Question 1

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

Accepted Answer

A curve showing the maximum attainable combinations of two goods that can be produced with a fixed set of resources, constant technology, and full and efficient use of all resources.

Question 2

Suppose Ford can produce either 80 gasoline-powered F-150s or 80 Lightnings per day, or any combination in between. What is the opportunity cost of producing one additional Lightning if Ford moves from producing 40 F-150s and 40 Lightnings to 20 F-150s and 60 Lightnings?

Accepted Answer

$$ \frac{20}{20} = 1  F-150 $$per Lightning

Question 3

If the PPF is bowed outward, what does this indicate about opportunity costs?

Accepted Answer

Opportunity costs increase as more of one good is produced.

Question 4

Which of the following would NOT shift the PPF outward?

Accepted Answer

A decrease in the quality of institutions

Question 5

If BMW’s plant can produce either 800 Roadsters or 800 SUVs per day, what is the opportunity cost of producing one additional SUV when moving from 600 Roadsters and 200 SUVs to 400 Roadsters and 400 SUVs?

Accepted Answer

$$ \frac{200}{200} = 1 $$ Roadster per SUV

Question 6

Which statement best explains why opportunity costs increase as more resources are devoted to one activity?

Accepted Answer

Not all resources are equally suited to the production of different goods.

Question 7

Which of the following is the basis for trade between two individuals or countries?

Accepted Answer

Comparative advantage

Question 8

If you can produce 20 pounds of apples or 60 pounds of cherries in a day, what is your opportunity cost of producing 1 pound of apples?

Accepted Answer

$$ \frac{60}{20} = 3 $$ pounds of cherries

Question 9

Which of the following is NOT a characteristic of a free market system?

Accepted Answer

Central planning of resource allocation

Question 10

According to Adam Smith’s ‘invisible hand’ principle, what is the primary benefit of market economies?

Accepted Answer

They make better use of knowledge, leading to higher standards of living.

Question 11

Which of the following is NOT included in private property rights?

Accepted Answer

The right to trespass on others’ property

Question 12

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

Accepted Answer

Total output and wealth in both countries will increase.

Question 13

Which of the following best describes economic growth in terms of the PPF?

Accepted Answer

An outward shift of the PPF

Question 14

Which of the following is a direct result of enforcing contracts and property rights in a market system?

Accepted Answer

Increased accountability and stewardship among owners

Question 15

Suppose technological advancement allows a factory to produce more goods with the same resources. What happens to the factory’s PPF?

Accepted Answer

It shifts outward.

Question 16

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

Accepted Answer

Some resources are not being fully utilized.

Question 17

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

Accepted Answer

A labor market where workers are hired

Question 18

If the opportunity cost of producing tanks increases as more tanks are produced, what does this imply about the shape of the PPF?

Accepted Answer

The PPF is bowed outward.

Question 19

Which of the following is NOT a foundation for a market system?

Accepted Answer

Centralized government control of prices

Question 20

If a country can produce more of a good than another country using the same amount of resources, it is said to have:

Accepted Answer

Absolute advantage

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

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