4.1.1.4 Scarcity, choice and the allocation of resources Quiz: AQA Economics, Unit 1

The 20 questions

1. Which of the following is the fundamental economic problem?

   • Governments spending too much money, which pushes up the national debt and forces up the interest rate charged on public borrowing.
   • Scarcity, because resources are limited relative to unlimited wants.
   • Unemployment caused by trade unions, which keep wages above the level that firms will pay for each worker's labour.
   • Inflation is always rising, which means that prices in every market increase steadily and the purchasing power of money falls each year.

2. Which statement correctly describes scarcity?

   • Resources are unlimited but wants are limited, which means that the economy always produces more than people need to consume in each year.
   • Resources are limited relative to the wants they could satisfy.
   • Goods are always in short supply in every market, so that shoppers can never buy everything they want at the price on offer in the shops.
   • Prices are set by governments to keep goods affordable, and scarcity is a term used only for regulated markets.

3. Which of the following best defines opportunity cost?

   • The profit a firm earns from its best-selling product, measured after all costs of production have been deducted.
   • The value of the next best alternative foregone when a choice is made.
   • The total cost of all inputs used in production, including labour, raw materials, rent and the cost of capital.
   • The money price paid for a good at the shop, including any discount or loyalty point that the buyer receives at the till.

4. A student chooses to spend a Saturday working in a part-time job earning £60. Her next best alternative was studying for an exam that she values at £40. What is the opportunity cost of working?

   • £40, the value of studying foregone.
   • £60, the wage earned.
   • £20, the difference between wage and study value.
   • £100, the sum of wage and study value.

5. Why must choices be made about how scarce resources are allocated?

   • Because all resources are free and unlimited, so that every use of them can be pursued at the same time without any cost to anyone at all.
   • Because resources have alternative uses, so using them in one way means giving up another.
   • Because consumers always want the same goods, so that firms only need to decide how much of one standard product to make in each year.
   • Because governments fix all prices at the market level, which means that no producer has to decide how to use the resources it controls.

6. A government spends an extra £1 billion on road building rather than hospitals. Which concept best describes this decision?

   • Economies of scale, because building roads on a larger scale lowers the average cost of each kilometre built.
   • Opportunity cost, because the hospital spending is forgone.
   • Diminishing marginal utility, because each additional kilometre of road gives less satisfaction to drivers than the kilometre before it.
   • Comparative advantage, because the country is better at building roads than at running hospitals, so it should build roads.

7. Which of the following correctly describes the relationship between scarcity and choice?

   • Choice is only needed when resources are abundant, because people can afford everything they want when goods are plentiful in the shops.
   • Scarcity forces choice, because scarce resources must be allocated between competing uses.
   • Scarcity eliminates the need for choice, because once resources are scarce there is only one feasible way to use them.
   • Choice exists only in planned economies, where a central authority allocates resources, and it does not arise in market systems at all.

8. A farmer can grow either wheat or barley on a field. If the farmer grows wheat, the barley forgone is worth £800. Which statement is correct?

   • The opportunity cost of growing wheat is £800 of barley.
   • The opportunity cost of growing wheat is zero because wheat is cheaper.
   • The opportunity cost of growing wheat is the price of the seed.
   • The opportunity cost of growing wheat is the rent paid on the field.

9. Which of the following is the best example of scarcity affecting an individual household?

   • A household never needs to make a decision about spending, because its income and prices are fixed by law.
   • A household has an income of £30,000 and cannot buy every good it wants.
   • A household always has unlimited income to meet every want, so it can buy every good and service it sees advertised.
   • A household receives a free gift of unlimited food every week, so its shopping list never needs checking against its budget.

10. Which statement best explains why opportunity cost exists in a free market economy?

    • Because prices are fixed by law, so that firms and households have no real choice about what to buy or sell in any market in the economy.
    • Because all resources are equally valuable in every use, so that choosing one option does not mean giving up anything of value to anyone.
    • Because individuals and firms must choose between alternative uses of scarce resources.
    • Because goods are always produced at the lowest possible cost, so no alternative use of resources ever needs considering.

11. A town has £5 million to spend. Spending it on a leisure centre means a library cannot be built. Which statement is correct?

