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 100 gasoline-powered F-150s or 100 electric F-150 Lightnings per day. If Ford decides to produce 20 more electric F-150 Lightnings, how many gasoline-powered F-150s must it give up, and what is the opportunity cost per electric F-150 Lightning?

Accepted Answer

20 gasoline-powered F-150s; opportunity cost is $$\frac{20}{20} = 1$$ gasoline-powered F-150 per electric F-150 Lightning.

Question 3

A bowed-outward production possibilities frontier (PPF) illustrates which economic concept?

Accepted Answer

Increasing 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 lower opportunity cost, not higher productivity.

Question 6

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 have the comparative advantage in apples.

Question 7

Which of the following is NOT a factor of production?

Accepted Answer

Money

Question 8

In the circular-flow diagram, which of the following best describes the flow of goods and services?

Accepted Answer

From firms to households through the product market.

Question 9

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

Accepted Answer

Free markets allow price signals to coordinate the actions of households and firms.

Question 10

Suppose Jack can cook a meal in 1 hour or do laundry in 2 hours, while Jill can cook a meal in 2 hours or do laundry in 4 hours. Who should specialize in cooking, and why?

Accepted Answer

Jack, because he has a lower opportunity cost in cooking.

Question 11

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

Accepted Answer

A farmer’s market where vegetables are sold to consumers.

Question 12

What is the role of entrepreneurs in the market system?

Accepted Answer

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

Question 13

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

Accepted Answer

Protection of private property and enforcement of contracts.

Question 14

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

Accepted Answer

An increase in efficiency.

Question 15

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

Accepted Answer

The collective self-interested actions of individuals leading to desirable market outcomes.

Question 16

Suppose a country can produce either 500 units of food or 250 units of clothing. If it is currently producing 400 units of food and 100 units of clothing, what is the opportunity cost of producing 50 more units of clothing?

Accepted Answer

100 units of food

Question 17

Which of the following is a normative statement?

Accepted Answer

The government should increase the minimum wage.

Question 18

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

Accepted Answer

Both countries can consume beyond their individual PPFs.

Question 19

Which of the following best explains why the first hour spent studying for an exam has a lower opportunity cost than the last hour?

Accepted Answer

The value of alternative uses of time increases as more time is devoted to one activity.

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

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