Basic Economic Problem: Scarcity, Choice, Opportunity Cost, Factors of Production

1. A government has enough land to build either a hospital or a university, but not both. It chooses the hospital. What is the opportunity cost?

A the money spent on building the hospital
B the patients treated in the hospital
C the university that could have been built
D the land used for the hospital

2. Which situation best shows the basic economic problem?

A a firm lowers price because demand has fallen
B a worker chooses a job with higher wages
C a country has unlimited wants but limited resources
D a bank increases interest rates to reduce borrowing

3. Which factor of production is most directly increased when a firm buys more delivery vans?

A capital
B enterprise
C labour
D land

4. Which factor of production is most directly involved when a business owner takes the risk of starting a new firm?

A capital
B enterprise
C labour
D land

5. A student has $20. A cinema ticket costs $15 and a meal costs $12. The student buys the cinema ticket. What is the opportunity cost?

A $12
B $15
C the meal
D the remaining $5

6. Which statement about scarcity is correct?

A scarcity only exists in poor countries
B scarcity only exists when prices rise
C scarcity exists because resources are limited
D scarcity exists because demand is always falling

7. A free good is one that has

A no opportunity cost
B no price in the market
C no usefulness to consumers
D no demand from households

8. Which is the best example of land as a factor of production?

A a factory machine
B a coal deposit
C a company director
D a delivery driver

9. A country produces more capital goods and fewer consumer goods today. What is the most likely opportunity cost?

A faster future economic growth
B more factories in the future
C current consumer goods forgone
D increased productive capacity

10. Which statement is correct about choice?

A choice exists because wants are limited
B choice exists because resources are scarce
C choice removes the need for opportunity cost
D choice only exists in market economies

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

11. A teacher leaves teaching to become an accountant. What type of factor of production has moved?

A capital
B enterprise
C labour
D land

12. A fishing company buys a new boat and trains workers to use it. Which factors of production have increased in quality or quantity?

A capital and labour
B capital and land
C enterprise and land
D labour and enterprise

13. Which is not a factor of production?

A capital
B enterprise
C profit
D labour

14. A factory produces 1000 shirts using existing machines, workers and materials. It could have produced 500 trousers instead. What is the opportunity cost of producing the shirts?

A 500 trousers
B 1000 shirts
C the machines used
D the wages paid

15. Which situation shows scarcity most clearly?

A consumers prefer branded goods
B a firm advertises its products
C a government cannot fund every public service demanded
D a bank offers loans to households

16. Which statement best explains why governments must make economic choices?

A tax revenue is unlimited
B public wants exceed available resources
C all resources are privately owned
D all goods are free goods

17. A farmer uses the same field to grow wheat instead of rice. What is the opportunity cost?

A the wheat grown
B the rice not grown
C the field used
D the farmer’s labour

18. Which example best shows capital?

A an entrepreneur’s idea
B a forest used for timber
C a computer used by an office worker
D a worker’s physical effort

19. Which statement about opportunity cost is correct?

A it is always measured in money
B it is the total cost of all alternatives
C it is the next best alternative forgone
D it is the least preferred alternative chosen

20. A person chooses to spend two hours studying economics instead of watching a film. What is the opportunity cost?

A the enjoyment of the film forgone
B the two hours spent studying
C the knowledge gained from studying
D the money spent on books

21. Which is the clearest example of enterprise?

A a worker operating machinery
B a bank lending money to a firm
C a manager organising resources and taking business risk
D a farmer owning fertile land

22. Which factor of production includes natural resources?

A capital
B enterprise
C labour
D land

23. A machine replaces ten workers in a factory. Which factor of production has increased?

A capital
B enterprise
C labour
D land

24. Which situation would reduce scarcity?

A wants increase faster than resources
B resources become more productive
C consumers demand more luxury goods
D firms raise prices due to shortages

25. Which item is most likely to be a free good?

A bottled water in a shop
B sea water used by a coastal fisherman
C air in an open field
D healthcare provided by the government

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

26. A country has many unemployed workers but lacks skilled engineers. Which factor of production is scarce?

A all labour
B skilled labour
C land
D enterprise only

27. A factory building is classified as

A capital
B enterprise
C labour
D land

28. Which choice has the clearest opportunity cost?

A accepting a free sample while walking in a shop
B using sunlight to dry clothes
C spending savings on a laptop instead of a phone
D breathing air in a public park

29. Which situation would most likely increase the quantity of labour in an economy?

A a fall in the retirement age
B an increase in emigration
C an increase in immigration of working-age people
D a fall in training opportunities

30. A government uses tax revenue to build roads instead of schools. Which statement is correct?

A the schools are the opportunity cost
B the roads are the opportunity cost
C there is no opportunity cost because tax revenue is used
D opportunity cost only exists for consumers

31. Which pair correctly identifies factors of production?

A labour = human effort, capital = man-made resources used in production
B labour = machinery, capital = natural resources
C enterprise = physical land, land = risk-taking
D capital = money only, labour = raw materials

32. Which is most likely to increase the quality of labour?

A more natural resources
B better education and training
C fewer entrepreneurs
D higher interest rates only

33. A person owns a shop and decides what goods to sell, hires workers and accepts the risk of loss. Which factor of production is being supplied by the owner?