    • The opportunity cost of the leisure centre is zero, because the town will spend the £5 million whichever project it picks.
    • The opportunity cost of the leisure centre is £5 million, which is the full amount of money the town has available to spend on any project.
    • The opportunity cost of the leisure centre is the library forgone.
    • The opportunity cost of the library is the leisure centre's price, so the library would cost exactly the same to build.

12. Which of the following would be the most appropriate evaluation of the claim that scarcity can be eliminated by economic growth?

    • Growth increases scarcity by reducing the supply of resources, since producing more output uses up resources faster.
    • Growth can relax resource constraints, but wants are unlimited so scarcity persists.
    • Growth is irrelevant because scarcity is caused only by prices, so changes in national output have no effect on it.
    • Growth eliminates scarcity completely because wants stop rising once an economy becomes rich enough to satisfy all of its citizens fully.

13. Which statement correctly describes the allocation of resources in an economy?

    • Allocation is the process of recording national income, which is the accounting task of measuring the value of output produced each year.
    • Allocation is the process of setting resource prices at zero, so that every resource is free to use for any purpose that a firm chooses.
    • Allocation is the process of destroying surplus resources so that prices stay high and firms can sell at a profit.
    • Allocation is the process of deciding how scarce resources are used between different purposes.

14. A country's government must decide between investing in education and investing in defence. Which concept is most relevant to comparing these choices?

    • Marginal propensity to consume.
    • Price elasticity of demand.
    • Opportunity cost.
    • Economies of scope.

15. Which of the following correctly describes an opportunity cost that is NOT a monetary payment?

    • The wages paid to staff, which are regular monetary payments made by the firm to its employees in return for their work each week.
    • The leisure time given up to work overtime.
    • The rent paid for a shop, which is a regular monthly payment made by the business to its landlord under the terms of the lease.
    • The cost of buying a ticket for a concert, which is paid in cash at the box office or online before the event takes place in the venue.

16. Which of the following best explains why opportunity cost is always present in economic decision making?

    • Because governments always own every resource, so private individuals and firms cannot choose how to use them.
    • Because resources are scarce, so using them for one purpose means they cannot be used for another.
    • Because prices are always rising, so the value of money falls and every purchase costs more than the buyer expected.
    • Because consumers never have enough money to buy anything at all, so that no spending decision is ever made in the economy during a year.

17. A firm uses a factory to produce cars. Which statement correctly identifies the opportunity cost of this use?

    • The opportunity cost is the number of cars sold, which measures the output the factory produces and the revenue it earns in each year.
    • The opportunity cost is the factory's construction cost alone, which was paid many years before production began.
    • The opportunity cost is zero because the factory is already owned by the firm, so no further payment is needed to use it for production.
    • The opportunity cost is the value of the best alternative product the factory could have made.

18. Evaluate: 'Because resources are scarce, the government should always choose the option with the lowest monetary cost.' Which response is most accurate?

    • The statement is incomplete, because opportunity cost includes the value of the best alternative, not only money spent.
    • The statement is correct, because monetary cost always equals opportunity cost, so the cheapest option is always best.
    • The statement is wrong, because scarcity does not affect government decisions, which follow political priorities alone.
    • The statement is correct, because the lowest cost option never has alternative uses, so nothing is given up by choosing it.

19. Which of the following statements best explains why the fundamental economic problem applies to all economies, whatever their political systems?

    • Because all economies have finite resources but unlimited wants, so choices must be made.
    • Because scarcity disappears in economies with high incomes, so that wealthy nations no longer face the choices that poorer ones must make.
    • Because command economies never make allocation decisions, since central planners follow a fixed rule that never needs to change over time.
    • Because only market economies have scarce resources, so planned economies avoid the economic problem by central allocation.

20. A country has limited oil reserves but growing demand for fuel. Which concept best describes the economic problem it faces?

    • Free trade, because importing oil removes any need for the country to make choices about how its own reserves are used.
    • Inflation, because rising import prices for oil push up the general level of prices across the whole domestic economy over time.
    • Unemployment, because oil producers must cut their workforce whenever demand for fuel grows faster than the supply of oil does.
    • Scarcity, because limited oil must be allocated between competing uses while wants exceed the available supply.

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