Question 1

Which of the following best describes the Production Possibilities Frontier (PPF)?

Accepted Answer

A positive tool that shows the maximum attainable combinations of goods given resources and technology.

Question 2

If Ford moves from producing 60 gasoline-powered F-150s and 20 Lightnings to producing 40 gasoline-powered F-150s and 40 Lightnings, what is the opportunity cost of producing 20 more Lightnings?

Accepted Answer

20 gasoline-powered F-150s

Question 3

Why is the PPF typically bowed outward rather than a straight line?

Accepted Answer

Because opportunity costs increase as more of one good is produced, reflecting the law of increasing opportunity cost.

Question 4

Which of the following would cause an outward shift in a country's PPF?

Accepted Answer

An increase in a country's resources.

Question 5

Suppose a music company moves from producing 0 banjos and 10 saxophones to 1 banjo and 9 saxophones. What is the opportunity cost of producing 1 additional banjo?

Accepted Answer

1 saxophone

Question 6

Who has the absolute advantage in producing a good?

Accepted Answer

The individual or country that can produce more of the good with the same resources.

Question 7

Comparative advantage is determined by:

Accepted Answer

Who has the lowest opportunity cost in producing a good.

Question 8

If Shaun can write 5 papers or create 15 lectures in a month, and Bryan can write 4 papers or create 8 lectures, who has the comparative advantage in creating lectures?

Accepted Answer

Bryan, because his opportunity cost of creating lectures is lower.

Question 9

Which of the following is a positive statement?

Accepted Answer

The U.S. minimum wage increased in 2009.

Question 10

Which scenario best illustrates productive efficiency in a perfectly competitive market?

Accepted Answer

A firm uses the most cost-effective production techniques and achieves the lowest possible cost per unit of output.

Question 11

Which scenario best illustrates allocative efficiency in a perfectly competitive market?

Accepted Answer

A firm sets the price of its product to match the marginal cost of production, ensuring resources are allocated where they are most valued by consumers.

Question 12

Which of the following is NOT one of the four key resources (factors of production) in economics?

Accepted Answer

Technology

Question 13

Which of the following would be studied in microeconomics rather than macroeconomics?

Accepted Answer

The impact of a new tax on the supply and demand for a particular product.

Question 14

According to economic theory, the optimal decision is to continue an activity up to the point where:

Accepted Answer

$$MB = MC$$

Question 15

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

Accepted Answer

Individuals acting in their own self-interest, leading to outcomes that benefit society through flexible prices.

Question 16

Which of the following statements is normative?

Accepted Answer

The government should raise the minimum wage to $10.

Question 17

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

Accepted Answer

Resources are being used inefficiently.

Question 18

Suppose a country can produce either 100 units of food or 150 units of clothes. If it moves from producing 75 units of food and 100 units of clothes to producing 50 units of food and 150 units of clothes, what is the opportunity cost of increasing clothes production by 50 units?

Accepted Answer

25 units of food

Question 19

Which of the following is an assumption economists make when building models?

Accepted Answer

People are rational and make the best decisions they can with the information available.

Microeconomics Exam 1 Review: Production Possibilities, Opportunity Cost, and Economic Models

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