Question 1

Which of the following best describes the concept of opportunity cost?

Accepted Answer

The value of the next-best alternative that must be given up to engage in an activity.

Question 2

Suppose Ford can produce either 100 gasoline-powered F-150s or 100 electric F-150 Lightnings per day with its current resources. If Ford decides to produce 20 more electric F-150s, it must produce 20 fewer gasoline-powered F-150s. What is the opportunity cost of producing one additional electric F-150 Lightning?

Accepted Answer

$$1$$ gasoline-powered F-150$

Question 3

A production possibilities frontier (PPF) that is bowed outward (concave to the origin) illustrates which economic concept?

Accepted Answer

Increasing opportunity costs

Question 4

If a country is operating inside its production possibilities frontier (PPF), what does this indicate?

Accepted Answer

The country is not using all its resources efficiently.

Question 5

Suppose you can spend your time studying for either economics or accounting. The first hour spent on economics is more valuable than the last hour. What does this imply about the shape of your production possibilities curve for these two subjects?

Accepted Answer

It is bowed outward, indicating increasing opportunity costs.

Question 6

Country A can produce either 40 tons of wheat or 20 tons of steel. Country B can produce either 30 tons of wheat or 30 tons of steel. Which country has the comparative advantage in producing steel?

Accepted Answer

Country B, because it has a lower opportunity cost for steel.

Question 7

If your neighbor can pick 60 pounds of cherries or 30 pounds of apples in a week, what is your neighbor's opportunity cost of picking 1 pound of cherries?

Accepted Answer

$$\frac{1}{2}$$ pound of apples$

Question 8

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

Accepted Answer

Comparative advantage, not absolute advantage, is the basis for trade.

Question 9

In the circular-flow diagram, which of the following best describes the flow of goods and services?

Accepted Answer

From firms to households in the product market

Question 10

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

Accepted Answer

Money

Question 11

Suppose a technological improvement occurs in the automobile industry but not in the tank industry. What will happen to the production possibilities frontier (PPF)?

Accepted Answer

The PPF will shift outward only along the automobile axis.

Question 12

Which of the following best explains why increasing marginal opportunity costs occur?

Accepted Answer

Some resources are better suited to producing one good than another.

Question 13

Which of the following is a key function of the market system according to Adam Smith's 'invisible hand' concept?

Accepted Answer

Allowing individual self-interest to coordinate economic activity through price signals

Question 14

Which of the following is necessary for a market system to function effectively?

Accepted Answer

Protection of private property rights and enforcement of contracts

Question 15

Suppose Jack is much faster than Jill at both cooking and laundry, but Jack is especially faster at cooking. According to the concept of comparative advantage, how should Jack and Jill divide the chores?

Accepted Answer

Jack should specialize in cooking and Jill should specialize in laundry.

Question 16

Which of the following best describes economic growth as shown by the production possibilities frontier (PPF)?

Accepted Answer

An outward shift of the PPF

Question 17

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

Accepted Answer

A market where firms sell goods and services to households

Question 18

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

Accepted Answer

Absolute advantage

Question 19

Which of the following scenarios best illustrates the concept of specialization and gains from trade?

Accepted Answer

Two individuals each specialize in the good for which they have a comparative advantage and trade to consume more than they could produce alone.

Question 20

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

Accepted Answer

Centralized government planning of all economic activity

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

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