Quiz Revision - Week 1 (AO2)

Question 1

All children have to be immunized against polio, measles, mumps, and other diseases. If you don’t have enough money to pay for the immunizations, they will be provided free at the county health clinic. What economic concept best explains this example?

Answer 1

Market Failure - when markets don’t achieve efficiency, government intervention can improve society’s welfare.

Question 2

Although for smokers the marginal benefit from smoking may exceed the marginal cost of smoking, the negative effects of second-hand smoke may increase the marginal costs of smoking to society to a point where it exceeds that marginal benefit to society. Which concept best fits this example?

Answer 2

Lack of Efficiency - individual actions of self interest whose side effects are not properly taken into account by the market, requiring Government intervention.

Question 3

During the Great Depression, consumers and producers in many countries dramatically reduced their spending as compared to the quantity of goods and services available at the time. Which principle does this refer to?

Answer 3

Expenditure can Affect Income - Overall spending sometimes gets out of line with the economy’s productive capacity.

Question 4

Margo spends £10,000 on one year’s college tuition. What could be the opportunity cost Margo faces for spending another year in college?

Answer 4

Whatever she would have purchased with the £10,000 plus whatever she would have earned had she not been in college.

Question 5

Marla will make £10 by tutoring for an additional hour, but she will lose an hour of studying for her economics test. Marla decides to study rather than tutor. What does Marla’s choice indicate about her priorities?

Answer 5

Marla values an additional hour of studying more than the £10 she would have earned tutoring.