A capital
B enterprise
C labour only
D land

34. Which statement about resources is correct?

A resources are unlimited but wants are limited
B resources are limited and have alternative uses
C resources only include money
D resources are only scarce when unemployment exists

35. A government has $50 million. It can build one airport or five schools. It builds the airport. What is the opportunity cost?

A $50 million
B the airport
C five schools
D the taxes collected

36. A worker is unable to move from coal mining to software programming because of a lack of skills. What does this show?

A geographical immobility of labour
B occupational immobility of labour
C perfect mobility of capital
D scarcity of land

37. A worker refuses a better-paid job in another city because housing is too expensive there. What does this show?

A geographical immobility of labour
B occupational immobility of labour
C enterprise mobility
D capital productivity

38. Which would increase the supply of enterprise in an economy?

A higher taxes on business profits
B fewer opportunities for business start-ups
C more access to business finance
D greater restrictions on starting firms

39. Which item is both scarce and likely to have an opportunity cost?

A air in an empty desert
B sunlight falling on an open field
C a doctor’s time
D unlimited ocean waves with no alternative use

40. Which statement best distinguishes a free good from an economic good?

A a free good has no demand
B an economic good has no price
C a free good has no opportunity cost
D an economic good is always produced by government

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

41. A country discovers new oil reserves. Which factor of production has increased?

A capital
B enterprise
C labour
D land

42. A business buys robots to increase output. What happens to its capital?

A it decreases because workers are replaced
B it increases because robots are man-made aids to production
C it becomes land because robots occupy space
D it becomes enterprise because robots improve decisions

43. Which example shows a choice made by a producer?

A a household deciding to save income
B a firm deciding whether to produce shoes or bags
C a government measuring inflation
D a worker receiving wages

44. Which statement about opportunity cost is most accurate?

A it only occurs when money is spent
B it only occurs when firms produce goods
C it occurs whenever a choice between alternatives is made
D it is the same as total production cost

45. A student can either revise economics or mathematics tonight. She revises economics. Mathematics revision was her next best alternative. What is the opportunity cost?

A economics revision
B mathematics revision
C both economics and mathematics revision
D the time spent revising economics

46. Which is the best example of capital mobility?

A a worker retrains as a nurse
B a machine is moved from one factory to another
C a family refuses to move cities
D an entrepreneur starts a new firm

47. A government encourages people to start businesses by reducing legal restrictions and offering training. Which factor of production is most directly encouraged?

A capital
B enterprise
C labour only
D land

48. Which situation best shows that money itself is not normally a factor of production?

A money can be used to buy machinery, but machinery produces goods
B money is always counted as land
C money directly manufactures products in factories
D money has no role in economic activity

49. Which combination correctly classifies the resources used by a bakery?

A flour = capital, oven = land, baker = enterprise
B flour = land, oven = capital, baker’s effort = labour
C flour = enterprise, oven = labour, shop owner = land
D flour = labour, oven = enterprise, baker’s effort = capital

50. A government wants to reduce scarcity in the long run. Which policy is most likely to help?

A reduce education spending
B discourage investment in machinery
C improve training and technology
D increase consumption of luxury goods only

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

1. Answer: C

A wrong: the money spent is the financial cost, not the next best alternative.
B wrong: patients treated are the benefit of the chosen hospital.
C correct: the university is the next best alternative forgone.
D wrong: land is the resource used, not the opportunity cost.

2. Answer: C

A wrong: this is a market demand issue.
B wrong: this is a personal choice, but not the full economic problem.
C correct: scarcity exists because wants are unlimited but resources are limited.
D wrong: this is monetary policy.

3. Answer: A

A correct: delivery vans are man-made aids to production, so they are capital.
B wrong: enterprise is risk-taking and organisation.
C wrong: labour means human effort.
D wrong: land means natural resources.

4. Answer: B

A wrong: capital means man-made resources.
B correct: enterprise involves organising production and taking risk.
C wrong: labour is human effort.
D wrong: land is natural resources.

5. Answer: C

A wrong: $12 is the price of the meal, but opportunity cost is the meal itself.
B wrong: $15 is the price of the chosen cinema ticket.
C correct: the meal is the next best alternative forgone.
D wrong: the remaining $5 is not the alternative forgone.

6. Answer: C

A wrong: scarcity exists in all economies, rich or poor.
B wrong: scarcity can exist even when prices are stable.
C correct: resources are limited compared with wants.
D wrong: demand does not have to be falling for scarcity to exist.

