Question 1

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

Accepted Answer

The highest-valued alternative that must be given up to engage in an activity.

Question 2

Suppose Ford can produce either 80 gasoline-powered F-150s or 80 F-150 Lightnings per day, or any linear combination in between. What is the opportunity cost of producing one additional F-150 Lightning?

Accepted Answer

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

Question 3

Why is the production possibilities frontier (PPF) typically bowed outward rather than a straight line?

Accepted Answer

Because some resources are better suited to producing one good than another, leading to increasing marginal opportunity costs.

Question 4

If an economy is operating at a point inside its PPF, what does this indicate?

Accepted Answer

The economy is not using all its resources efficiently.

Question 5

Which of the following events would shift the PPF outward?

Accepted Answer

A technological improvement in the production of one good.

Question 6

Suppose you can pick either 20 pounds of apples or 20 pounds of cherries in a day, while your neighbor can pick either 30 pounds of apples or 60 pounds of cherries. What is your opportunity cost of picking 1 pound of apples?

Accepted Answer

$$1$$ pound of cherries$

Question 7

In the context of comparative advantage, which statement is correct?

Accepted Answer

A country should specialize in goods for which it has the lowest opportunity cost.

Question 8

If you and your neighbor specialize and trade, and you trade 10 pounds of apples for 15 pounds of cherries, what is the result compared to no trade?

Accepted Answer

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

Question 9

Which of the following is NOT a factor of production?

Accepted Answer

Money

Question 10

In the circular-flow diagram, what do households provide to firms?

Accepted Answer

Factors of production

Question 11

Which of the following best explains the 'invisible hand' in a market economy?

Accepted Answer

The collective actions of self-interested individuals and firms, guided by price signals, lead to outcomes that benefit society.

Question 12

What is required for a market system to function effectively, according to the study materials?

Accepted Answer

A sound legal environment that protects property rights and enforces contracts.

Question 13

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

Accepted Answer

A consumer buying a smartphone from a retailer.

Question 14

Suppose technological change occurs only in the automobile industry. What happens to the PPF?

Accepted Answer

The PPF shifts outward only along the automobile axis.

Question 15

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

Accepted Answer

Comparative advantage is the basis for trade.

Question 16

If a country moves from a centrally planned economy to a free market system, what is the most likely long-term outcome according to Adam Smith's argument?

Accepted Answer

Higher living standards due to more efficient resource allocation.

Question 17

Which of the following best describes the role of entrepreneurs in the market system?

Accepted Answer

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

Question 18

A country can produce either 100 units of wheat or 200 units of corn with its resources. What is the opportunity cost of producing 1 unit of wheat?

Accepted Answer

$$2$$ units of corn$

Question 19

Which of the following is a key difference between a factor market and a product market?

Accepted Answer

Factor markets are where resources like labor and capital are bought and sold, while product markets are where goods and services are bought and sold.

Question 20

Which of the following best illustrates increasing marginal opportunity costs?

Accepted Answer

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

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

Study Guide - Practice Questions

Study Guide - Flashcards