Cambridge International AS Level · Economics (9708)

Scarcity, choice and opportunity cost: Practice Questions

5 multiple-choice questions marked as you go, and 4 written questions with worked solutions. All on Scarcity, choice and opportunity cost.

9 questions21 marksFree, no account

Question 1

1 mark

Which question represents one of the three basic questions of resource allocation faced by every economy due to scarcity?

Question 2

1 mark

A firm currently produces 100 units of Good X and 50 units of Good Y. To increase the production of Good X to 120 units, the firm must reduce its production of Good Y to 35 units. What is the opportunity cost of producing the additional 20 units of Good X?

Question 3

1 mark

A farmer has enough land and labor to produce either 100 bushels of wheat or 50 bushels of barley. The opportunity cost of producing one additional bushel of wheat is:

Question 4

1 mark

A government decides to increase spending on national defence by reducing its budget for public healthcare. Which basic economic question is most directly addressed by this decision?

Question 5

1 mark

Why must individuals, firms, and governments all make choices?

Question 6

3 marks

What are the three basic questions of resource allocation that every economic system must address due to the existence of scarcity?

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Question 7

2 marks

State the fundamental economic problem that necessitates the process of making choices at the individual, firm, and government levels.

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Question 8

3 marks

Consider the fundamental economic problem.
(a) Define the concept of scarcity.
(b) Explain why the existence of scarcity necessitates choice and how this leads to the concept of opportunity cost for a consumer with a fixed income.

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Question 9

8 marks

A hypothetical developing economy faces a constraint on its productive capacity. Currently, the economy is operating on its Production Possibility Curve (PPC). The government must decide whether to allocate its limited tax revenue to build new vocational training centers or to improve the national highway network.

(a) Using the concepts of scarcity and choice, explain why the government cannot undertake both projects at their maximum desired scale simultaneously. (3 points)

(b) If the government chooses to invest in vocational training, identify the opportunity cost of this decision and explain how this choice might lead to a shift in the PPC in the long run. (3 points)

(c) Explain how the fundamental economic problem would still exist even if the country experienced a significant discovery of natural resources. (2 points)

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