Question 1

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

Accepted Answer

The highest-valued alternative that must be given up to engage in an activity.

Question 2

Suppose Ford can produce either 100 gasoline-powered F-150s or 100 electric F-150 Lightnings with its current resources. If Ford decides to produce 20 more electric F-150s, it must produce 20 fewer gasoline-powered F-150s. What is the opportunity cost of producing 1 additional electric F-150 Lightning?

Accepted Answer

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

Question 3

A production possibilities frontier (PPF) is bowed outward rather than a straight line. What does this shape indicate about opportunity costs?

Accepted Answer

Opportunity costs increase as more of one good is produced.

Question 4

If an economy experiences technological improvement in the production of automobiles but not tanks, how will the PPF shift?

Accepted Answer

The PPF will shift outward only along the automobile axis.

Question 5

Which of the following statements about comparative advantage is correct?

Accepted Answer

Comparative advantage is based on having the lowest opportunity cost in producing a good.

Question 6

You can pick 20 pounds of apples or 20 pounds of cherries in a day. Your neighbor can pick 30 pounds of apples or 60 pounds of cherries in a day. What is your opportunity cost of picking 1 pound of apples?

Accepted Answer

$$1$$ pound of cherries$

Question 7

In the same scenario, what is your neighbor’s opportunity cost of picking 1 pound of cherries?

Accepted Answer

$$0.5$$ pounds of apples$

Question 8

If Jack is much faster at cooking and only a little faster at laundry than Jill, who should specialize in cooking according to the principle of comparative advantage?

Accepted Answer

Jack, because his opportunity cost of cooking is lower.

Question 9

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

Accepted Answer

Money

Question 10

In the circular-flow diagram, which of the following best describes the flow of goods and services?

Accepted Answer

From firms to households in the product market

Question 11

A free market is characterized by:

Accepted Answer

Few government restrictions on how goods and services are produced or sold.

Question 12

Which of the following best explains why the market mechanism works efficiently?

Accepted Answer

Because flexible prices allow the collective actions of households and firms to signal the relative worth of goods and services.

Question 13

Suppose a country can produce either 100 units of wheat or 200 units of corn. If the country is currently producing 100 units of wheat, what is the opportunity cost of producing 1 more unit of wheat?

Accepted Answer

$$2$$ units of corn$

Question 14

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

Accepted Answer

A market where households buy computers.

Question 15

Which of the following is a necessary legal condition for a successful market system?

Accepted Answer

Protection of private property rights.

Question 16

If a country specializes in producing the good for which it has a comparative advantage and trades for the other good, what is the likely outcome?

Accepted Answer

Both countries can consume beyond their individual PPFs.

Question 17

Which of the following best describes economic growth as shown by the PPF?

Accepted Answer

An outward shift of the PPF.

Question 18

A country can produce either 50 units of good X or 100 units of good Y. If it is currently producing 25 units of good X and 50 units of good Y, what does this indicate about its production?

Accepted Answer

The country is producing inside its PPF and is inefficient.

Question 19

Which of the following is an example of increasing marginal opportunity cost?

Accepted Answer

The opportunity cost of producing each additional car increases as more cars are produced.

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

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