Question 1

Suppose a country can produce either 100 units of wine or 200 units of cheese using all its resources. If the country decides to produce 60 units of wine, how many units of cheese must it give up? What is the opportunity cost of producing one unit of wine?

Accepted Answer

It must give up 120 units of cheese; the opportunity cost of one unit of wine is $$\frac{2}{1}$$ units of cheese.

Question 2

Which of the following best describes the concept of comparative advantage?

Accepted Answer

The ability to produce a good or service at a lower opportunity cost than competitors.

Question 3

If a point lies inside the production possibilities frontier (PPF), what does this indicate about resource use?

Accepted Answer

Resources are being used inefficiently.

Question 4

A bowed-out (concave) production possibilities frontier is usually the result of:

Accepted Answer

Increasing opportunity costs.

Question 5

Suppose Guatemala can produce 100 pineapples or 100 coconuts, while Costa Rica can produce 150 pineapples or 90 coconuts. Which country has a comparative advantage in producing pineapples?

Accepted Answer

Costa Rica

Question 6

In the circular flow model, which market do households supply labor to?

Accepted Answer

Factor market

Question 7

Which of the following transactions takes place in the product market?

Accepted Answer

Shondra buys a Harley-Davidson Softail motorcycle.

Question 8

Adam Smith’s 'invisible hand' refers to:

Accepted Answer

The process by which individuals acting in their own self-interest bring about a market outcome that benefits society as a whole.

Question 9

A shift outward of a nation’s production possibilities frontier can occur due to:

Accepted Answer

An increase in the labor force.

Question 10

If Hungary gives up the opportunity to make 10 bottles of beer for every 1 pound of salami produced, and Slovakia gives up 8 bottles of beer for every 1 pound of salami, which country has the comparative advantage in salami?

Accepted Answer

Slovakia

Question 11

Which of the following is an example of spending on factors of production in the circular flow model?

Accepted Answer

The 'Lucky Ducky' casino buys a new craps table for the casino floor.

Question 12

Which of the following best explains why opportunity cost increases as you move along a bowed-out PPF?

Accepted Answer

Resources are not equally suited to producing both goods.

Question 13

In the circular flow model, what do firms supply to the product market?

Accepted Answer

Goods and services

Question 14

Which of the following is NOT a critical function of government in facilitating the operation of a market economy?

Accepted Answer

Controlling the market prices of food items.

Question 15

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

Accepted Answer

It can engage in trade with other nations.

Question 16

Which of the following countries does NOT come close to the free market benchmark?

Accepted Answer

Cuba

Question 17

A movement from point W to point Z on a production possibilities frontier diagram is most likely caused by:

Accepted Answer

An increase in resources or technological advancement.

Question 18

Which of the following best describes the role of the circular flow model in economics?

Accepted Answer

It shows how demand and supply for goods and services are brought into equilibrium.

Question 19

If the opportunity cost of producing one dozen roses is 0.4 dozen orchids, what is the opportunity cost of producing one dozen orchids?

Accepted Answer

$$2.5$$ dozen roses

Fundamental Principles of Macroeconomics: Opportunity Cost, Production Possibilities, Comparative Advantage, and Market Structures

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