Question 1

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

Accepted Answer

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

Question 2

Suppose Country A can produce either 8 cell phones or 4 microwave ovens with all its resources. What is the opportunity cost of producing 1 microwave oven in Country A?

Accepted Answer

$$2$$ cell phones

Question 3

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

Accepted Answer

Increasing opportunity costs

Question 4

Which of the following would cause an outward shift in a country's PPF?

Accepted Answer

A technological advancement in production

Question 5

If Country B’s opportunity cost of producing 1 cell phone is 2 microwave ovens, which country has the comparative advantage in cell phones if Country A’s opportunity cost is 0.5 microwave ovens per cell phone?

Accepted Answer

Country A

Question 6

Which of the following is NOT one of the basic economic questions every society must answer?

Accepted Answer

How much profit will each firm earn?

Question 7

Joe Jamail, a lawyer, can write his own will in 2 hours or hire another attorney to do it in 4 hours for $$3200. If Joe earns 5000 $$per hour practicing law, what is the opportunity cost of writing his own will?

Accepted Answer

$10,000

Question 8

Which of the following best explains why trade can benefit both countries, even if one has an absolute advantage in producing all goods?

Accepted Answer

Trade allows each country to specialize in the good for which it has a comparative advantage.

Question 9

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

Accepted Answer

A more efficient use of resources

Question 10

Which of the following is an example of capital as an economic resource?

Accepted Answer

A factory used to manufacture cars

Question 11

Suppose the PPF for nuts and coffee shifts outward for both goods. Which of the following could explain this change?

Accepted Answer

A neutral technological change

Question 12

Which of the following statements about the PPF is correct?

Accepted Answer

The PPF is a positive tool because it shows what is possible to produce.

Question 13

If a country specializes in producing the good for which it has a comparative advantage and trades with another country, what is the likely outcome?

Accepted Answer

Both countries will be able to consume beyond their individual PPFs.

Question 14

Which of the following is an example of increasing marginal opportunity cost?

Accepted Answer

As more resources are devoted to producing cars instead of computers, the number of computers forgone increases for each additional car produced.

Question 15

Which of the following is NOT a source of economic growth?

Accepted Answer

Decreasing trade with other countries

Question 16

If you can pick 8 pounds of apples or 16 pounds of cherries in a day, what is your opportunity cost of picking 1 pound of apples?

Accepted Answer

$$2$$ pounds of cherries

Question 17

Which of the following best describes the gains from specialization and trade?

Accepted Answer

Both parties can consume more than they could without trade.

Question 18

Which of the following is an example of entrepreneurship as an economic resource?

Accepted Answer

A person who starts a new tech company by combining labor, capital, and land

Question 19

If a country can produce more of both goods than another country, but has a higher opportunity cost for one good, what should it do according to the principle of comparative advantage?

Accepted Answer

Specialize in the good for which it has the lower opportunity cost and trade for the other good.

Question 20

Which of the following statements is true regarding voluntary exchange?

Accepted Answer

Voluntary exchange is a positive sum game where both parties can benefit.

Opportunity Cost, Production Possibilities Frontier, and Trade: Study Notes for Macroeconomics

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