Question 1

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

Accepted Answer

The value of the next-best 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 combination in between. If Ford moves from producing 60 gasoline-powered F-150s and 20 electric Lightnings to producing 40 gasoline-powered F-150s and 40 electric Lightnings, what is the opportunity cost of producing the additional 20 electric Lightnings?

Accepted Answer

$20$ gasoline-powered F-150s$

Question 3

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

Accepted Answer

Increasing marginal opportunity costs.

Question 4

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

Accepted Answer

The PPF will rotate outward along the automobile axis, but remain unchanged along the tank axis.

Question 5

Which statement about comparative advantage is correct?

Accepted Answer

A country has a comparative advantage if it can produce a good at a lower opportunity cost than another country.

Question 6

You can pick 20 pounds of apples or 2 pounds of cherries in a week. Your neighbor can pick 30 pounds of apples or 60 pounds of cherries. What is your opportunity cost of picking 1 pound of apples?

Accepted Answer

$\frac{2}{20} = 0.1$ pounds of cherries$

Question 7

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

Accepted Answer

Jack should specialize in cooking, Jill in laundry.

Question 8

Which of the following is NOT considered a factor of production?

Accepted Answer

Money

Question 9

In the circular-flow diagram, which market do households sell factors of production to firms?

Accepted Answer

Factor market

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 allow prices to adjust and signal where resources are most valued.

Question 11

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

Accepted Answer

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

Question 12

Suppose you and your neighbor specialize and trade. You pick 20 pounds of apples, your neighbor picks 60 pounds of cherries. If you trade 10 pounds of apples for 15 pounds of cherries, what are your final consumption bundles?

Accepted Answer

You: 10 apples, 15 cherries; Neighbor: 10 apples, 45 cherries

Question 13

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 14

If the opportunity cost of producing apples is lower for you than for your neighbor, which statement is true?

Accepted Answer

You have a comparative advantage in apples.

Question 15

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

Accepted Answer

They bring together factors of production to create goods and services, often introducing new products.

Question 16

If a point lies below the production possibilities frontier (PPF), what does this indicate?

Accepted Answer

Resources are being used inefficiently.

Question 17

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

Accepted Answer

A market where households buy computers from firms.

Question 18

Suppose a country moves from point A to point B on its PPF, increasing production of both goods. What does this movement represent?

Accepted Answer

Economic growth.

Question 19

Which of the following is a key reason why local knowledge is important in market systems?

Accepted Answer

It helps individuals respond quickly to changing conditions, improving resource allocation.

Trade-offs, Comparative Advantage, and the Market System: Chapter 2 Study Notes

Study Guide - Practice Questions

Study Guide - Flashcards