Question 1

According to the principle of opportunity cost, what is the economic cost of using a factor of production?

Accepted Answer

The alternative use of that factor that is given up.

Question 2

On a production possibilities frontier (PPF), a point inside the frontier represents which of the following?

Accepted Answer

Productively inefficient production.

Question 3

Refer to the PPF graph showing roses and orchids. If moving from 40 to 50 dozen roses requires giving up 2.5 dozen orchids, what is the opportunity cost of one dozen roses?

Accepted Answer

$$0.4$$ dozen orchids

Question 4

Why does increasing opportunity cost occur along a bowed-out production possibilities frontier?

Accepted Answer

Because resources are not equally suited to producing both goods or services.

Question 5

A shift outward of a nation's production possibilities frontier can occur due to which of the following?

Accepted Answer

An increase in the labor force.

Question 6

Refer to the PPF diagram with points W, X, Y, Z. A movement from point Y to Z is most likely the result of:

Accepted Answer

A technological advancement in plastic production.

Question 7

Specializing in the production of a good in which one has a comparative advantage enables a country to:

Accepted Answer

Produce a combination of goods that lies outside its own production possibilities frontier.

Question 8

Refer to the PPFs for Guatemala and Costa Rica. Which country has a comparative advantage in the production of pineapples?

Accepted Answer

Costa Rica

Question 9

If Hungary gives up the opportunity to make 10 bottles of beer for each pound of salami it produces, and Slovakia gives up 8 bottles of beer for each pound of salami, which country has the comparative advantage in salami?

Accepted Answer

Slovakia has the comparative advantage in salami.

Question 10

A worker is hired in which type of market in the circular flow model?

Accepted Answer

Factor market

Question 11

The circular flow model demonstrates:

Accepted Answer

How the roles played by households and firms in the market system interact.

Question 12

In the circular flow diagram, market K represents:

Accepted Answer

Factor markets

Question 13

Which of the following is an example of spending on factors of production in the circular flow model?

Accepted Answer

The 'Lucky Ducky' casino buys a new craps table for the casino floor.

Question 14

Adam Smith's 'invisible hand' refers to:

Accepted Answer

The process by which individuals acting in their own self-interest bring about a market outcome that benefits society as a whole.

Question 15

A critical function of the government in facilitating the operation of a market economy is:

Accepted Answer

Establishing and enforcing private property rights.

Question 16

Which of the following transactions takes place in the factor market?

Accepted Answer

Aimee works 20 hours a week at a grocery store.

Question 17

Which of the following countries does NOT come close to the free market benchmark?

Accepted Answer

Cuba

Question 18

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

Accepted Answer

An absolute advantage.

Question 19

If the opportunity cost of producing one more unit of good X is higher in country A than in country B, which country has the comparative advantage in good X?

Accepted Answer

Country B

Question 20

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.

Fundamental Concepts in Macroeconomics: Opportunity Cost, Production Possibilities, and Market Structures

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