Question 1

Suppose an economy can produce only computers and wheat. Producing one computer requires 100 hours of labor, and producing one ton of wheat requires 10 hours of labor. If the economy has 50,000 labor hours per month, what is the opportunity cost of producing one computer in terms of wheat?

Accepted Answer

$$10$$ tons of wheat$

Question 2

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

Accepted Answer

It is inefficient because not all resources are being used.

Question 3

If a country can produce more of both goods than another country using the same amount of resources, it has:

Accepted Answer

Absolute advantage in both goods.

Question 4

The bowed-out shape of the PPF is due to:

Accepted Answer

Increasing marginal opportunity costs.

Question 5

Which of the following statements about opportunity cost is correct?

Accepted Answer

Opportunity cost is the value of the best alternative forgone.

Question 6

If Jack is much faster than Jill at both cooking and laundry, but his advantage is much greater in cooking, who should specialize in which task according to comparative advantage?

Accepted Answer

Jack should specialize in cooking, Jill in laundry.

Question 7

Suppose a country can produce either 600 roadsters or 800 SUVs per day. What is the opportunity cost of producing one roadster in terms of SUVs?

Accepted Answer

$$\frac{800}{600} = 1.33$$ SUVs$

Question 8

Which of the following is NOT a concept illustrated by the production possibilities frontier?

Accepted Answer

Market equilibrium

Question 9

Economic growth can be illustrated on a PPF by:

Accepted Answer

A shift of the PPF outward.

Question 10

In a free market, which of the following is most likely to occur?

Accepted Answer

Firms and households interact with few government restrictions.

Question 11

Which of the following best explains why specialization and trade can make both parties better off?

Accepted Answer

Each party can consume beyond their individual PPFs.

Question 12

If the opportunity cost of picking 1 pound of apples is 2 pounds of cherries, what is the opportunity cost of picking 1 pound of cherries?

Accepted Answer

$$0.5$$ pounds of apples$

Question 13

Which of the following is necessary for the market system to succeed?

Accepted Answer

Protection of private property and enforcement of contracts.

Question 14

A circular-flow diagram illustrates:

Accepted Answer

How participants in markets are linked through flows of goods, services, and money.

Question 15

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

Accepted Answer

They are unattainable with current resources and technology.

Question 16

Entrepreneurs contribute to economic growth primarily by:

Accepted Answer

Introducing new products and innovations.

Question 17

If a student spends more time studying Economics and less time on Accounting, what does the PPF for exam grades look like and why?

Accepted Answer

A bowed-outward curve, because the first hour spent studying is more valuable than the last.

Question 18

Which of the following is the basis for trade between individuals, firms, or countries?

Accepted Answer

Comparative advantage.

Question 19

If a point is on the PPF, what does this indicate about production?

Accepted Answer

Production is efficient.

Question 20

Which of the following best describes the concept of 'no free lunch' in economics?

Accepted Answer

Getting something always requires giving up something else.

Trade-offs, Comparative Advantage, and the Market System: Study Notes for Microeconomics

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