Question 1

Suppose Ford is currently producing at point B on its PPF (60 gasoline-powered F-150s and 20 Lightnings per day). What is the opportunity cost of increasing production from 60 to 80 Lightnings per day?

Accepted Answer

$$60$$ gasoline-powered F-150s$

Question 2

If an economy is operating inside its PPF, such as at point F in the Ford PPF diagram, what does this indicate?

Accepted Answer

Some resources are not being used, indicating inefficiency.

Question 3

Based on the table comparing you and your neighbor's fruit picking abilities, what is your opportunity cost of picking 1 pound of cherries?

Accepted Answer

$$1$$ pound of apples$

Question 4

Which of the following best describes the concept of increasing marginal opportunity costs as shown in the tanks and automobiles PPF diagram?

Accepted Answer

The opportunity cost of producing more automobiles increases as more are produced.

Question 5

If your neighbor specializes in picking cherries and you specialize in picking apples, and you trade 10 pounds of apples for 15 pounds of cherries, what are your new consumption possibilities?

Accepted Answer

$$10$$ pounds of apples and $$15$$ pounds of cherries$

Question 6

Which of the following statements about absolute and comparative advantage is correct?

Accepted Answer

A person can have a comparative advantage in producing a good without having an absolute advantage.

Question 7

In the circular flow diagram, what do the green arrows represent?

Accepted Answer

The flow of funds from firms to households and spending from households to firms.

Question 8

Which of the following is NOT a factor of production?

Accepted Answer

Money

Question 9

Suppose a technological improvement occurs in the automobile industry but not in the tank industry. What happens to the PPF?

Accepted Answer

The PPF shifts outward only along the automobile axis.

Question 10

Why do free markets generally lead to higher standards of living compared to centrally planned economies, according to Adam Smith?

Accepted Answer

Because free markets mobilize knowledge and resources efficiently through competition and self-interest.

Question 11

If the opportunity cost of producing 1 pound of apples for your neighbor is 2 pounds of cherries, who has the comparative advantage in producing apples?

Accepted Answer

You

Question 12

Which of the following best explains why the PPF is typically bowed outward?

Accepted Answer

Resources are not equally suited to producing all goods, leading to increasing opportunity costs.

Question 13

What is the role of property rights in a successful market system?

Accepted Answer

They provide the incentive for individuals to invest and take risks.

Question 14

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

Accepted Answer

A consumer buying a new smartphone

Question 15

If a country can produce more of both goods than another country using the same resources, but has a higher opportunity cost for one good, what should it do according to the theory of comparative advantage?

Accepted Answer

Specialize in the good for which it has a lower opportunity cost and trade for the other.

Question 16

Which of the following best describes the market mechanism?

Accepted Answer

Firms and households respond to price signals, leading to the allocation of resources that satisfies consumer preferences.

Question 17

What is the main benefit of specialization and trade according to the PPF and comparative advantage concepts?

Accepted Answer

It allows individuals or countries to consume beyond their own PPF.

Question 18

Which of the following is NOT a requirement for the market system to function effectively?

Accepted Answer

Central government planning of all production

Question 19

If the U.S. government grants a patent to a pharmaceutical company, what type of property right is being protected?

Accepted Answer

Intellectual property

Question 20

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

Accepted Answer

A student spends an hour studying economics instead of working at a part-time job, giving up the wage they could have earned.

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

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