Question 1

According to the concept of PPF and the price of trade, for trade to be beneficial to both trading partners, the price of the trade must be ______ their opportunity costs.

Accepted Answer

between

Question 2

If Tim can produce either 10 Hunch Punch or 10 Pizza Rolls, what is Tim's opportunity cost of producing 1 Pizza Roll?

Accepted Answer

$1$

Question 3

Based on the PPFs shown, what is the opportunity cost for Friend to produce 1 Hunch Punch?

Accepted Answer

$2$ Pizza Rolls

Question 4

Suppose Tim and Friend agree to trade at a rate of 1 Pizza Roll for 1.5 Hunch Punch. Which of the following statements is true?

Accepted Answer

Both Tim and Friend benefit because the price is between their opportunity costs.

Question 5

If the opportunity cost of 1 Pizza Roll for Tim is $1$ Hunch Punch and for Friend is $0.5$ Hunch Punch, what is a possible price of trade that would benefit both?

Accepted Answer

$0.75$ Hunch Punch per Pizza Roll

Question 6

Why was the trade set at 1.5 Hunch Punch per Pizza Roll in the example?

Accepted Answer

It falls between the opportunity costs of both parties.

Question 7

If Tim specializes in producing Pizza Rolls and Friend specializes in Hunch Punch, what economic principle is being demonstrated?

Accepted Answer

Comparative advantage

Question 8

Given the PPFs, if Tim and Friend do not trade, what is the maximum total number of Hunch Punch and Pizza Rolls they can produce together?

Accepted Answer

$15$ Pizza Rolls and $10$ Hunch Punch$

Question 9

If the price of trade is set at 2 Hunch Punch per Pizza Roll, who would be unwilling to trade?

Accepted Answer

Tim

Question 10

Which of the following best explains why the opportunity cost of 1 Hunch Punch for Friend is $0.5$ Pizza Rolls?

Accepted Answer

Friend can produce 10 Hunch Punch or 5 Pizza Rolls, so for every 1 Hunch Punch, she gives up $\frac{5}{10} = 0.5$ Pizza Rolls.

Question 11

If Tim and Friend trade at a price of 1 Pizza Roll for 1 Hunch Punch, which of the following is true?

Accepted Answer

Both are indifferent to trading because the price equals Tim's opportunity cost.

Question 12

Which of the following is NOT a reason why the price of trade might be set at a particular value?

Accepted Answer

Absolute advantage

Question 13

If the opportunity cost of 1 Pizza Roll for Tim is $1$ Hunch Punch and for Friend is $0.5$ Hunch Punch, what is the range of prices (in Hunch Punch per Pizza Roll) that would make both better off?

Accepted Answer

$0.5 < 	ext{Price} < 1$

Question 14

If Tim and Friend agree to trade 3 Pizza Rolls for 4 Hunch Punch, what is the price of 1 Pizza Roll in terms of Hunch Punch?

Accepted Answer

$\frac{4}{3}$ Hunch Punch

Question 15

Suppose the opportunity cost of 1 Pizza Roll for Tim is $1$ Hunch Punch and for Friend is $2$ Hunch Punch. If the price of trade is $1.5$ Hunch Punch per Pizza Roll, who benefits from the trade?

Accepted Answer

Both Tim and Friend

Production Possibility Frontier (PPF) and the Price of Trade

Study Guide - Practice Questions

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