1. In the context of economics, what does the term 'marginal cost' refer to? A: (a) The cost of producing one additional unit of a product. (b) The total cost divided by the number of products made. (c) The cost incurred by producing the last unit of a product. (d) The difference in cost between two alternative decisions. Answer: (a) The cost of producing one additional unit of a product. Rationale: Marginal cost is defined as the increase in total cost that arises from an extra unit of production. Understanding this concept is crucial for accounting students as it helps in making decisions about production levels and pricing. 2. What principle explains the consumer's choice to allocate their budget in a way that maximizes their utility? A: (a) Opportunity cost principle. (b) Cost-benefit analysis. (c) Marginal utility principle. (d) Equilibrium price determination. Answer: (c) Marginal utility principle. Rationale: The marginal utility principle states that consumers will allocate their budget in a way that the last dollar spent on each good provides the same level of marginal utility. This is essential for understanding consumer behavior in economics. 3. Which economic concept is illustrated by the 'invisible hand' as described by Adam Smith? A: (a) Government intervention in markets. (b) The self-regulating nature of the marketplace. (c) The role of central planning in economic outcomes. (d) The impact of monopolies on market dynamics. Answer: (b) The self-regulating nature of the marketplace. Rationale: Adam Smith's 'invisible hand' metaphor describes how individuals' pursuit of self-interest in free markets tends to promote the general welfare, a fundamental concept for accounting students to grasp in understanding market economies. 4. What does the 'law of demand' state? A: (a) As the price of a good increases, the quantity demanded decreases. (b) As the price of a goo