Question 1

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

Accepted Answer

The PPF is a boundary between those combinations of goods and services that can be produced and those that cannot, given available resources and technology.

Question 2

Suppose an economy can produce only cola and pizzas. If the opportunity cost of producing 1 pizza is 5 cans of cola, what is the opportunity cost of producing 1 can of cola?

Accepted Answer

$$\frac{1}{5}$$ pizza

Question 3

A point inside the PPF, such as point Z, represents:

Accepted Answer

Inefficient use of resources, where it is possible to produce more of one good without producing less of another

Question 4

If an economy moves from point E to point F on its PPF, increasing pizza production by 1 million and decreasing cola production by 5 million cans, what is the opportunity cost of the additional pizza?

Accepted Answer

$$5$$ million cans of cola

Question 5

Why does the PPF typically bow outward?

Accepted Answer

Because opportunity cost increases as more of one good is produced

Question 6

Marginal cost is defined as:

Accepted Answer

The opportunity cost of producing one more unit of a good or service

Question 7

According to the principle of decreasing marginal benefit, as the quantity of a good consumed increases:

Accepted Answer

The marginal benefit decreases

Question 8

Allocative efficiency is achieved at the point on the PPF where:

Accepted Answer

Marginal cost equals marginal benefit

Question 9

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 10

If Liz's opportunity cost of producing a smoothie is 1 salad and Joe's opportunity cost of producing a smoothie is 5 salads, who should specialize in producing smoothies?

Accepted Answer

Liz

Question 11

After specialization and trade, Liz produces only smoothies and Joe produces only salads. If they trade 10 smoothies for 20 salads, what is the price of a salad in terms of smoothies?

Accepted Answer

$$0.5$$ smoothies per salad

Question 12

Economic growth is defined as:

Accepted Answer

An increase in the standard of living and expansion of production possibilities

Question 13

What is the opportunity cost of economic growth?

Accepted Answer

Less current consumption

Question 14

Which of the following is NOT an economic institution that coordinates decisions in a market economy?

Accepted Answer

Government price controls

Question 15

In the circular flow model, which direction do goods and services flow between households and firms?

Accepted Answer

From firms to households

Question 16

If a country invests more in capital and technology today, what is the likely effect on its PPF in the future?

Accepted Answer

The PPF will shift outward

Question 17

Which statement about absolute and comparative advantage is correct?

Accepted Answer

Comparative advantage compares opportunity costs, while absolute advantage compares productivity.

Question 18

If marginal benefit exceeds marginal cost at a given quantity, what should the economy do to achieve allocative efficiency?

Accepted Answer

Produce more of the good

Question 19

Which of the following best explains why specialization and trade can make resources more efficient?

Accepted Answer

They allow each producer to focus on the good for which they have the lowest opportunity cost.

Question 20

Markets coordinate individual decisions through:

Accepted Answer

Price adjustments

The Economic Problem: Production Possibilities, Opportunity Cost, and Efficiency

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