Question 1

Suppose a country can produce either 80 SUVs or 160 sedans using all its resources. What is the opportunity cost of producing one more sedan, and how is it calculated?

Accepted Answer

The opportunity cost is $$\frac{1}{2}$$ SUV, calculated as $$\frac{80}{160}.$$

Question 2

If a country's production possibility frontier (PPF) is concave to the origin, what does this imply about opportunity costs?

Accepted Answer

Opportunity costs increase as more of one good is produced.

Question 3

Which of the following statements best describes absolute advantage?

Accepted Answer

A producer can produce more of all goods and services using the same amount of inputs.

Question 4

Country A can produce 100 tanks or 200 cars. Country B can produce 80 tanks or 160 cars. Which country has the absolute advantage in producing cars?

Accepted Answer

Country A, because it can produce more cars with the same resources.

Question 5

If a country discovers a new technology that increases its production of both goods, what happens to its PPF?

Accepted Answer

The PPF shifts outward, indicating economic growth.

Question 6

Which of the following is true about points located above the PPF line on a graph?

Accepted Answer

They are unattainable given current resources and technology.

Question 7

A country specializes in producing sedans because it has a lower opportunity cost for sedans than for SUVs. This is an example of:

Accepted Answer

Comparative advantage.

Question 8

If the opportunity cost of producing one more tank increases as more tanks are produced, what does this indicate about the PPF?

Accepted Answer

The PPF is concave to the origin.

Question 9

Which of the following best explains why trade allows countries to consume above their PPF?

Accepted Answer

Trade enables countries to specialize in goods where they have a comparative advantage and exchange for other goods.

Question 10

Suppose the opportunity cost of producing one more SUV is 2 sedans. What is the opportunity cost of producing one more sedan?

Accepted Answer

0.5 SUV

Question 11

If a country is producing at a point inside its PPF, what does this indicate?

Accepted Answer

Resources are not being used efficiently.

Question 12

Which of the following is NOT a source of economic growth that can shift the PPF outward?

Accepted Answer

A decrease in available resources.

Question 13

If the slope of the PPF is $$-2$$, what is the opportunity cost of the good on the x-axis?

Accepted Answer

2 units of the good on the y-axis.

Question 14

Which of the following statements is true regarding comparative advantage?

Accepted Answer

No producer can have a comparative advantage in both goods.

Question 15

A country can produce either 50 tanks or 100 cars. If it is currently producing 25 tanks and 50 cars, what can be said about its production point?

Accepted Answer

It is on the PPF and is efficient.

Question 16

Which of the following best describes the 'invisible hand' in the context of markets?

Accepted Answer

It is the self-interest of buyers and sellers that drives market outcomes.

Question 17

If the opportunity cost of producing one more car increases as more cars are produced, which economic principle does this illustrate?

Accepted Answer

The law of increasing opportunity cost.

Question 18

Which of the following is the mechanism that coordinates buyers and sellers in a market system?

Accepted Answer

The price.

Question 19

If a country can only consume what it produces, where must it be operating relative to its PPF?

Accepted Answer

On or inside its PPF.

Question 20

Suppose two countries, Alpha and Beta, both produce wheat and steel. Alpha has a lower opportunity cost for wheat, while Beta has a lower opportunity cost for steel. According to the theory of comparative advantage, what should each country do?

Accepted Answer

Alpha should specialize in wheat and Beta should specialize in steel.

Trade-offs, Comparative Advantage, and the Market System

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