Question 1

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

Accepted Answer

The value of the next best alternative that must be forgone to undertake an activity.

Question 2

Suppose Nova Scotia can produce either 1,000 salmon or 100 catfish. What is the opportunity cost of producing 1 catfish in Nova Scotia?

Accepted Answer

$$10$$ salmon

Question 3

If Louisiana can produce either 1,000 catfish or 50 salmon, what is the opportunity cost of producing 1 salmon in Louisiana?

Accepted Answer

$$20$$ catfish

Question 4

Which of the following statements about the Production Possibilities Frontier (PPF) is correct?

Accepted Answer

Points on the PPF represent maximum possible output combinations given current resources and technology.

Question 5

If a country is operating on its PPF, what does this imply about its resource use?

Accepted Answer

Resources are being used efficiently.

Question 6

Suppose Nova Scotia and Louisiana specialize according to their comparative advantage and trade. Which of the following is true?

Accepted Answer

Both can consume outside their individual PPFs.

Question 7

Which of the following would cause the PPF to shift outward?

Accepted Answer

Technological innovation that increases productivity.

Question 8

If Nova Scotia has an opportunity cost of 10 salmon per catfish and Seattle has an opportunity cost of 5 salmon per catfish, which region has the comparative advantage in producing catfish?

Accepted Answer

Seattle

Question 9

Which of the following best illustrates the concept of increasing marginal opportunity cost?

Accepted Answer

As more of one good is produced, the opportunity cost of producing additional units increases.

Question 10

Suppose a country invests more in capital goods rather than consumer goods. According to the PPF model, what is the likely long-term effect?

Accepted Answer

The PPF will shift outward, allowing for greater future production.

Question 11

Which of the following is a necessary condition for mutually beneficial trade between two countries?

Accepted Answer

Each country must have a comparative advantage in at least one good.

Question 12

If a country is producing inside its PPF, what does this indicate?

Accepted Answer

There is unemployment or underutilization of resources.

Question 13

Which of the following best describes the difference between absolute advantage and comparative advantage?

Accepted Answer

Absolute advantage is about producing more with the same resources, while comparative advantage is about producing at a lower opportunity cost.

Question 14

Suppose Nova Scotia and Seattle trade 300 salmon for 50 catfish. After trade, Nova Scotia consumes 50 catfish and 700 salmon, while Seattle consumes 30 catfish and 300 salmon. What does this scenario illustrate?

Accepted Answer

Both regions are able to consume more than they could without trade.

Question 15

Which of the following is an example of a Pareto improvement?

Accepted Answer

A change that makes at least one person better off without making anyone worse off.

Question 16

If a country faces a trade-off between producing consumer goods and capital goods, what is the likely effect of increasing investment in capital goods today?

Accepted Answer

Future economic growth will be higher due to increased productive capacity.

Question 17

Which of the following is NOT a reason why free trade may not benefit everyone equally in the real world?

Accepted Answer

All individuals in all sectors always benefit equally from trade.

Question 18

Suppose the opportunity cost of producing 1 unit of good X in Country A is 2 units of good Y, while in Country B it is 4 units of good Y. Which country has the comparative advantage in producing good X?

Accepted Answer

Country A

Question 19

Which of the following best describes the 'invisible hand' as discussed by Adam Smith?

Accepted Answer

Market forces that lead individuals pursuing their own interests to benefit society as a whole.

Question 20

If a country can produce more of both goods than another country using the same resources, but has a higher opportunity cost in both, what should it do according to the theory of comparative advantage?

Accepted Answer

Specialize in the good for which it has the lowest opportunity cost and trade.

Trade-Offs, Comparative Advantage, and Production Possibilities: Gains from Trade in a World Confronting Scarcity

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