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 inside its PPF, what does this indicate?

Accepted Answer

The country is experiencing unemployment or underutilization of resources.

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 best defines comparative advantage?

Accepted Answer

The ability to produce a good at a lower opportunity cost than another producer.

Question 8

If the PPF is bowed outward (concave to the origin), what does this indicate about opportunity costs?

Accepted Answer

Opportunity costs are increasing as more of one good is produced.

Question 9

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

Accepted Answer

Technological innovation that increases productivity.

Question 10

Suppose Nova Scotia and Seattle both produce catfish and salmon, but Nova Scotia has a lower opportunity cost for salmon and Seattle for catfish. If they trade, what will happen?

Accepted Answer

Both will be able to consume more than they could without trade.

Question 11

Which of the following is an example of a capital good?

Accepted Answer

A pizza oven used in a restaurant.

Question 12

If a country invests more in capital goods today, what is the likely effect on its future PPF?

Accepted Answer

The PPF will shift outward, allowing for more production in the future.

Question 13

Which of the following best describes the 'short run' in economic decision-making?

Accepted Answer

A period in which at least one input is fixed and only partial adjustment is possible.

Question 14

According to the concept of Pareto optimality, an allocation is not optimal if:

Accepted Answer

It is possible to make at least one person better off without making anyone else worse off.

Question 15

Suppose after trade, Nova Scotia consumes 50 catfish and 700 salmon, while before trade it consumed 50 catfish and 500 salmon. What does this indicate?

Accepted Answer

Nova Scotia is better off after trade, as it can consume more salmon for the same amount of catfish.

Question 16

Which of the following is a real-world example of the gains from trade?

Accepted Answer

China specializing in manufacturing electronics and the U.S. specializing in agriculture, both trading to increase overall consumption.

Question 17

If the opportunity cost of producing an additional unit of wings increases as more wings are produced, what does this imply about the PPF?

Accepted Answer

The PPF is bowed outward, reflecting increasing marginal opportunity cost.

Question 18

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 benefit equally from trade.

Question 19

Suppose a technological innovation allows both Nova Scotia and Louisiana to produce more catfish and salmon with the same resources. What happens to their PPFs?

Accepted Answer

Both PPFs shift outward.

Question 20

If Nova Scotia has an absolute advantage in both catfish and salmon, but Louisiana has a lower opportunity cost in catfish, what should each specialize in for maximum gains from trade?

Accepted Answer

Nova Scotia should specialize in salmon, Louisiana in catfish.

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

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