Question 1

Refer to the first image. Which point on the Production Possibility Frontier (PPF) represents productive efficiency, and why?

Accepted Answer

Point A, because it is on the PPF and all resources are used efficiently.

Question 2

According to the Law of Increasing Opportunity Cost, as shown in the sixth image, what happens as you move down along the PPF curve?

Accepted Answer

The opportunity cost of producing additional units of a good increases.

Question 3

Suppose an economy is currently producing at a point inside its PPF. What does this indicate about the use of resources?

Accepted Answer

Some resources are either unemployed or misallocated.

Question 4

Which of the following best describes allocative efficiency?

Accepted Answer

Producing where marginal benefit equals marginal cost: $$MB = MC$$

Question 5

If the marginal benefit of pizza is greater than its marginal cost ($$MB \u003e MC$$), what should the economy do to return to allocative efficiency?

Accepted Answer

Increase the production of pizza and decrease the production of cola.

Question 6

Refer to the third image. What causes the PPF to shift outward, representing economic growth?

Accepted Answer

An increase in land, labor, capital, or technology.

Question 7

Which of the following is an example of capital accumulation as a source of economic growth?

Accepted Answer

Building new factories and increasing worker training.

Question 8

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

Accepted Answer

Liz, because her opportunity cost of producing a smoothie is lower.

Question 9

If Liz and Joe agree to trade at a price of 2 salads per smoothie, who benefits from this trade?

Accepted Answer

Both Liz and Joe, because the price is between their opportunity costs.

Question 10

Which of the following is NOT a necessary institution for decentralized economic coordination?

Accepted Answer

Central planning committee

Question 11

What does the circular flow diagram (fifth image) illustrate about the relationship between households and firms?

Accepted Answer

Households supply factors of production to firms and receive income in return.

Question 12

Suppose a country decides to invest more in capital goods rather than consumption goods. According to the fourth image, what is the likely long-term effect?

Accepted Answer

The PPF will shift outward, allowing more production in the future.

Question 13

Which formula correctly expresses the opportunity cost of producing one more unit of Good X?

Accepted Answer

$$Opportunity\ Cost = \frac{Give\ Up}{Gain}$$

Question 14

If a country has an absolute advantage in producing a good, what does this mean?

Accepted Answer

It can produce more of the good with the same resources than another country.

Question 15

Which of the following best describes the principle of diminishing marginal benefit?

Accepted Answer

The additional benefit from consuming one more unit of a good decreases as more is consumed.

Question 16

If a country is producing at a point outside its PPF, what does this indicate?

Accepted Answer

The country is producing at a level unattainable with current resources.

Question 17

Which of the following is true about the marginal cost (MC) curve?

Accepted Answer

It is also known as the minimum-supply-price curve.

Question 18

After Liz and Joe specialize and trade, both end up with more smoothies and salads than before. What economic principle does this illustrate?

Accepted Answer

Gains from trade due to comparative advantage.

Question 19

Which of the following is NOT a source of economic growth?

Accepted Answer

Increasing opportunity cost

Question 20

Markets coordinate economic decisions primarily through:

Accepted Answer

Price adjustments

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

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