Q: Which equation best represents the concept of opportunity cost?

$$OC = \frac{\text{Loss of Good Y}}{\text{Gain of Good X}}$$

Question 1

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

Accepted Answer

The value of the next best alternative foregone when a choice is made.

Question 2

Refer to the production possibility frontier (PPF) for Tesla. If Tesla is operating at point F (inside the PPF), what does this indicate?

Accepted Answer

Tesla is not using all its resources efficiently.

Question 3

Which of the following statements is an example of positive analysis?

Accepted Answer

Raising interest rates will reduce inflation.

Question 4

Suppose the opportunity cost of producing 1 apple is 2 cherries for your neighbour, and 1 apple is 1 cherry for you. Who has the comparative advantage in producing apples?

Accepted Answer

You, because you give up fewer cherries.

Question 5

If the production possibility frontier shifts outward, what does this represent?

Accepted Answer

Economic growth.

Question 6

Which of the following is NOT a resource in economics?

Accepted Answer

Consumer demand

Question 7

The yield curve is inverted when:

Accepted Answer

Short-term bonds have higher yields than long-term bonds.

Question 8

Which equation best represents the concept of opportunity cost?

Accepted Answer

$$OC = \frac{	ext{Loss of Good Y}}{	ext{Gain of Good X}}$$

Question 9

If the Federal Reserve's dot plot shows a cluster of dots at a higher interest rate for the next year, what does this indicate?

Accepted Answer

Policymakers expect to raise interest rates.

Question 10

Which of the following best explains why the production possibility frontier is typically bowed outward?

Accepted Answer

Increasing marginal opportunity costs.

Question 11

Suppose the U.S. government increases the money supply (M2) rapidly, as shown in the chart from 2020 to 2022. What is a likely macroeconomic consequence?

Accepted Answer

Rising inflation

Question 12

Which of the following is an example of a normative statement?

Accepted Answer

The government should reduce taxes to boost growth.

Question 13

If a country can produce more of both goods than another country using the same resources, it has:

Accepted Answer

Absolute advantage

Question 14

Which market is NOT directly represented in the macroeconomic equilibrium diagram (goods and services, labour, money, bond, equity)?

Accepted Answer

Foreign exchange market

Question 15

If a country moves from a point inside its PPF to a point on the PPF, what does this represent?

Accepted Answer

Improved efficiency in resource use

Question 16

Which of the following best describes the relationship shown by a normal yield curve?

Accepted Answer

Long-term bonds have higher yields than short-term bonds.

Question 17

If Australia specializes in producing wool and trades with another country that specializes in wheat, what economic principle is being demonstrated?

Accepted Answer

Comparative advantage

Question 18

Which of the following steps is NOT part of the economic model-building process?

Accepted Answer

Ignore data that contradicts the model.

Question 19

If the opportunity cost of producing an additional 200 tonnes of wheat increases from 50 to 150 tonnes of wool (as shown in the PPF diagram), what does this illustrate?

Accepted Answer

Increasing marginal opportunity cost

Question 20

Which formula would you use to calculate the debt-to-GDP ratio as shown in the global debt chart?

Accepted Answer

$$	ext{Debt-to-GDP Ratio} = \frac{	ext{Total Debt}}{	ext{GDP}} 	imes 100$$

Foundations of Economics: Key Concepts and Applications

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