Q: Which formula represents the opportunity cost of producing one unit of apples for you, given you can produce $$20$$ pounds of apples or $$20$$ pounds of cherries per week?

$$\frac{20\text{ cherries}}{20\text{ apples}} = 1\text{ cherry per apple}$$

Question 1

Which of the following best describes the concept of scarcity in economics?

Accepted Answer

Scarcity means that resources are limited and cannot satisfy all human wants.

Question 2

Ford faces a trade-off at its Dearborn, Michigan plant when deciding to produce more electric vehicles (EVs). What is the opportunity cost of increasing EV production?

Accepted Answer

The number of gasoline-powered F-150s that must be reduced to produce more EVs.

Question 3

A production possibilities frontier (PPF) is best described as:

Accepted Answer

A curve showing the maximum attainable combinations of two products that can be produced with available resources and current technology.

Question 4

If Ford moves from point A to point B on its PPF by producing 20 more EVs and 20 fewer gasoline-powered F-150s, what is the opportunity cost of producing the additional EVs?

Accepted Answer

$$20$$ gasoline-powered F-150s

Question 5

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

Accepted Answer

Because resources are not equally efficient in producing every good, leading to increasing marginal opportunity costs.

Question 6

Suppose an economy experiences economic growth. How is this represented on a PPF diagram?

Accepted Answer

The PPF shifts outward, showing an increase in the production of goods and services.

Question 7

Which of the following statements about comparative advantage is correct?

Accepted Answer

Comparative advantage is the ability to produce a good at a lower opportunity cost than competitors.

Question 8

You can pick $$20$$ pounds of apples or $$20$$ pounds of cherries in a week. Your neighbor can pick $$30$$ pounds of apples or $$60$$ pounds of cherries. Who has the comparative advantage in picking apples?

Accepted Answer

You, because your opportunity cost of picking apples is lower than your neighbor's.

Question 9

If you specialize in picking apples and your neighbor specializes in picking cherries, and you trade $$10$$ pounds of apples for $$15$$ pounds of cherries, what is the result?

Accepted Answer

Both you and your neighbor can consume more than without trade.

Question 10

Which of the following best illustrates the concept of absolute advantage?

Accepted Answer

A country can produce more of a good than another country using the same amount of resources.

Question 11

Which formula represents the opportunity cost of producing one unit of apples for you, given you can produce $$20$$ pounds of apples or $$20$$ pounds of cherries per week?

Accepted Answer

$$\frac{20	ext{ cherries}}{20	ext{ apples}} = 1	ext{ cherry per apple}$$

Question 12

In the circular-flow diagram, which of the following is true?

Accepted Answer

Households provide factors of production to firms, and firms provide goods and services to households.

Question 13

Which of the following is NOT considered a factor of production?

Accepted Answer

Money used to buy goods

Question 14

What is the role of entrepreneurs in the market system?

Accepted Answer

They bring together the factors of production to produce goods and services, often taking risks to innovate.

Question 15

Which of the following is necessary for a successful market system?

Accepted Answer

Protection of private property and enforcement of contracts

Question 16

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

Accepted Answer

The self-interested actions of individuals leading to outcomes that benefit society as a whole.

Question 17

Suppose technological improvement occurs only in the automobile industry. How will this affect the PPF for automobiles and tanks?

Accepted Answer

The PPF will shift outward for automobiles but remain unchanged for tanks.

Question 18

Which of the following best explains why free markets tend to raise living standards?

Accepted Answer

They allow individuals and firms to respond to price signals and allocate resources efficiently.

Question 19

If Jack is much faster at cooking than Jill, but only a little faster at laundry, who should specialize in cooking according to comparative advantage?

Accepted Answer

Jack, because his opportunity cost of cooking is lower than Jill's.

Trade-offs, Comparative Advantage, and the Market System: Chapter 2 Study Notes

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