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Free Economics practice questions
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Define relative scarcity and explain why it forces consumers to make choices.
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1 mark for defining relative scarcity: human wants are unlimited while resources to satisfy them are limited. 2 marks for explanation: because resources are finite, consumers cannot have everything they want, so they must choose between alternatives, and each choice involves an opportunity cost (the next best alternative forgone).
Explain how an increase in consumer confidence is likely to affect aggregate demand and the level of economic activity.
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1 mark for identifying consumer confidence as a component affecting consumption (C). 2 marks for the mechanism: higher confidence raises household spending and reduces saving, increasing aggregate demand (AD = C + I + G + (X - M)). 1 mark for the outcome: higher AD raises production, employment and the level of economic activity (real GDP), other things equal.
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