7. Answer: A

A correct: a free good has no opportunity cost because it is not scarce.
B wrong: some goods have no direct price but still use scarce resources.
C wrong: free goods can still be useful.
D wrong: free goods can have demand, but supply is abundant.

8. Answer: B

A wrong: a factory machine is capital.
B correct: coal is a natural resource, so it is land.
C wrong: a director may provide enterprise or labour.
D wrong: a driver provides labour.

9. Answer: C

A wrong: faster future growth is a benefit, not the cost.
B wrong: more factories are a future benefit of capital goods.
C correct: current consumer goods are sacrificed to produce more capital goods.
D wrong: increased capacity is a benefit.

10. Answer: B

A wrong: if wants were limited, choice would be less necessary.
B correct: scarcity forces people to choose between alternatives.
C wrong: choice creates opportunity cost.
D wrong: choice exists in all economic systems.

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

11. Answer: C

A wrong: capital is machinery and equipment.
B wrong: enterprise is risk-taking and organisation.
C correct: the teacher is human labour moving occupations.
D wrong: land is natural resources.

12. Answer: A

A correct: the boat is capital and trained workers improve labour quality.
B wrong: land is not involved.
C wrong: enterprise and land are not directly changed.
D wrong: enterprise is not directly increased.

13. Answer: C

A wrong: capital is a factor of production.
B wrong: enterprise is a factor of production.
C correct: profit is a reward for enterprise, not a factor of production.
D wrong: labour is a factor of production.

14. Answer: A

A correct: the 500 trousers are the next best alternative forgone.
B wrong: shirts are what is chosen.
C wrong: machines are resources used.
D wrong: wages are financial costs.

15. Answer: C

A wrong: brand preference is demand behaviour.
B wrong: advertising is a business activity.
C correct: government cannot satisfy all public wants due to limited resources.
D wrong: loans do not directly show scarcity.

16. Answer: B

A wrong: tax revenue is limited.
B correct: public wants are greater than available resources.
C wrong: ownership does not remove scarcity.
D wrong: public goods and services are not automatically free goods.

17. Answer: B

A wrong: wheat is what is chosen.
B correct: rice is the next best crop forgone.
C wrong: the field is the resource used.
D wrong: labour is a factor used, not the opportunity cost.

18. Answer: C

A wrong: an idea/risk-taking links to enterprise.
B wrong: a forest is land.
C correct: a computer used in production is capital.
D wrong: physical effort is labour.

19. Answer: C

A wrong: opportunity cost is not always money.
B wrong: it is not all alternatives forgone.
C correct: it is the next best alternative forgone.
D wrong: it is not the least preferred alternative.

20. Answer: A

A correct: the enjoyment of the film is the benefit sacrificed.
B wrong: the two hours are the resource used.
C wrong: knowledge is the benefit of studying.
D wrong: money spent on books is not the alternative forgone.

21. Answer: C

A wrong: operating machinery is labour.
B wrong: lending money is a banking activity.
C correct: organising resources and taking risk is enterprise.
D wrong: owning fertile land is land ownership.

22. Answer: D

A wrong: capital is man-made aids to production.
B wrong: enterprise is risk-taking.
C wrong: labour is human effort.
D correct: land includes natural resources.

23. Answer: A

A correct: a machine is capital.
B wrong: enterprise is not increased by merely replacing workers.
C wrong: labour has decreased, not increased.
D wrong: land is natural resources.

24. Answer: B

A wrong: this worsens scarcity.
B correct: higher productivity means resources can produce more output.
C wrong: more demand for luxuries increases pressure on resources.
D wrong: rising prices do not reduce the basic scarcity problem.

25. Answer: C

A wrong: bottled water is scarce and has opportunity cost.
B wrong: sea water may still have an opportunity cost if used commercially.
C correct: air in an open field is usually abundant and has no opportunity cost.
D wrong: state healthcare uses scarce doctors, buildings and equipment.

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

26. Answer: B

A wrong: not all labour is scarce if many workers are unemployed.
B correct: skilled engineers are specifically limited.
C wrong: the issue is not land.
D wrong: the issue is skilled labour, not only enterprise.

27. Answer: A

A correct: a factory building is a man-made aid to production, so it is capital.
B wrong: enterprise is risk-taking.
C wrong: labour is human effort.
D wrong: land is natural resources, though the ground under the factory is land.

28. Answer: C

A wrong: a free sample may have no cost to the consumer, though not always no opportunity cost to society.
B wrong: sunlight is usually a free good.
C correct: buying a laptop means giving up the phone, the next best alternative.
D wrong: breathing air in a park usually has no opportunity cost.

29. Answer: C

A wrong: lower retirement age reduces the labour force.
B wrong: emigration reduces workers available.
C correct: immigration of working-age people increases labour supply.
D wrong: less training reduces labour quality, not quantity.

