Q: Which equation correctly expresses the opportunity cost of producing a pizza in terms of cola, given that moving from E to F on the PPF decreases cola by 5 million cans for 1 million more pizzas?

$$\text{Opportunity cost of 1 pizza} = \frac{5\text{ million cans of cola}}{1\text{ million pizzas}}$$

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 a point lies inside the PPF, what does this indicate about resource use?

Accepted Answer

Resources are either unemployed or misallocated.

Question 3

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

Accepted Answer

5 cans of cola

Question 4

Why does the PPF bow outward?

Accepted Answer

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

Question 5

What is the marginal cost of producing one more unit of a good?

Accepted Answer

The opportunity cost of producing one more unit.

Question 6

According to the principle of decreasing marginal benefit, as the quantity of a good increases, what happens to the marginal benefit?

Accepted Answer

Marginal benefit decreases.

Question 7

At what point on the PPF is allocative efficiency achieved?

Accepted Answer

Where marginal cost equals marginal benefit.

Question 8

If marginal benefit exceeds marginal cost, what should the economy do?

Accepted Answer

Produce more units of the good.

Question 9

A person has a comparative advantage in an activity if:

Accepted Answer

They can perform the activity at a lower opportunity cost than anyone else.

Question 10

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

Accepted Answer

Joe

Question 11

If Liz and Joe specialize according to their comparative advantage and trade, what happens to their consumption possibilities?

Accepted Answer

They move to a point outside their individual PPFs.

Question 12

What is the opportunity cost of economic growth?

Accepted Answer

Less current consumption.

Question 13

Which of the following is NOT one of the four institutions that coordinate economic decisions?

Accepted Answer

Government subsidies

Question 14

Suppose an economy invests more resources in technological research. What is the likely effect?

Accepted Answer

The future PPF shifts outward.

Question 15

If the price of a salad is 2 smoothies, what is the opportunity cost of producing a salad for Joe, who can produce 1 salad at a cost of 1/5 smoothie?

Accepted Answer

Joe gains from trade because he can sell a salad for more than its opportunity cost.

Question 16

Which equation correctly expresses the opportunity cost of producing a pizza in terms of cola, given that moving from E to F on the PPF decreases cola by 5 million cans for 1 million more pizzas?

Accepted Answer

$$	ext{Opportunity cost of 1 pizza} = \frac{5	ext{ million cans of cola}}{1	ext{ million pizzas}}$$

Question 17

Which equation represents the point of allocative efficiency?

Accepted Answer

$$	ext{Marginal benefit} = 	ext{Marginal cost}$$

Question 18

If a market enables buyers and sellers to get information and do business, what role does money play in economic coordination?

Accepted Answer

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

Question 19

If a country specializes in the good in which it has a comparative advantage, what is the result?

Accepted Answer

The country can achieve gains from trade and consume outside its PPF.

Question 20

Which of the following best describes the circular flow in a market economy?

Accepted Answer

Households supply factors of production to firms, and firms supply goods and services to households.

Chapter 2: The Economic Problem – Production Possibilities, Opportunity Cost, and Gains from Trade

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