Question 1

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

Accepted Answer

The PPF is the boundary between attainable and unattainable combinations of goods and services, given available resources and technology.

Question 2

Suppose a country can produce either 10 million units of wheat or 5 million units of corn. If the country moves from producing 10 million units of wheat to 9 million units of wheat, and increases corn production from 0 to 1 million units, what is the opportunity cost of producing 1 million units of corn?

Accepted Answer

$$1$$ million units of wheat$

Question 3

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

Accepted Answer

Resources are either unemployed or misallocated.

Question 4

Which of the following best explains why the PPF is typically bowed outward?

Accepted Answer

Opportunity cost increases as more of one good is produced because resources are not equally productive in all activities.

Question 5

Marginal cost is defined as:

Accepted Answer

The opportunity cost of producing one more unit of a good.

Question 6

According to the principle of decreasing marginal benefit, as the quantity of a good consumed increases:

Accepted Answer

Marginal benefit decreases.

Question 7

Allocative efficiency is achieved when:

Accepted Answer

Marginal benefit equals marginal cost.

Question 8

Joe can produce 6 smoothies or 30 salads in one hour. Liz can produce 30 smoothies or 30 salads in one hour. Who has the comparative advantage in producing salads?

Accepted Answer

Joe, because his opportunity cost of producing a salad is lower than Liz's.

Question 9

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

Accepted Answer

Both Liz and Joe can consume at points outside their individual PPFs.

Question 10

Suppose 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

$$\frac{1}{5}$$ pizza

Question 11

Economic growth is most likely to occur as a result of:

Accepted Answer

Technological change and capital accumulation.

Question 12

What is the opportunity cost of economic growth?

Accepted Answer

Lower current consumption.

Question 13

Which of the following is NOT an economic institution that coordinates decisions in the economy?

Accepted Answer

Government subsidies

Question 14

A market is best defined as:

Accepted Answer

Any arrangement that enables buyers and sellers to get information and do business with each other.

Question 15

If the marginal benefit of a pizza is 3 cans of cola and the marginal cost is 4 cans of cola, what should the economy do to achieve allocative efficiency?

Accepted Answer

Produce fewer pizzas.

Question 16

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

Accepted Answer

Comparative advantage compares opportunity costs, while absolute advantage compares productivities.

Question 17

If a country invests more in capital goods today, what is the likely effect on its PPF in the future?

Accepted Answer

The PPF will shift outward.

Question 18

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

Accepted Answer

Money is any commodity or token that is generally acceptable as a means of payment.

Question 19

Suppose the marginal benefit curve for pizza intersects the marginal cost curve at 4 million pizzas. What does this quantity represent?

Accepted Answer

The allocatively efficient quantity of pizzas.

Question 20

In the circular flow model, which direction do goods and services flow between firms and households?

Accepted Answer

From firms to households.

chapter 2

Study Guide - Practice Questions

Study Guide - Flashcards