Question 1

Suppose a country can produce either 100 units of Good X or 200 units of Good Y using all its resources. What is the opportunity cost of producing one unit of Good X in terms of Good Y?

Accepted Answer

$$2$$

Question 2

Which of the following statements best describes a point located inside the Production Possibility Frontier (PPF)?

Accepted Answer

Resources are not being fully utilized, indicating inefficiency.

Question 3

If the PPF for a country is bowed outwards, what does this indicate about the opportunity cost of producing goods?

Accepted Answer

Opportunity cost increases as more of one good is produced.

Question 4

Country A can produce 10 cars or 20 computers in a day. Country B can produce 8 cars or 16 computers in a day. Which country has the absolute advantage in car production, and which has the comparative advantage in computer production?

Accepted Answer

Country A has the absolute advantage in cars; neither has a comparative advantage in computers.

Question 5

In a perfectly competitive market, which of the following is NOT an assumption?

Accepted Answer

Firms can influence the market price.

Question 6

Suppose the market demand for a product is given by $$Q_d = 100 - 2P$$ and the market supply is $$Q_s = 4P. $$What is the equilibrium price?

Accepted Answer

$$P = 16.67$$

Question 7

If the price of coffee increases, what is likely to happen to the demand for tea, assuming they are substitutes?

Accepted Answer

The demand for tea will increase.

Question 8

Which of the following would cause a movement along the demand curve for ice cream rather than a shift of the curve?

Accepted Answer

A decrease in the price of ice cream.

Question 9

If both the demand and supply curves for a good shift to the right, what can we say about the equilibrium quantity and price?

Accepted Answer

Equilibrium quantity will increase, but the effect on price is uncertain.

Question 10

A price ceiling is set below the equilibrium price in the market for rental apartments. What is the most likely outcome?

Accepted Answer

A shortage of rental apartments.

Question 11

Consumer surplus is defined as:

Accepted Answer

The area below the demand curve and above the price, up to the quantity bought.

Question 12

Suppose the marginal cost (MC) of producing a good is given by $$MC = 2Q$$, and the market price is $$10. At $$what quantity does the firm maximize its profit in a perfectly competitive market?

Accepted Answer

$$Q = 5$$

Question 13

Why is the marginal product of labor typically diminishing in the short run?

Accepted Answer

Because as more workers are added, each has less capital to work with.

Question 14

Economic efficiency in a market is achieved when:

Accepted Answer

The sum of consumer and producer surplus is maximized.

Question 15

If a price floor is set above the equilibrium price, what is the likely effect on consumer surplus, producer surplus, and deadweight loss?

Accepted Answer

Consumer surplus decreases, producer surplus may increase or decrease, and deadweight loss arises.

Question 16

Which of the following best explains why the marginal cost curve is upward sloping?

Accepted Answer

Because of diminishing marginal returns to inputs.

Question 17

Suppose the government imposes a binding price ceiling on gasoline. What is the most likely effect on total economic surplus (ES)?

Accepted Answer

Total economic surplus decreases due to deadweight loss.

Question 18

Which of the following is the correct definition of marginal benefit in the context of the demand-supply model?

Accepted Answer

The additional benefit received from consuming one more unit of a good, represented by the demand curve.

Question 19

If a country specializes in the good for which it has a comparative advantage and trades with another country, what is the likely effect on world production?

Accepted Answer

World production increases, allowing both countries to consume beyond their individual PPFs.

Question 20

Which of the following best distinguishes between consumer surplus and the surplus in terms of quantity as discussed in the demand-supply model?

Accepted Answer

Consumer surplus is a monetary measure of benefit, while surplus in terms of quantity refers to excess supply at a given price.

Study Guide: Production Possibilities, Market Equilibrium, and Economic Efficiency

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