Q: You can pick 20 pounds of apples or 20 pounds of cherries in a day. Your neighbor can pick 30 pounds of apples or 60 pounds of cherries. What is your opportunity cost of picking 1 pound of apples?

$$1 \text{ pound of cherries}$$

Question 1

Which of the following best describes the concept of scarcity in economics?

Accepted Answer

A situation in which unlimited wants exceed the limited resources available to fulfill those wants.

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 20 more electric F-150s, it must produce 20 fewer gasoline-powered F-150s. What is the opportunity cost of producing 20 more electric F-150s?

Accepted Answer

The opportunity cost is 20 gasoline-powered F-150s.

Question 3

Which of the following points on a production possibilities frontier (PPF) represents an unattainable combination of goods?

Accepted Answer

A point above the PPF.

Question 4

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

Accepted Answer

Because opportunity costs increase as more resources are devoted to an activity.

Question 5

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

Accepted Answer

The PPF will shift outward only along the automobile axis.

Question 6

Suppose you have 10 hours to study for two exams: Economics and Accounting. The first hour spent on Economics increases your grade more than the last hour. What does this imply about the shape of your production possibilities curve for exam grades?

Accepted Answer

It is a bowed-outward curve.

Question 7

You can pick 20 pounds of apples or 20 pounds of cherries in a day. Your neighbor can pick 30 pounds of apples or 60 pounds of cherries. What is your opportunity cost of picking 1 pound of apples?

Accepted Answer

$$1 	ext{ pound of cherries}$$

Question 8

Which of the following statements about comparative advantage is correct?

Accepted Answer

A country should produce goods for which it has the lowest opportunity cost.

Question 9

If you specialize in picking apples and your neighbor specializes in picking cherries, and you trade 10 pounds of apples for 15 pounds of cherries, what is the result?

Accepted Answer

Both you and your neighbor can consume more than without trade.

Question 10

Which of the following best defines absolute advantage?

Accepted Answer

The ability to produce more of a good or service than competitors using the same amount of resources.

Question 11

Which of the following is NOT a factor of production?

Accepted Answer

Money

Question 12

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

Accepted Answer

Factors of production

Question 13

Which of the following is a characteristic of a free market?

Accepted Answer

There are few government restrictions on production and employment of resources.

Question 14

According to Adam Smith, what mechanism allows individual self-interest to benefit society as a whole?

Accepted Answer

The invisible hand of the market

Question 15

Which of the following is necessary for a market system to function effectively?

Accepted Answer

Flexible prices

Question 16

What is the role of entrepreneurs in the market system?

Accepted Answer

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

Question 17

Which of the following best explains why both you and your neighbor can benefit from trade, even if your neighbor is better at producing both goods?

Accepted Answer

Because you have a comparative advantage in one good.

Question 18

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

Accepted Answer

A market where households buy computers from firms.

Question 19

If a country moves from a centrally planned economy to a free market system, what is the most likely long-term outcome based on historical evidence?

Accepted Answer

An increase in living standards.

Question 20

Which of the following is a key reason why market systems adapt more quickly to changing conditions than centrally planned economies?

Accepted Answer

Local knowledge and flexible price signals.

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

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