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 with its current resources. If Ford decides to produce 20 more electric F-150s, it must produce 20 fewer gasoline-powered F-150s. What is the opportunity cost of producing 20 more electric F-150s?

Accepted Answer

20 gasoline-powered F-150s

Question 3

Which of the following points on a production possibilities frontier (PPF) represents an inefficient use of resources?

Accepted Answer

A point inside the PPF

Question 4

Why do opportunity costs typically increase as more of a good is produced?

Accepted Answer

Because some resources are better suited to producing one good than another.

Question 5

If an economy experiences technological improvement in the automobile industry but not in the tank industry, how will the PPF shift?

Accepted Answer

The PPF will shift outward only along the automobile axis.

Question 6

Which of the following statements about absolute and comparative advantage is correct?

Accepted Answer

Comparative advantage, not absolute advantage, is the basis for trade.

Question 7

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 8

If Jack is much faster at cooking than Jill, but only a little faster at laundry, who should specialize in cooking according to the principle of comparative advantage?

Accepted Answer

Jack

Question 9

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

Accepted Answer

Money

Question 10

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

Accepted Answer

Factors of production

Question 11

Which of the following best describes a free market?

Accepted Answer

A market with few government restrictions on production and employment of resources.

Question 12

According to Adam Smith, what mechanism allows individual self-interest to benefit society as a whole?

Accepted Answer

The invisible hand

Question 13

Suppose many consumers switch from buying gasoline-powered cars to electric cars. According to the market mechanism, what will likely happen?

Accepted Answer

Firms will produce more electric cars due to higher profitability.

Question 14

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

Accepted Answer

Protection of private property rights

Question 15

If a country shifts its PPF outward, what does this represent?

Accepted Answer

Economic growth

Question 16

Which of the following equations correctly represents the opportunity cost of producing good X in terms of good Y?

Accepted Answer

$$Opportunity\ Cost\ of\ X = \frac{Loss\ of\ Y}{Gain\ of\ X}$$

Question 17

A firm is considering reallocating resources from producing product A to product B. If the marginal opportunity cost of producing B increases as more B is produced, what does this imply about the firm's resources?

Accepted Answer

Some resources are better suited for producing A than B.

Question 18

Which of the following best explains why both parties can benefit from trade, even if one party has an absolute advantage in both goods?

Accepted Answer

Each party specializes in the good for which they have a lower opportunity cost.

Question 19

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

Accepted Answer

A supermarket where groceries are sold to consumers.

Question 20

What role do entrepreneurs play in the market system?

Accepted Answer

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

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

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