Question 1

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

Accepted Answer

The PPF is a boundary between attainable and unattainable combinations of goods and services, given available resources and technology.

Question 2

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

Accepted Answer

Production is inefficient because more of one or both goods could be produced without sacrificing the other.

Question 3

Suppose the opportunity cost of producing one smartphone increases as more smartphones are produced. What does this imply about the shape of the PPF?

Accepted Answer

The PPF is bowed outward, reflecting increasing opportunity costs.

Question 4

Given the following data from a PPF: moving from point C to D, the number of smartphones increases by 1 and the number of bikes decreases by 3. What is the opportunity cost of producing one additional smartphone?

Accepted Answer

$$\frac{3}{1} = 3$$ bikes$

Question 5

If the opportunity cost of producing a smartphone is 4 bikes, what is the opportunity cost of producing one bike?

Accepted Answer

$$\frac{1}{4}$$ smartphone$

Question 6

Which of the following would cause the PPF to shift outward?

Accepted Answer

An improvement in technology or an increase in the quantity or quality of resources.

Question 7

Liz can produce either 30 smoothies or 30 salads in an hour. Joe can produce either 6 smoothies or 30 salads in an hour. Who has the comparative advantage in producing salads?

Accepted Answer

Joe, because his opportunity cost of producing a salad is lower than Liz's.

Question 8

If Liz's opportunity cost of producing a smoothie is 1 salad and Joe's opportunity cost of producing a smoothie is 5 salads, who should specialize in producing smoothies?

Accepted Answer

Liz, because she has a lower opportunity cost for smoothies.

Question 9

Suppose Liz and Joe specialize according to their comparative advantage and then trade. What is the result?

Accepted Answer

Both Liz and Joe can consume at a point outside their individual PPFs.

Question 10

Which of the following best illustrates a 'free lunch' in the context of the PPF?

Accepted Answer

Moving from an inefficient point inside the PPF to a point on the PPF, increasing output without sacrificing any other good.

Question 11

If the United States produces most of its electricity using wind power and operates inside its PPF, what does this imply?

Accepted Answer

The U.S. is not producing electricity efficiently and could increase output without sacrificing other goods.

Question 12

Which of the following statements about opportunity cost is correct?

Accepted Answer

Opportunity cost is the value of the next best alternative forgone when a choice is made.

Question 13

Suppose an economy produces only smartphones and smartphone factories. If it produces more factories this year, what is the likely effect next year?

Accepted Answer

The PPF will shift outward, allowing more smartphones to be produced.

Question 14

Which of the following is NOT a reason for increasing opportunity costs?

Accepted Answer

All resources are perfectly adaptable to any use.

Question 15

If the slope of the PPF at a given point is $$-5$$, what does this mean in terms of opportunity cost?

Accepted Answer

The opportunity cost of producing one more smartphone is 5 bikes.

Question 16

Which of the following is true about absolute advantage?

Accepted Answer

A person or nation has an absolute advantage if they can produce more of a good with fewer inputs than another.

Question 17

If Liz and Joe both produce at inefficient points inside their PPFs, what is the effect of specialization and trade?

Accepted Answer

They can move to efficient points on the PPF and potentially consume beyond their individual PPFs.

Question 18

Suppose the first 30 smoothies can be produced for 1 salad per smoothie, but the 31st smoothie costs 5 salads. What does this illustrate?

Accepted Answer

Increasing opportunity cost as production expands.

Question 19

Which of the following is a multi-step calculation of opportunity cost? Suppose moving from point B to C on the PPF increases smartphones from 1 to 2 and decreases bikes from 14 to 12. What is the opportunity cost of the second smartphone?

Accepted Answer

$$\frac{14 - 12}{2 - 1} = 2$$ bikes$

Question 20

Which of the following statements about wind power is correct according to the study materials?

Accepted Answer

Wind power is not free because its opportunity cost includes the goods and services forgone to build turbines and transmission lines.

Chapter 3: The Economic Problem – Foundations of Macroeconomics

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