Question 1

Suppose Tesla can produce either 80 sedans or 80 SUVs with its available resources. If Tesla is currently producing 60 sedans and 20 SUVs, what is the opportunity cost of increasing SUV production from 20 to 40 SUVs?

Accepted Answer

$$20$$ sedans

Question 2

Which of the following statements best describes the concept of increasing marginal opportunity costs as illustrated by a bowed-outward production possibilities frontier (PPF)?

Accepted Answer

As more resources are devoted to an activity, the opportunity cost of producing additional units increases.

Question 3

If a country experiences technological improvement in the automobile industry but not in the tank industry, how will its PPF change?

Accepted Answer

The PPF will shift outward only along the automobile axis.

Question 4

Given the following opportunity costs: You give up 1 pound of cherries for each pound of apples, and your neighbor gives up 2 pounds of cherries for each pound of apples. Who has the comparative advantage in producing apples?

Accepted Answer

You

Question 5

Which of the following best explains why both you and your neighbor can benefit from trade, even if your neighbor has an absolute advantage in both apples and cherries?

Accepted Answer

Trade allows each person to specialize in the good for which they have a lower opportunity cost.

Question 6

In the circular-flow diagram, which of the following transactions occurs in the factor market?

Accepted Answer

A household sells labor to a firm.

Question 7

Which of the following is NOT a requirement for a successful market system according to the study materials?

Accepted Answer

Government ownership of all resources

Question 8

Suppose Jack can cook a meal in 1 hour or do laundry in 2 hours, while Jill can cook a meal in 2 hours or do laundry in 3 hours. Who should specialize in cooking, and why?

Accepted Answer

Jack, because his opportunity cost of cooking is lower than Jill's.

Question 9

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

Accepted Answer

The self-interested actions of individuals collectively satisfy consumer wants through market prices.

Question 10

If a point lies inside (below) the production possibilities frontier, what does this indicate about resource use?

Accepted Answer

Resources are not being used efficiently.

Question 11

Which of the following is an example of a normative statement?

Accepted Answer

"The government should increase the minimum wage."

Question 12

If you spend all your time picking apples and can pick 20 pounds, and your neighbor can pick 30 pounds, who has the absolute advantage in picking apples?

Accepted Answer

Your neighbor

Question 13

Which of the following is a direct result of economic growth as shown by a shift in the PPF?

Accepted Answer

The economy can produce more of both goods.

Question 14

Why do governments enforce property rights in a market economy?

Accepted Answer

To provide incentives for households and firms to work and invest.

Question 15

Which of the following best illustrates the concept of opportunity cost?

Accepted Answer

Choosing to attend college means giving up the income you could have earned working full-time.

Question 16

If a country can produce more of all goods than another country using the same resources, it is said to have:

Accepted Answer

An absolute advantage

Question 17

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

Accepted Answer

Government sets all prices and production levels.

Question 18

Suppose you can pick 20 pounds of apples or 20 pounds of cherries, and your neighbor can pick 30 pounds of apples or 60 pounds of cherries. What is your opportunity cost of picking 1 pound of cherries?

Accepted Answer

$$1$$ pound of apples

Question 19

Which of the following is a real-world example of the market mechanism at work, as described in the study materials?

Accepted Answer

Hundreds of firms independently producing components for the iPad, guided by self-interest.

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

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