Q: Suppose the economy moves from Point A to Point B on the PPF, producing 50 more T-shirts and sacrificing 25 haircuts. What is the Marginal Rate of Transformation (MRT) from A to B?

$$ MRT = \frac{\Delta \text{T-shirts}}{\Delta \text{Haircuts}} = \frac{50}{-25} = -2 $$

Question 1

Which of the following best describes the concept of opportunity cost as illustrated by the Production Possibilities Frontier (PPF)?

Accepted Answer

The opportunity cost is the value of the next best alternative forgone when a choice is made.

Question 2

Suppose the economy moves from Point A to Point B on the PPF, producing 50 more T-shirts and sacrificing 25 haircuts. What is the Marginal Rate of Transformation (MRT) from A to B?

Accepted Answer

$$ MRT = \frac{\Delta 	ext{T-shirts}}{\Delta 	ext{Haircuts}} = \frac{50}{-25} = -2 $$

Question 3

If the PPF shifts outward from Point C to Point D due to technological improvement, what does this shift represent?

Accepted Answer

Economic growth due to increased productive capacity.

Question 4

Which of the following is NOT a principal source of economic growth as discussed in the materials?

Accepted Answer

Reduction in capital stock.

Question 5

Given the demand function $$ Q_d = 14 - 2P_x $$ and the supply function $$ Q_s = 2 + 4P_x $$, what is the equilibrium price $$ P_x^E $$?

Accepted Answer

$$ P_x^E = 2 $$

Question 6

If $$ Q_d = 14 - 2P_x $$ and $$ Q_s = 2 + 4P_x $$, what is the equilibrium quantity $$ Q_x^E $$?

Accepted Answer

$$ Q_x^E = 10 $$

Question 7

If the price of a substitute good increases, what happens to the demand curve for the original good?

Accepted Answer

The demand curve shifts to the right.

Question 8

Suppose $$ Q_d = 100 - 20P_x $$ and $$ Q_s = 20P_x - 100 . $$What is the equilibrium price $$ P_x^E $$?

Accepted Answer

$$ P_x^E = 5 $$

Question 9

If $$ Q_d = 100 - 20P_x $$ and $$ Q_s = 20P_x - 100 $$, what is the equilibrium quantity $$ Q_x^E $$?

Accepted Answer

$$ Q_x^E = 0 $$

Question 10

If the wage rate increases significantly, what is the likely effect on the supply curve for a good that uses labor as an input?

Accepted Answer

The supply curve shifts to the left.

Question 11

Which of the following best explains why the supply curve for land is vertical in the short run?

Accepted Answer

Land is fixed at a given point in time.

Question 12

If $$ Q_d = 600 - 40P_x $$ and $$ Q_s = 20P_x - 100 $$, what is the equilibrium price $$ P_x^E $$?

Accepted Answer

$$ P_x^E = 11.67 $$

Question 13

If $$ Q_d = 600 - 40P_x $$ and $$ Q_s = 20P_x - 100 $$, what is the equilibrium quantity $$ Q_x^E $$?

Accepted Answer

$$ Q_x^E = 133 $$

Question 14

Which of the following is true at the market equilibrium (Point E) in a supply and demand graph?

Accepted Answer

Quantity supplied equals quantity demanded.

Question 15

If the price of an inferior good decreases, what is the likely effect on its demand?

Accepted Answer

There is a movement along the demand curve, increasing quantity demanded.

Question 16

If two goods are complements, what happens to the demand for Good Y if the price of Good X increases?

Accepted Answer

The demand for Good Y decreases.

Question 17

Which of the following best describes Pareto optimality in the context of market equilibrium?

Accepted Answer

No one can be made better off without making someone else worse off.

Question 18

If the productivity of labor increases, what is the likely effect on the PPF?

Accepted Answer

The PPF shifts outward.

Question 19

If the cost of labor decreases, what is the likely effect on the supply curve for a good?

Accepted Answer

The supply curve shifts to the right.

Macroeconomics Study Guide: Production Possibilities, Opportunity Cost, and Supply & Demand

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