Q: A country can produce either 100 units of wheat or 200 units of steel with its available resources. If it chooses to produce 60 units of wheat, what is the opportunity cost in terms of steel?

$$\frac{200}{100} \times 60 = 120$$ units of steel

Question 1

Suppose a student decides to spend an extra hour studying for an economics exam instead of working at a part-time job that pays $15 per hour. According to the principle of opportunity cost, what is the opportunity cost of studying for that extra hour?

Accepted Answer

The $15 the student could have earned at the job.

Question 2

A country can produce either 100 units of wheat or 200 units of steel with its available resources. If it chooses to produce 60 units of wheat, what is the opportunity cost in terms of steel?

Accepted Answer

$$\frac{200}{100} 	imes 60 = 120$$ units of steel

Question 3

Which of the following best illustrates the principle of diminishing returns?

Accepted Answer

Adding more workers to a fixed number of machines increases total output, but by smaller and smaller amounts.

Question 4

If the marginal benefit of producing a third movie sequel is $$10 million and the marginal cost is 12 $$million, what should the movie studio do according to the marginal principle?

Accepted Answer

Produce only two movies, not the third.

Question 5

Which of the following statements about the production possibilities curve (PPC) is correct?

Accepted Answer

Points inside the PPC represent inefficient use of resources.

Question 6

A government is considering stricter automobile emissions standards. According to the marginal principle, what should guide their decision?

Accepted Answer

Make the standard stricter as long as the marginal benefit exceeds the marginal cost.

Question 7

Which of the following is an example of voluntary exchange making both parties better off?

Accepted Answer

A person trades their time for a salary at a job they value more than their leisure.

Question 8

If the nominal wage increases from $$10 to 12 $$per hour, but the price level also increases by 25%, what happens to the real wage?

Accepted Answer

The real wage decreases.

Question 9

Suppose a country experiences a technological innovation that allows it to produce more goods with the same resources. What happens to its production possibilities curve (PPC)?

Accepted Answer

The PPC shifts outward.

Question 10

A copy shop has one copier and one worker, producing 500 pages per hour. Adding a second worker increases output to 800 pages per hour. What is the marginal product of the second worker?

Accepted Answer

$$800 - 500 = 300$$ pages per hour

Question 11

Which of the following best describes the real-nominal principle?

Accepted Answer

People care about the purchasing power of money, not just its face value.

Question 12

If a nation is operating on its production possibilities curve, what does this imply about its use of resources?

Accepted Answer

All resources are fully employed and used efficiently.

Question 13

Which of the following is NOT a reason for diminishing returns in production?

Accepted Answer

All inputs are variable in the short run.

Question 14

If Social Security payments are increased each year to keep up with inflation, which economic principle is being applied?

Accepted Answer

The real-nominal principle

Question 15

A student is deciding whether to take an additional course. The marginal benefit is the expected increase in future earnings, and the marginal cost is the tuition plus the value of time spent. According to the marginal principle, what should the student do?

Accepted Answer

Take the course if the marginal benefit is greater than or equal to the marginal cost.

Question 16

Which of the following scenarios best demonstrates the concept of opportunity cost in a real-world context?

Accepted Answer

A government spends money on military equipment instead of education programs.

Question 17

If the price level doubles but your nominal income also doubles, what happens to your real income?

Accepted Answer

Your real income stays the same.

Question 18

Which of the following is a direct implication of Adam Smith's observation about human nature and exchange?

Accepted Answer

Specialization and trade make people better off than self-sufficiency.

Question 19

Suppose a country is currently producing at a point inside its production possibilities curve. What does this indicate?

Accepted Answer

Some resources are unemployed or used inefficiently.

Question 20

If a firm can vary all its inputs, including the size of its production facility, what happens to the principle of diminishing returns?

Accepted Answer

It is not relevant because no input is fixed.

Chapter 2: The Key Principles of Economics – Microeconomics Study Notes

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