Question 1

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

Accepted Answer

It is the boundary between combinations of goods and services that can be produced and those that cannot, given current resources and technology.

Question 2

If an economy is operating at a point inside its PPF, what does this indicate?

Accepted Answer

Some resources are either unemployed or misallocated.

Question 3

Suppose moving from point E to point F on a PPF increases pizza production by 1 million and decreases cola production by 5 million cans. What is the opportunity cost of producing one more pizza?

Accepted Answer

$$5$$ cans of cola

Question 4

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

Accepted Answer

Because resources are not equally productive in all activities, leading to increasing opportunity cost.

Question 5

Which of the following best defines allocative efficiency?

Accepted Answer

When marginal benefit equals marginal cost.

Question 6

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 7

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

Accepted Answer

Joe, because his opportunity cost of producing a salad is lower.

Question 8

Which of the following is true about absolute and comparative advantage?

Accepted Answer

Absolute advantage compares productivities, while comparative advantage compares opportunity costs.

Question 9

After Liz and Joe specialize and trade, Liz sells Joe 10 smoothies and buys 20 salads. What is the terms of trade (price) in terms of salads per smoothie?

Accepted Answer

$$2$$ salads per smoothie

Question 10

Which of the following is NOT a result of specialization and trade between two parties with different opportunity costs?

Accepted Answer

Both parties produce at inefficient points inside their PPFs.

Question 11

What is the opportunity cost of economic growth in the short run?

Accepted Answer

Less current consumption.

Question 12

Which of the following factors does NOT directly contribute to economic growth?

Accepted Answer

Increasing current consumption

Question 13

Which of the following best describes the role of property rights in economic coordination?

Accepted Answer

They govern ownership, use, and disposal of resources, goods, or services.

Question 14

In the circular flow diagram, what flows from households to firms through the factor markets?

Accepted Answer

Factors of production (labor, land, capital, entrepreneurship)

Question 15

Suppose a country invests more in capital goods today. According to the PPF model, what will likely happen in the future?

Accepted Answer

The PPF will shift outward, allowing more production of all goods.

Question 16

Which of the following is an example of allocative efficiency?

Accepted Answer

Producing at a point where marginal benefit equals marginal cost.

Question 17

If a society moves from a point inside the PPF to a point on the PPF, what happens?

Accepted Answer

Production becomes more efficient.

Question 18

Which of the following is NOT a function of money in economic coordination?

Accepted Answer

It eliminates the need for property rights.

Question 19

If the marginal cost curve intersects the marginal benefit curve at 2.5 million pizzas, what does this quantity represent?

Accepted Answer

The allocatively efficient quantity of pizzas.

Question 20

Which of the following best explains why countries trade with each other?

Accepted Answer

Because they have different opportunity costs and can benefit from specialization.

Chapter 2: The Economic Problem – Production Possibilities, Efficiency, Trade, and Economic Growth

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