30. Answer: A

A correct: schools are the next best alternative forgone.
B wrong: roads are what the government chose.
C wrong: tax revenue is still scarce.
D wrong: governments also face opportunity cost.

31. Answer: A

A correct: labour is human effort and capital is man-made resources used in production.
B wrong: machinery is capital, natural resources are land.
C wrong: enterprise is risk-taking, land is natural resources.
D wrong: capital is not only money in economics.

32. Answer: B

A wrong: natural resources increase land, not labour quality.
B correct: education and training improve workers’ skills and productivity.
C wrong: fewer entrepreneurs reduce enterprise.
D wrong: higher interest rates alone do not improve labour quality.

33. Answer: B

A wrong: capital may be used, but the owner’s role described is decision-making and risk-taking.
B correct: organising resources and accepting risk is enterprise.
C wrong: labour only means physical or mental work without the risk-taking role.
D wrong: land is natural resources.

34. Answer: B

A wrong: wants are unlimited and resources are limited.
B correct: resources are scarce and can be used in different ways.
C wrong: resources include land, labour, capital and enterprise, not only money.
D wrong: resources can be scarce even with unemployment.

35. Answer: C

A wrong: $50 million is the financial resource used.
B wrong: the airport is chosen.
C correct: five schools are the next best alternative forgone.
D wrong: taxes are the source of finance, not the opportunity cost.

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

36. Answer: B

A wrong: geographical immobility means inability/unwillingness to move location.
B correct: lack of skills prevents movement between occupations.
C wrong: capital mobility is about machines/resources moving.
D wrong: the issue is labour skills, not land scarcity.

37. Answer: A

A correct: expensive housing prevents movement to another area.
B wrong: occupational immobility is about lack of skills for another job.
C wrong: enterprise mobility is not the issue.
D wrong: capital productivity is unrelated.

38. Answer: C

A wrong: higher business taxes may discourage enterprise.
B wrong: fewer start-up opportunities reduce enterprise.
C correct: access to finance helps entrepreneurs start firms.
D wrong: restrictions discourage enterprise.

39. Answer: C

A wrong: air in an empty desert is usually a free good.
B wrong: sunlight is usually a free good.
C correct: a doctor’s time is scarce and has alternative uses.
D wrong: if waves are unlimited and have no alternative use, there is no opportunity cost.

40. Answer: C

A wrong: free goods can still be wanted.
B wrong: economic goods usually have opportunity cost and often a price.
C correct: a free good has no opportunity cost.
D wrong: economic goods may be produced by private firms or governments.

41. Answer: D

A wrong: capital is man-made resources.
B wrong: enterprise is risk-taking.
C wrong: labour is human effort.
D correct: oil reserves are natural resources, so they are land.

42. Answer: B

A wrong: capital does not decrease when robots are bought.
B correct: robots are man-made aids used in production.
C wrong: occupying space does not make robots land.
D wrong: robots do not become enterprise.

43. Answer: B

A wrong: this is a household/consumer choice.
B correct: a firm deciding what to produce is a producer choice.
C wrong: measuring inflation is a macroeconomic activity.
D wrong: receiving wages is not a producer choice.

44. Answer: C

A wrong: opportunity cost can occur without money being spent.
B wrong: it applies to consumers, firms and governments.
C correct: every choice between alternatives has an opportunity cost.
D wrong: total production cost includes all costs, not the next best alternative.

45. Answer: B

A wrong: economics revision is chosen.
B correct: mathematics revision is the next best alternative forgone.
C wrong: only the next best alternative is counted.
D wrong: time is the resource used.

46. Answer: B

A wrong: retraining is labour mobility.
B correct: moving a machine between factories shows capital mobility.
C wrong: refusal to move cities is geographical immobility of labour.
D wrong: starting a firm is enterprise.

47. Answer: B

A wrong: capital may be helped, but the direct target is business start-ups.
B correct: reducing restrictions and offering training encourages enterprise.
C wrong: labour only is not the main factor.
D wrong: land is not directly affected.

48. Answer: A

A correct: money buys factors of production, but money itself does not produce output directly.
B wrong: money is not land.
C wrong: money does not directly manufacture goods.
D wrong: money has a major role in exchange and finance, even if it is not usually a factor of production.

49. Answer: B

A wrong: flour is not capital; oven is not land.
B correct: flour comes from natural resources, oven is capital, baker’s effort is labour.
C wrong: flour is not enterprise and oven is not labour.
D wrong: flour is not labour and baker’s effort is not capital.

50. Answer: C

A wrong: reducing education lowers labour quality.
B wrong: discouraging machinery reduces productive capacity.
C correct: training improves labour and technology improves productivity/capital.
D wrong: luxury consumption alone does not increase productive resources.

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.