EOC EOC Economics 3 — Questions and Answers
Question 1: What is 'comparative advantage' in international trade?
- Producing a good at a lower absolute cost than another country
- Producing a good at a lower opportunity cost than another country (Correct answer)
- Having the largest economy in the world
- Exporting more than you import
Correct answer: Producing a good at a lower opportunity cost than another country
Comparative advantage means a country can produce a good at a lower opportunity cost relative to another country, making specialization and trade mutually beneficial.
Question 2: What economic concept explains why people must make choices due to unlimited wants and limited resources?
- Inflation
- Scarcity (Correct answer)
- Deflation
- Surplus
Correct answer: Scarcity
Scarcity is the fundamental economic problem that arises because human wants are unlimited while the resources available to satisfy them are finite.
Question 3: What is the difference between a 'recession' and a 'depression'?
- They are the same thing
- A recession is longer and more severe
- A depression is longer and more severe than a recession (Correct answer)
- A depression only affects developing countries
Correct answer: A depression is longer and more severe than a recession
A recession is defined as two or more consecutive quarters of negative GDP growth, while a depression is a far more severe and prolonged economic downturn.
Question 4: Which factor of production refers to the human effort used to produce goods and services?
- Land
- Capital
- Labor (Correct answer)
- Entrepreneurship
Correct answer: Labor
Labor is the human effort — both physical and mental — that goes into producing goods and services, and it is one of the four classical factors of production.
Question 5: What is a 'tariff' in the context of international trade?
- A subsidy given to domestic producers
- A tax on imported goods (Correct answer)
- A ban on certain exports
- A trade agreement between countries
Correct answer: A tax on imported goods
A tariff is a tax imposed by a government on goods imported from other countries, typically used to protect domestic industries or raise government revenue.
Question 6: What does it mean when a government runs a 'budget deficit'?
- It collects more taxes than it spends
- It spends more money than it collects in revenue (Correct answer)
- It has paid off all national debt
- It has a trade surplus
Correct answer: It spends more money than it collects in revenue
A budget deficit occurs when a government's expenditures exceed its revenues during a given fiscal period, requiring borrowing to cover the gap.
EOC EOC Economics 3
What is 'comparative advantage' in international trade?