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 100 gasoline-powered F-150s or 100 electric F-150 Lightnings with its current resources. If Ford decides to produce 80 electric F-150s, what is the opportunity cost in terms of gasoline-powered F-150s?

Accepted Answer

$$20$$

Question 3

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

Accepted Answer

Increasing marginal opportunity costs

Question 4

If a country experiences technological improvement in the automobile industry but not in the tank industry, how will its PPF change?

Accepted Answer

The PPF will shift outward only along the automobile axis.

Question 5

Which of the following statements about comparative advantage is correct?

Accepted Answer

Comparative advantage is based on lower opportunity cost, not higher productivity.

Question 6

Given the following production possibilities: You can pick 20 apples or 20 cherries, and your neighbor can pick 30 apples or 60 cherries. What is your neighbor's opportunity cost of picking 1 apple?

Accepted Answer

$$2$$ pounds of cherries

Question 7

Why do points inside the production possibilities frontier (PPF) represent inefficiency?

Accepted Answer

Because resources are not being fully utilized.

Question 8

Which of the following is NOT a factor of production?

Accepted Answer

Money

Question 9

In the circular-flow diagram, what do households provide to firms?

Accepted Answer

Factors of production

Question 10

Which of the following best explains why free markets tend to raise living standards more effectively than centrally planned economies?

Accepted Answer

Flexible prices in free markets allow resources to be allocated according to consumer preferences.

Question 11

Suppose Jack is much faster than Jill at both cooking and laundry, but his comparative advantage is in cooking. According to the theory of comparative advantage, what should Jack and Jill do?

Accepted Answer

Jack should specialize in cooking, and Jill should specialize in laundry.

Question 12

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

Accepted Answer

A market where households buy computers

Question 13

What is the role of entrepreneurs in the market system?

Accepted Answer

They bring together the factors of production to produce goods and services.

Question 14

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 15

If the opportunity cost of producing 1 pound of apples for you is 1 pound of cherries, and for your neighbor it is 2 pounds of cherries, who has the comparative advantage in producing apples?

Accepted Answer

You

Question 16

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

Accepted Answer

The collective actions of households and firms, guided by self-interest, that allocate resources efficiently.

Question 17

If a country can produce more of both goods than another country using the same resources, it is said to have:

Accepted Answer

Absolute advantage

Question 18

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

Accepted Answer

The first hour spent studying for an exam is more productive than the last hour.

Question 19

Which of the following is NOT a characteristic of a free market?

Accepted Answer

Central planning of all economic activities

Question 20

Suppose a country shifts resources from producing consumer goods to producing capital goods. According to the PPF model, what is the likely long-term effect?

Accepted Answer

The PPF will shift outward due to increased economic growth.

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

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