Question 1

Which of the following best describes a model in economics?

Accepted Answer

A simplified representation of a real situation used to better understand real-life situations.

Question 2

The Production Possibility Frontier (PPF) illustrates which of the following concepts?

Accepted Answer

The combinations of two goods that are possible for a society to produce at full employment.

Question 3

If an economy moves from producing 15 pizzas and 20 beers to producing 9 pizzas and 28 beers, what is the opportunity cost of producing the additional 8 beers?

Accepted Answer

6 pizzas

Question 4

Which of the following best explains why the PPF is typically bowed outward?

Accepted Answer

Opportunity costs increase as more of one good is produced.

Question 5

Economic growth can be represented on a PPF by:

Accepted Answer

An outward shift of the PPF.

Question 6

Which of the following is NOT a cause of economic growth?

Accepted Answer

A decrease in the labor force.

Question 7

According to the theory of comparative advantage, countries should:

Accepted Answer

Export goods in which they have a comparative advantage and import goods in which they have a comparative disadvantage.

Question 8

If Germany can produce beer at a lower opportunity cost than Italy, then:

Accepted Answer

Italy should import beer from Germany.

Question 9

Which of the following statements about absolute and comparative advantage is correct?

Accepted Answer

Comparative advantage, not absolute advantage, determines the gains from trade.

Question 10

In the circular-flow diagram, which of the following correctly describes the flow of goods and money?

Accepted Answer

Goods and services flow from firms to households; money flows from households to firms.

Question 11

Which market in the circular-flow diagram do households supply labor to?

Accepted Answer

Factor markets

Question 12

Suppose a new technology allows firms to produce more goods with the same amount of resources. What happens to the PPF?

Accepted Answer

It shifts outward.

Question 13

If a country is operating inside its PPF, what does this indicate?

Accepted Answer

The country is experiencing unemployment or inefficiency.

Question 14

Which of the following is an example of a factor of production?

Accepted Answer

A worker's labor in a factory.

Question 15

If producing 20 more beers requires giving up 25 pizzas, what is the opportunity cost per beer?

Accepted Answer

$$\frac{25}{20}$$ pizzas per beer

Question 16

Which of the following best describes the role of households in the circular-flow diagram?

Accepted Answer

They supply factors of production and demand goods and services.

Question 17

A country can produce either 40 units of pizza or 80 units of beer. What is the opportunity cost of producing one pizza?

Accepted Answer

2 units of beer

Question 18

Which of the following scenarios best illustrates the concept of increasing opportunity cost?

Accepted Answer

Producing each additional unit of a good requires giving up more and more of another good.

Question 19

If a country specializes in producing a good for which it has a comparative advantage, what is the likely outcome?

Accepted Answer

The country will be able to consume beyond its PPF through trade.

Question 20

Which of the following is NOT a function of firms in the circular-flow diagram?

Accepted Answer

Supplying factors of production to households.

LESSON 7: Trade-offs, Comparative Advantage, and the Market System: Study Notes

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