Question 1

Which of the following best describes the concept of opportunity cost?

Accepted Answer

The highest-valued alternative that must be given up to engage in an activity.

Question 2

Suppose Ford is currently producing at point C on its production possibilities frontier (PPF) as shown in the first image. What does this imply about Ford's use of resources?

Accepted Answer

Ford is using all available resources efficiently.

Question 3

If Ford wants to increase production of Lightnings from 40 to 60 per day (moving from point C to D in the first image), what is the opportunity cost?

Accepted Answer

20 gasoline-powered F-150s

Question 4

Refer to the PPF for tanks and automobiles (third image). Why does the opportunity cost of producing automobiles increase as more automobiles are produced?

Accepted Answer

Some resources are better suited for producing tanks than automobiles.

Question 5

Which of the following shifts the production possibilities frontier outward, as shown in the fourth image?

Accepted Answer

An improvement in technology

Question 6

If the opportunity cost of producing 1 pound of apples for you is 1 pound of cherries, and for your neighbor it is 2 pounds of cherries, who has the comparative advantage in apples?

Accepted Answer

You

Question 7

Suppose Canada can produce 40 tons of honey or 60 tons of maple syrup in one day. What is the opportunity cost for Canada to produce 1 ton of honey?

Accepted Answer

$$\frac{60}{40} = 1.5$$ tons of maple syrup

Question 8

Which of the following is an example of a positive economic statement?

Accepted Answer

Raising taxes will decrease consumer spending.

Question 9

In a market economy, what determines the allocation of resources?

Accepted Answer

The interaction of households and firms in markets

Question 10

Which of the following best explains why voluntary exchange increases economic efficiency?

Accepted Answer

Both buyers and sellers are made better off by the transaction.

Question 11

Which of the following is NOT a key economic question every society must answer?

Accepted Answer

How will profits be maximized for all firms?

Question 12

If a country specializes in the good in which it has a comparative advantage and trades, what is the likely outcome?

Accepted Answer

Total production in both countries will increase.

Question 13

Which of the following is an example of a normative economic statement?

Accepted Answer

The government should provide free healthcare to all citizens.

Question 14

What is the main role of entrepreneurs in a market system?

Accepted Answer

To bring together factors of production to create goods and services

Question 15

Which of the following best describes a mixed economy?

Accepted Answer

An economy where most decisions are made by markets, but the government plays a significant role

Question 16

Suppose the government enacts a policy that redistributes income from the wealthy to the poor. This is most directly an example of a trade-off between:

Accepted Answer

Efficiency and equity

Question 17

If a point lies inside the production possibilities frontier, what does this indicate?

Accepted Answer

Some resources are not being used efficiently.

Question 18

Which of the following is necessary for a market system to function effectively?

Accepted Answer

Protection of private property and enforcement of contracts

Question 19

If the marginal benefit of producing one more unit of a good is less than the marginal cost, what should a rational producer do?

Accepted Answer

Decrease production

Question 20

Which of the following best explains why the United States is considered a mixed economy?

Accepted Answer

Markets allocate most resources, but the government intervenes to achieve social goals.

Principles of Macroeconomics: Foundations, Trade-offs, and the Market System (Chapters 1 & 2)

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