Business Degree Business Economics 1 — Questions and Answers
Question 1: What is 'opportunity cost' in economics?
- The direct monetary expense of a business decision
- The value of the next best alternative foregone when making a choice (Correct answer)
- The cost of correcting a poor business decision
- The interest paid on borrowed capital
Correct answer: The value of the next best alternative foregone when making a choice
Opportunity cost is the value of the best alternative sacrificed when making a decision, representing the true cost of any choice.
Question 2: What does 'GDP' (Gross Domestic Product) measure?
- The total value of a country's imports and exports
- The total monetary value of all goods and services produced within a country in a given period (Correct answer)
- A country's total national debt outstanding
- The average income per capita of a country's citizens
Correct answer: The total monetary value of all goods and services produced within a country in a given period
GDP measures the total economic output of a country by summing the monetary value of all final goods and services produced within its borders.
Question 3: What is 'supply and demand' in market economics?
- A government framework for controlling prices and production
- The economic model describing how prices are determined by producers' willingness to sell and consumers' desire to buy (Correct answer)
- A company's internal production and inventory planning system
- A measure of a product's profitability across different markets
Correct answer: The economic model describing how prices are determined by producers' willingness to sell and consumers' desire to buy
Supply and demand is the foundational economic model showing that prices and quantities in a market are determined by the interaction of sellers' supply and buyers' demand.
Question 4: What is 'inflation' in economic terms?
- A decrease in the general price level of goods and services
- A sustained increase in the general price level of goods and services over time (Correct answer)
- A rapid rise in company stock prices
- An expansion in money supply that only affects financial markets
Correct answer: A sustained increase in the general price level of goods and services over time
Inflation is the rate at which the general level of prices for goods and services rises over time, eroding purchasing power.
Question 5: What is a 'monopoly' in market structure?
- A market with many competing firms of equal size
- A market dominated by a single seller with no close substitutes for its product (Correct answer)
- A market where two large firms control most of the supply
- A government-regulated market with fixed prices
Correct answer: A market dominated by a single seller with no close substitutes for its product
A monopoly exists when a single firm is the sole producer of a product with no close substitutes, giving it significant market power over price.
Question 6: What is 'comparative advantage' in international trade?
- Having the largest economy in a trading bloc
- The ability to produce a good at a lower opportunity cost than a trading partner (Correct answer)
- Possessing advanced technology that competitors lack
- Having access to more natural resources than other countries
Correct answer: The ability to produce a good at a lower opportunity cost than a trading partner
Comparative advantage means a country can produce a good more efficiently relative to other goods it produces, making trade mutually beneficial even if one country is more productive overall.
Business Degree Business Economics 1
What is 'opportunity cost' in economics?