Answer C:

An inward movement of the PPC is always due to a fall in the quantity or/ and quality of resources. When there are fewer resources, the maximum ability of the economy to produce will be hindered e.g. tsunami in Indonesia (2004) or typhoon Haiyan (2013). Equally a fall in the quality of resources such as human capital will lead to a fall in potential capacity of a nation and so lesser output will be produced

Option A is obviously wrong. With technological progress, the PPC will shift outward instead of inward

Option B is also wrong. When resources are unemployed such as unemployment of workers during the recession, it will be represented by a point moving away from the PPC rather than a whole shift

Option D is incorrect. When resources are reallocated, it could be the case where more good Y is produced at the expense of good X. This shows opportunity cost and the movement will be along the PPC 

 

Answer B:

The term comparative advantage may have confused some of the candidates here. Basically, it means that this country is able to produce good Y at a lower opportunity cost than other countries. Since that is the case, this country should therefore specialise in the production of good Y and perhaps lesser of good X and then sell it to the world. This will be taught in Chapter 4 (AS): International Trade. Getting back to the question, LM is the PPC of this country and if all resources are fully and efficiently used, the best it can operate is along the LM line. There are three ways to achieve point R. First, increase in the QUANTITY of resources. Second, increase in the QUALITY of resources and finally engage in INTERNATIONAL TRADE. By importing additional both good Y and X, this country will be able to consume beyond its own PPC

Option A is wrong. It has been stated that this country has comparative advantage in good Y

Option C is wrong. By reducing unemployment, this economy is said to have better managed/ used all its available resources and so a point within the PPC will move closer to the boundary of LM rather than beyond it

Option D is also wrong. While this country has comparative advantage in good Y and should therefore specialise in it, it does not help to attain the position of R

Answer D:

Private production such as personal cars, private education, private healthcare, cosmetic products and others to cater for those who are willing and able to pay exists in both free market and mixed economy

Option A is wrong. Capital goods refer to man-made tools like sophisticated machineries,  lorries, tractors and ships which are meant to assist us in the production process. They are present in both mixed and planned economy

Option B is wrong. Consumer surplus refers to the difference between what consumers are willing and able to pay and what they actually need to pay. In all three economic systems, such feature definitely exists. There will always be some people who are willing to pay more (positive consumer surplus) while some refuse to (negative consumer surplus) depending on the level of benefits/ satisfactions derived from the consumption of a good or service

Option C is wrong. All governments do engage in borrowing

Answer A:

A planned economy/ command economy/ communist economy refers to an economic system where all scarce resources (land, labour and capital) are owned and allocated by the government. There are no such thing as private enterprise and consumer interest. In fact these two are strictly prohibited and if such elements are found, the person/ entity may have to undertake severe punishments. The government itself believes that the welfare of the people is better managed in such way since there is no aim to maximise profits. Also, all decisions are made with the public interest in mind and that means after considering all the pros and cons of projects

B is wrong. Governments in market economy, planned economy and mixed economy are unlikely to run a balanced budget. They will either incur a deficit (government spending > tax revenue) or surplus (government spending < tax revenue)

C is wrong. This refers to a free market economy where consumer sovereignty exists

D is wrong. Regardless of which economic systems that we refer to, a machinery cannot easily replace a manual worker and likewise is true. This is the case of occupational immobility

Answer D:

‘Best way’ is a value judgement. It reflects an opinion which is highly debatable. A person may claim that indirect taxes are the best solutions but another person may argue that ban of smoking in open places, ban of smoking advertisement or introduction of nicotine replacement products as substitutes are better solutions. In fact, both persons are correct

A, B and C are positive statement because all of them can be testified true or false. For A, it is a true statement that money is more liquid than say, property or stocks. B is again positive because it is true that some firms subsidised by government while some not. C is also positive because it is true that doctors generally earn more than cashiers and this cannot be debated.  

 

Answer C:

A normative statement contains value/ subjective judgement. They cannot be testified true or false and instead, stand in between. This is because opinions can be debated unlike facts. As in this case, the phrase ’more harmful’ reflects a subjective judgement. Another person may argue likewise e.g. inflation is more harmful than joblessness

A, B and D are positive because inflation and unemployment are measurable. To testify the relationship between the two, we can usually refer to the annual statistics published by ONS (Office for National Statistics). If the claim is true as reflected by the data then it has to be a true fact (positive). If the claim is false as reflected by the data, then it has to be a false fact (positive). Most importantly, facts cannot be debated