Question 1

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

Accepted Answer

Scarcity is a situation in which unlimited wants exceed the limited resources available to fulfill those wants.

Question 2

Ford is considering shifting resources from producing gasoline-powered F-150s to electric vehicles (EVs). What is the opportunity cost of producing more EVs?

Accepted Answer

The number of gasoline-powered F-150s that must be forgone to produce additional EVs.

Question 3

Suppose Ford can produce either 80 gasoline-powered F-150s or 80 electric F-150 Lightnings per day, or any combination in between. If Ford moves from producing 60 gasoline-powered F-150s and 20 electric Lightnings to producing 40 gasoline-powered F-150s and 40 electric Lightnings, what is the opportunity cost of producing the additional 20 electric Lightnings?

Accepted Answer

$$20$$ gasoline-powered F-150s$

Question 4

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

Accepted Answer

A point above the PPF curve.

Question 5

If the PPF for an economy is bowed outward, what does this indicate about opportunity costs?

Accepted Answer

Opportunity costs are increasing.

Question 6

Economic growth can be illustrated on a PPF by:

Accepted Answer

An outward shift of the entire PPF.

Question 7

Suppose you can spend your time studying either economics or accounting. The first hour spent studying economics is more valuable than the last hour. What does this imply about the shape of your production possibilities curve for these exams?

Accepted Answer

It is bowed outward.

Question 8

You and your neighbor can pick apples and cherries. You can pick 20 pounds of apples or 20 pounds of cherries in a week. Your neighbor can pick 30 pounds of apples or 60 pounds of cherries. Who has the comparative advantage in picking apples?

Accepted Answer

You have the comparative advantage in picking apples.

Question 9

What is the opportunity cost for your neighbor to pick 1 pound of apples, given she can pick 30 pounds of apples or 60 pounds of cherries per week?

Accepted Answer

$$\frac{60}{30} = 2$$ pounds of cherries$

Question 10

Which statement best explains why both parties can benefit from trade even if one has an absolute advantage in both goods?

Accepted Answer

Trade allows each party to specialize in the good for which they have a comparative advantage, lowering opportunity costs.

Question 11

Which of the following is NOT considered a factor of production?

Accepted Answer

Government regulations

Question 12

In the circular-flow diagram, which market do households sell factors of production to firms?

Accepted Answer

Factor market

Question 13

Which of the following best describes the role of entrepreneurs in the market system?

Accepted Answer

Entrepreneurs bring together the factors of production to create new goods and services, often taking personal risks.

Question 14

Adam Smith’s concept of the 'invisible hand' refers to:

Accepted Answer

The self-interested actions of individuals leading to positive outcomes for society through market mechanisms.

Question 15

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 16

Suppose a technological improvement occurs only in the automobile industry. How would this affect the PPF?

Accepted Answer

The PPF would shift outward only for automobiles, not for other goods.

Question 17

If many consumers switch from buying gasoline-powered cars to electric cars, what is the likely market response according to the market mechanism?

Accepted Answer

Firms will produce more electric cars due to higher profitability.

Question 18

Which of the following best illustrates increasing marginal opportunity costs?

Accepted Answer

The opportunity cost of producing each additional unit of a good increases as more resources are devoted to its production.

Question 19

Which of the following is an example of comparative advantage in a household setting?

Accepted Answer

Jack is faster than Jill at both cooking and laundry, but Jack gives up less laundry to cook a meal than Jill does.

Question 20

Which of the following statements about socialism is most accurate according to the study materials?

Accepted Answer

Social democratic parties may advocate for government ownership or control of some large industries, but not all.

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

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