Question 1

Which of the following best describes the concept of opportunity cost?

Accepted Answer

The highest-valued alternative that must be given up to engage in an activity.

Question 2

Suppose Ford can produce either 80 gasoline-powered F-150s or 80 electric F-150 Lightnings per day, or any linear combination in between. What is the opportunity cost of producing one additional electric F-150 Lightning?

Accepted Answer

$$1$$ gasoline-powered F-150$

Question 3

A bowed-outward production possibilities frontier (PPF) illustrates which economic concept?

Accepted Answer

Increasing marginal opportunity costs

Question 4

If an economy experiences technological improvement in the automobile industry but not in the tank industry, how will the PPF change?

Accepted Answer

The PPF will shift outward more along the automobile axis.

Question 5

Which of the following statements about points on, inside, and outside the PPF is correct?

Accepted Answer

Points on the PPF are efficient and attainable.

Question 6

Suppose you can pick 20 pounds of apples or 20 pounds of cherries in a day, while your neighbor can pick 30 pounds of apples or 60 pounds of cherries. Who has the comparative advantage in picking apples?

Accepted Answer

You

Question 7

Which of the following best explains why both parties can benefit from trade even if one party has an absolute advantage in both goods?

Accepted Answer

Because trade allows both parties to consume outside their PPFs.

Question 8

In the circular-flow diagram, which of the following flows from households to firms through the factor market?

Accepted Answer

Factors of production

Question 9

Which of the following is NOT considered a factor of production?

Accepted Answer

Money

Question 10

Which of the following is a key role of entrepreneurs in the market system?

Accepted Answer

Bringing together the factors of production to create goods and services

Question 11

Suppose a country moves from a centrally planned economy to a free market system. According to Adam Smith, what is likely to happen to the standard of living?

Accepted Answer

It will increase as markets allocate resources more efficiently.

Question 12

Which of the following is necessary for a successful market system according to the study materials?

Accepted Answer

Protection of private property and enforcement of contracts

Question 13

If Ford reallocates resources from gasoline-powered F-150s to electric F-150 Lightnings, what economic principle is being illustrated?

Accepted Answer

Scarcity and trade-offs

Question 14

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

Accepted Answer

The PPF is bowed outward.

Question 15

Which of the following best describes the 'invisible hand' in a market economy?

Accepted Answer

The self-interested actions of individuals leading to outcomes that benefit society

Question 16

Suppose Jack is much faster than Jill at both cooking and laundry, but his opportunity cost of cooking is lower than Jill's. According to comparative advantage, who should specialize in cooking?

Accepted Answer

Jack

Question 17

Which of the following is an example of a product market?

Accepted Answer

A market where households buy groceries

Question 18

If a country can produce more of both goods than another country using the same resources, it has:

Accepted Answer

Absolute advantage

Question 19

Which of the following best explains why flexible prices are important in a market system?

Accepted Answer

They send signals to firms and households about the relative worth of goods and services.

Question 20

Suppose you have 10 hours to study for two exams. The first hour spent on economics raises your grade more than the last hour. What does this imply about your production possibilities curve for exam grades?

Accepted Answer

It is bowed outward.

Trade-offs, Comparative Advantage, and the Market System: Chapter 2 Study Notes

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