Question 1

Which of the following best describes the production possibilities frontier (PPF)?

Accepted Answer

The PPF is a curve showing all combinations of two goods that can be produced using all available resources efficiently.

Question 2

If an economy is producing at a point inside its PPF, what does this indicate?

Accepted Answer

Resources are either unemployed or misallocated.

Question 3

Suppose moving from point D to point E on the PPF increases pizza production from 3 million to 4 million and decreases cola production from 9 million to 5 million. What is the opportunity cost of producing the 4th million pizza?

Accepted Answer

$$4$$ million cans of cola

Question 4

Why does the PPF typically bow outward (concave to the origin)?

Accepted Answer

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

Question 5

Which of the following statements about opportunity cost is correct?

Accepted Answer

The opportunity cost of producing one more unit of a good is the amount of the other good that must be forgone.

Question 6

If the marginal benefit of a pizza is greater than its marginal cost, what should the economy do to achieve allocative efficiency?

Accepted Answer

Produce more pizzas.

Question 7

At which point on the PPF is allocative efficiency achieved?

Accepted Answer

Where marginal benefit equals marginal cost: $$MB = MC$$

Question 8

Joe can produce 6 smoothies or 30 salads in an hour. What is Joe’s opportunity cost of producing 1 smoothie?

Accepted Answer

$$5$$ salads

Question 9

Liz can produce 30 smoothies or 30 salads in an hour. Who has the comparative advantage in producing smoothies?

Accepted Answer

Liz, because her opportunity cost of a smoothie is $$1$$ salad, which is less than Joe’s $$5$$ salads.

Question 10

After Liz and Joe specialize and trade, Liz sells Joe 10 smoothies and buys 20 salads. What is the new consumption bundle for Liz?

Accepted Answer

20 smoothies and 20 salads

Question 11

Which of the following is NOT an economic institution that coordinates decisions in a market economy?

Accepted Answer

Government price controls

Question 12

What is the opportunity cost of economic growth?

Accepted Answer

Less current consumption

Question 13

Which of the following best explains why specialization and trade increase overall efficiency?

Accepted Answer

They allow individuals to produce according to their comparative advantage, lowering opportunity costs.

Question 14

Suppose a country invests more in capital goods (like machines) rather than consumption goods (like food). What is the likely long-term effect?

Accepted Answer

The PPF will shift outward, increasing future production possibilities.

Question 15

Which of the following is true about absolute advantage?

Accepted Answer

It refers to the ability to produce more of a good with the same resources compared to others.

Question 16

If the marginal benefit curve for pizzas is downward sloping, what does this imply?

Accepted Answer

The more pizzas consumed, the less people are willing to pay for an additional pizza.

Question 17

Which of the following is a real-world example of increasing opportunity cost?

Accepted Answer

A farmer switching land from wheat to corn finds that as more land is used for corn, the land is less suitable, so more wheat must be forgone for each additional unit of corn.

Question 18

Which of the following best describes the role of money in economic coordination?

Accepted Answer

Money acts as a generally accepted means of payment, facilitating exchange.

Question 19

If a country is producing at a point outside its PPF, what does this indicate?

Accepted Answer

It is unattainable with current resources and technology.

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

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