Question 1

Which of the following statements best describes the production possibilities frontier (PPF)?

Accepted Answer

The PPF shows the maximum amount of one good that can be produced for every possible amount of another good, given fixed resources and technology.

Question 2

Suppose a country can produce either 10 units of wheat or 20 units of corn. What is the opportunity cost of producing one unit of wheat?

Accepted Answer

2 units of corn

Question 3

If a point lies inside the PPF, what does this indicate about resource use?

Accepted Answer

Resources are either unemployed or misallocated.

Question 4

On a bowed-out PPF, what does increasing opportunity cost mean?

Accepted Answer

The opportunity cost of producing each additional unit of a good increases.

Question 5

If the opportunity cost of producing a pizza is 5 cans of cola, what is the opportunity cost of producing a can of cola?

Accepted Answer

$$\frac{1}{5} of a $$pizza

Question 6

Which of the following best describes allocative efficiency?

Accepted Answer

Producing at the point on the PPF where marginal benefit equals marginal cost.

Question 7

Joe can produce 6 smoothies or 30 salads in an hour. Liz can produce 30 smoothies or 30 salads in an hour. Who has the comparative advantage in producing salads?

Accepted Answer

Joe, because his opportunity cost of a salad is lower than Liz's.

Question 8

If Liz and Joe specialize according to their comparative advantage and then trade, what is the result?

Accepted Answer

Both Liz and Joe can consume at a point outside their individual PPFs.

Question 9

Which of the following is NOT a key institution that coordinates economic decisions in a market economy?

Accepted Answer

Government price controls

Question 10

Suppose the marginal cost of producing a pizza increases as more pizzas are produced. What does this imply about the shape of the marginal cost curve?

Accepted Answer

It is upward sloping.

Question 11

If the marginal benefit of a pizza is greater than its marginal cost, what should the economy do to achieve allocative efficiency?

Accepted Answer

Produce more pizzas.

Question 12

Which principle explains why the marginal benefit of a good decreases as more of it is consumed?

Accepted Answer

Principle of decreasing marginal benefit

Question 13

If a country invests more in capital and technology today, what is the opportunity cost?

Accepted Answer

Lower current consumption

Question 14

Which of the following best describes absolute advantage?

Accepted Answer

Being able to produce more of a good with the same resources.

Question 15

If the price of a salad in trade is 2 smoothies, what does this imply about the terms of trade between Liz and Joe?

Accepted Answer

Joe will trade salads for smoothies at a rate of 1 salad for 2 smoothies.

Question 16

Which of the following is true about points outside the PPF?

Accepted Answer

They are attainable only with specialization and trade.

Question 17

If a market economy is coordinated through price adjustments, what role do prices play?

Accepted Answer

Prices allocate resources by signaling where they are most valued.

Question 18

Suppose the marginal cost curve and the marginal benefit curve intersect at 2.5 million pizzas. What does this point represent?

Accepted Answer

The point of allocative efficiency.

Question 19

If Joe's opportunity cost of producing a smoothie is 5 salads and Liz's is 1 salad, who should specialize in smoothies?

Accepted Answer

Liz

Question 20

Which of the following is a direct result of economic growth?

Accepted Answer

The PPF shifts outward, increasing the standard of living.

Chapter 2: The Economic Problem – Production Possibilities, Opportunity Cost, and Gains from Trade

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