Q: Which of the following is the correct formula for opportunity cost when moving along a straight-line PPF?

$$\text{Opportunity Cost of Good X} = \frac{\text{Loss of Good Y}}{\text{Gain of Good X}}$$

Question 1

Based on the production possibilities frontiers (PPFs) shown for 'You' and 'Friend', what is the opportunity cost for 'You' to produce one additional Pizza Roll?

Accepted Answer

$$2$$ Hunch Punch$

Question 2

If 'Friend' specializes in producing Pizza Rolls and 'You' specializes in producing Hunch Punch, which economic principle is being applied?

Accepted Answer

Comparative Advantage

Question 3

Which of the following best describes 'Absolute Advantage'?

Accepted Answer

Producing more of a good with the same amount of resources

Question 4

Given the PPFs, who has the absolute advantage in producing Hunch Punch?

Accepted Answer

You

Question 5

If 'You' can produce a maximum of 10 Hunch Punch or 5 Pizza Rolls, what is the opportunity cost of producing one Hunch Punch?

Accepted Answer

$$0.5$$ Pizza Rolls$

Question 6

Which statement about comparative advantage is correct?

Accepted Answer

Comparative advantage is based on lower opportunity cost.

Question 7

Suppose 'Friend' can produce 10 Pizza Rolls or 10 Hunch Punch. What is the opportunity cost for 'Friend' to produce one Pizza Roll?

Accepted Answer

$$1$$ Hunch Punch$

Question 8

If both 'You' and 'Friend' specialize according to their comparative advantage and trade, what will happen to total production?

Accepted Answer

Total production will increase.

Question 9

Which of the following is the correct formula for opportunity cost when moving along a straight-line PPF?

Accepted Answer

$$	ext{Opportunity Cost of Good X} = \frac{	ext{Loss of Good Y}}{	ext{Gain of Good X}}$$

Question 10

If 'You' and 'Friend' each produce 5 Pizza Rolls and 5 Hunch Punch, what does this indicate about their production choices?

Accepted Answer

They are not specializing and are producing both goods.

Question 11

Which of the following best describes specialization?

Accepted Answer

Producing the goods you are best at producing

Question 12

If 'You' have a lower opportunity cost for producing Hunch Punch, what should you do according to the theory of comparative advantage?

Accepted Answer

Specialize in producing Hunch Punch

Question 13

Which of the following is NOT a requirement for mutually beneficial trade between 'You' and 'Friend'?

Accepted Answer

Both have the same opportunity cost

Question 14

If 'Friend' has an absolute advantage in both goods, can trade still be beneficial?

Accepted Answer

Yes, if each specializes according to comparative advantage

Question 15

Suppose the opportunity cost for 'You' to produce one Pizza Roll is $$2$$ Hunch Punch, and for 'Friend' it is $$1$$ Hunch Punch. Who has the comparative advantage in Pizza Rolls?

Accepted Answer

Friend

Specialization, Absolute Advantage, and Comparative Advantage Study Guide

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