Question 1

Which of the following statements best describes the production possibilities frontier (PPF)?

Accepted Answer

It is the boundary between combinations of goods and services that can be produced and those that cannot.

Question 2

If a point lies inside the PPF, what does this indicate about resource use?

Accepted Answer

Resources are either unemployed or misallocated.

Question 3

Suppose moving from point E to F on the PPF increases pizza production by 1 million and decreases cola production by 5 million cans. What is the opportunity cost of producing one more pizza?

Accepted Answer

$$5$$ million cans of cola

Question 4

Which principle explains why the marginal benefit of a good decreases as more of it is consumed?

Accepted Answer

Principle of decreasing marginal benefit

Question 5

At what point on the PPF is allocative efficiency achieved?

Accepted Answer

Where marginal cost equals marginal benefit

Question 6

Joe can produce 6 smoothies or 30 salads in an hour. What is Joe’s opportunity cost of producing 1 smoothie?

Accepted Answer

$$5$$ salads

Question 7

Liz can produce 30 smoothies or 30 salads in an hour. What is Liz’s opportunity cost of producing 1 salad?

Accepted Answer

$$1$$ smoothie

Question 8

If Joe specializes in salads and Liz specializes in smoothies, and they trade, what is the result?

Accepted Answer

Both Joe and Liz can consume outside their individual PPFs.

Question 9

Which of the following best describes comparative advantage?

Accepted Answer

The ability to perform an activity at a lower opportunity cost than others.

Question 10

If the opportunity cost of producing a pizza is 5 cans of cola, what is the opportunity cost of producing a can of cola?

Accepted Answer

$$1/5$$ pizza

Question 11

Why does the PPF bow outward?

Accepted Answer

Because resources are not equally productive in all activities.

Question 12

Which of the following is NOT a social institution that coordinates economic decisions?

Accepted Answer

Government subsidies

Question 13

What is the opportunity cost of economic growth?

Accepted Answer

Less current consumption

Question 14

If marginal benefit exceeds marginal cost at a given point on the PPF, what should the economy do?

Accepted Answer

Produce more of the good

Question 15

Which equation represents the opportunity cost of producing one more unit of good X in terms of good Y?

Accepted Answer

$$OC_{X} = \frac{\Delta Y}{\Delta X}$$

Question 16

Which of the following is true about points outside the PPF?

Accepted Answer

They are unattainable with current resources.

Question 17

If Liz and Joe both produce only salads, the economy produces 60 salads. If Liz specializes in smoothies and Joe in salads, what is the maximum number of smoothies the economy can produce before Joe must switch from salads to smoothies?

Accepted Answer

$$30$$ smoothies

Question 18

Which of the following best describes the role of money in economic coordination?

Accepted Answer

It is a commodity or token generally accepted as a means of payment.

Question 19

If the marginal cost curve passes through the middle point of each bar in a marginal cost diagram, what does this illustrate?

Accepted Answer

Increasing opportunity cost

Question 20

Which of the following is a result of specialization and trade between two individuals with different comparative advantages?

Accepted Answer

Both individuals can consume at points outside their individual PPFs.

Chapter 2: The Economic Problem – Production Possibilities, Efficiency, and Gains from Trade

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