Question 1

Suppose Ford can produce either gasoline-powered F-150s or electric F-150 Lightnings. If Ford reallocates resources to produce 20 more Lightnings and, as a result, produces 20 fewer gasoline-powered F-150s, what is the opportunity cost of producing one additional Lightning?

Accepted Answer

$$1$$ gasoline-powered F-150$

Question 2

Which of the following best describes the shape of a typical production possibilities frontier (PPF) when resources are not equally suited for producing both goods?

Accepted Answer

A bowed-outward curve

Question 3

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 4

Which of the following statements about opportunity cost is correct?

Accepted Answer

Opportunity cost is the highest-valued alternative that must be given up to engage in an activity

Question 5

Suppose you can pick 20 pounds of apples or 20 pounds of cherries in a day, while your neighbor can pick 30 pounds of apples or 60 pounds of cherries. Who has the comparative advantage in picking apples?

Accepted Answer

You

Question 6

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 without trade

Question 7

Which of the following is NOT a factor of production?

Accepted Answer

Money

Question 8

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

Accepted Answer

Factors of production

Question 9

Which of the following best explains why opportunity costs are often increasing?

Accepted Answer

Some resources are better suited to one task than another

Question 10

Adam Smith’s concept of the 'invisible hand' refers to:

Accepted Answer

The self-interested actions of individuals leading to positive social outcomes

Question 11

Suppose Jack is much faster than Jill at both cooking and laundry, but Jack is relatively much faster at cooking. According to the principle of comparative advantage, who should specialize in which task?

Accepted Answer

Jack should specialize in cooking, Jill in laundry

Question 12

Which of the following is a requirement for a successful market system?

Accepted Answer

Protection of private property and enforcement of contracts

Question 13

If a country moves from a centrally planned economy to a free market system, what is the most likely long-term outcome based on historical evidence?

Accepted Answer

Higher living standards

Question 14

Which of the following best describes the role of entrepreneurs in the market system?

Accepted Answer

They bring together the factors of production to create goods and services

Question 15

A point inside the production possibilities frontier (PPF) represents:

Accepted Answer

An inefficient use of resources

Question 16

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

Accepted Answer

A supermarket selling groceries

Question 17

Suppose the opportunity cost of producing 1 pound of apples for you is 1 pound of cherries, and for your neighbor it is 2 pounds of cherries. Who should specialize in apples?

Accepted Answer

You

Question 18

Which of the following is a positive statement?

Accepted Answer

The PPF shows the maximum combinations of goods that can be produced

Question 19

If the government enforces property rights and contracts, what is the likely effect on the market system?

Accepted Answer

Markets will function more efficiently

Question 20

Which of the following best explains why hundreds of firms can contribute to making an iPad without knowing the final product?

Accepted Answer

The market system coordinates production through price signals and self-interest

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

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