Question 1

Suppose Ford can produce either gasoline-powered F-150s or electric F-150 Lightnings. If Ford reallocates resources to produce 20 more Lightnings and, as a result, produces 20 fewer gasoline-powered F-150s, what is the opportunity cost of producing one additional Lightning?

Accepted Answer

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

Question 2

Which of the following best describes the shape of a typical production possibilities frontier (PPF) when resources are not equally suited for producing both goods?

Accepted Answer

A bowed-outward curve

Question 3

If the 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 only along the automobile axis

Question 4

Which of the following statements about opportunity cost is correct?

Accepted Answer

Opportunity cost is the highest-valued alternative that must be given up to engage in an activity

Question 5

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. What is your neighbor’s opportunity cost of picking 1 pound of apples?

Accepted Answer

$$2$$ pounds of cherries$

Question 6

Which of the following is the basis for mutually beneficial trade between two individuals?

Accepted Answer

Comparative advantage

Question 7

If Jack is much faster at cooking and only a little faster at laundry compared to Jill, who should specialize in which task according to comparative advantage?

Accepted Answer

Jack should specialize in cooking, Jill in laundry

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 sell to firms in factor markets?

Accepted Answer

Factors of production

Question 10

Which of the following best explains why points outside the PPF are unattainable?

Accepted Answer

They require more resources or better technology than currently available

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 living standards?

Accepted Answer

Living standards will rise

Question 12

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

Accepted Answer

Protection of private property and enforcement of contracts

Question 13

If a country’s PPF shifts outward, what does this indicate?

Accepted Answer

Economic growth

Question 14

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

Accepted Answer

The collective outcome of individuals pursuing their own self-interest

Question 15

If you and your neighbor specialize and trade, and you trade 10 pounds of apples for 15 pounds of cherries, what is the result compared to no trade?

Accepted Answer

Both you and your neighbor can consume more than without trade

Question 16

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

Accepted Answer

A supermarket selling groceries

Question 17

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

Accepted Answer

Bringing together factors of production to create new products

Question 18

If the opportunity cost of producing one pound of cherries for you is one pound of apples, and for your neighbor it is $$0.5$$ pounds of apples, who has the comparative advantage in producing cherries?

Accepted Answer

Your neighbor

Question 19

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

Accepted Answer

Central planning of all economic activity

Question 20

Suppose the government enforces property rights and contracts. What is the likely effect on the market system?

Accepted Answer

It will encourage economic transactions and growth

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

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