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 electric F-150 Lightnings per day, or any linear combination in between. If Ford moves from producing 60 gasoline-powered F-150s and 40 Lightnings to 40 gasoline-powered F-150s and 60 Lightnings, what is the opportunity cost of producing 20 more Lightnings?

Accepted Answer

$$20$$ gasoline-powered F-150s$

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 experiences technological improvement in the automobile industry but not in the tank industry, how will the PPF change?

Accepted Answer

The PPF will shift outward only along the automobile axis.

Question 5

Which of the following statements about comparative advantage is correct?

Accepted Answer

Comparative advantage is based on who has the lowest opportunity cost of producing a good.

Question 6

You can pick 20 pounds of apples or 20 pounds of cherries in a day. Your neighbor can pick 30 pounds of apples or 60 pounds of cherries. What is your neighbor’s opportunity cost of picking 1 pound of apples?

Accepted Answer

$$2$$ pounds of cherries$

Question 7

If you and your neighbor specialize according to comparative advantage and trade, what happens to your consumption possibilities?

Accepted Answer

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

Question 8

Which of the following is NOT a factor of production?

Accepted Answer

Money

Question 9

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

Accepted Answer

Factors of production such as labor, capital, and natural resources

Question 10

Which of the following best explains why free markets tend to raise living standards more effectively than centrally planned economies?

Accepted Answer

Free markets rely on the invisible hand, where individual self-interest and flexible prices coordinate economic activity.

Question 11

Suppose a new government regulation restricts how firms can use certain natural resources. According to the study materials, what is a likely effect on the market system?

Accepted Answer

The market system may become less flexible, reducing the ability to respond to price signals.

Question 12

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

Accepted Answer

A consumer buying a smartphone from a retailer

Question 13

What role do entrepreneurs play in the market system?

Accepted Answer

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

Question 14

Which of the following is necessary for a successful market system, according to the study materials?

Accepted Answer

Protection of private property and enforcement of contracts

Question 15

If the opportunity cost of producing one more unit of a good increases as more of it is produced, what does this imply about the shape of the PPF?

Accepted Answer

The PPF is bowed outward.

Question 16

Which of the following best illustrates the concept of absolute advantage?

Accepted Answer

A country can produce more of both wheat and corn than another country using the same resources.

Question 17

Suppose Jack is much faster at cooking and only a little faster at laundry compared to Jill. According to comparative advantage, who should specialize in which task?

Accepted Answer

Jack should specialize in cooking, Jill in laundry.

Question 18

Which of the following is a normative statement?

Accepted Answer

The economy should produce more electric vehicles.

Question 19

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 existing resources

Question 20

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

Accepted Answer

The collective self-interested actions of individuals and firms lead to outcomes that benefit society.

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

Study Guide - Practice Questions

Study Guide - Flashcards