Q: Which equation correctly represents the opportunity cost of producing one more unit of good X in terms of good Y?

$$\text{Opportunity Cost of X} = \frac{\text{Decrease in Y}}{\text{Increase in X}}$$

Q: Which formula represents the principle of decreasing marginal benefit?

$$\text{Marginal Benefit} = \text{Willingness to Pay for One More Unit}$$, and marginal benefit decreases as quantity increases.

Question 1

Which of the following best describes the production possibilities frontier (PPF)?

Accepted Answer

The PPF is the boundary between attainable and unattainable combinations of goods and services, given available resources and technology.

Question 2

If an economy is operating at a point inside its PPF, what does this indicate?

Accepted Answer

Resources are either unemployed or misallocated.

Question 3

Suppose moving from point F to point E on the PPF increases cola production by 5 million cans and decreases pizza production by 1 million pizzas. What is the opportunity cost of producing one can of cola?

Accepted Answer

$$\frac{1}{5}$$ pizza per can of cola

Question 4

Why does the PPF typically bow outward?

Accepted Answer

Because resources are not equally productive in all activities, leading to increasing opportunity costs.

Question 5

Which equation correctly represents the opportunity cost of producing one more unit of good X in terms of good Y?

Accepted Answer

$$	ext{Opportunity Cost of X} = \frac{	ext{Decrease in Y}}{	ext{Increase in X}}$$

Question 6

At which point on the PPF is allocative efficiency achieved?

Accepted Answer

Where marginal cost equals marginal benefit.

Question 7

If the marginal benefit of a pizza is 4 cans of cola and the marginal cost is 5 cans of cola, what should the economy do to achieve allocative efficiency?

Accepted Answer

Produce fewer pizzas.

Question 8

Joe can produce 6 smoothies or 30 salads per hour. Liz can produce 30 smoothies or 30 salads per hour. Who has the comparative advantage in producing salads?

Accepted Answer

Joe, because his opportunity cost of producing a salad is lower.

Question 9

Which of the following best explains the gains from specialization and trade between Joe and Liz?

Accepted Answer

Both can consume outside their individual PPFs by specializing in the good for which they have a comparative advantage and trading.

Question 10

If Liz specializes in smoothies and Joe specializes in salads, and they trade at a rate of 2 smoothies per salad, what is the opportunity cost of a salad in terms of smoothies?

Accepted Answer

$$2$$ smoothies per salad

Question 11

Which of the following is NOT an economic institution that coordinates decisions in a market economy?

Accepted Answer

Government price controls

Question 12

What is the opportunity cost of economic growth?

Accepted Answer

Less current consumption of goods and services.

Question 13

Which formula represents the principle of decreasing marginal benefit?

Accepted Answer

$$	ext{Marginal Benefit} = 	ext{Willingness to Pay for One More Unit}$$, and marginal benefit decreases as quantity increases.

Question 14

Which statement about absolute and comparative advantage is correct?

Accepted Answer

Comparative advantage compares opportunity costs, while absolute advantage compares productivity.

Question 15

If the marginal cost curve passes through the middle of each bar on a PPF graph, what does this illustrate?

Accepted Answer

Increasing opportunity cost.

Question 16

Which of the following is true about points outside the PPF?

Accepted Answer

They are unattainable with current resources and technology.

Question 17

Suppose a country invests more in capital goods today. What is the likely effect on its future PPF?

Accepted Answer

The future PPF will shift outward.

Question 18

Which of the following best describes the role of money in economic coordination?

Accepted Answer

Money is any commodity or token generally accepted as a means of payment.

Question 19

In a circular flow diagram, which direction do goods and services flow between households and firms?

Accepted Answer

From firms to households.

Question 20

Markets coordinate individual decisions through which mechanism?

Accepted Answer

Price adjustments.

The Economic Problem: Production Possibilities, Opportunity Cost, and Efficiency

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