Question 1

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

Accepted Answer

The PPF is the boundary between combinations of goods and services that can be produced and those that cannot, given available resources and technology.

Question 2

If an economy is operating at a point inside its PPF, what does this indicate?

Accepted Answer

Resources are either unemployed or misallocated.

Question 3

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

Accepted Answer

$\frac{1}{5}$ pizza per can of cola

Question 4

Why does the PPF typically bow outward?

Accepted Answer

Because resources are not equally productive in all activities, leading to increasing opportunity cost.

Question 5

What is the marginal cost of producing one more unit of a good?

Accepted Answer

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

Question 6

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

Accepted Answer

The marginal benefit decreases.

Question 7

Allocative efficiency is achieved at the point on the PPF where:

Accepted Answer

Marginal benefit equals marginal cost.

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 salads?

Accepted Answer

Joe, because his opportunity cost of producing a salad is lower.

Question 9

If Liz’s opportunity cost of producing a smoothie is 1 salad and Joe’s opportunity cost of producing a smoothie is 5 salads, who should specialize in smoothies?

Accepted Answer

Liz, because she has a lower opportunity cost.

Question 10

After specialization and trade, Liz produces only smoothies and Joe produces only salads. If they trade at a rate of 2 smoothies per salad, what is the opportunity cost of a salad in terms of smoothies?

Accepted Answer

$2$ smoothies per salad

Question 11

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

Accepted Answer

Government price controls

Question 12

Economic growth is best defined as:

Accepted Answer

An expansion of production possibilities and an increase in the standard of living.

Question 13

What is the opportunity cost of economic growth?

Accepted Answer

Less current consumption.

Question 14

Suppose a country invests more in capital goods today. What is the likely effect on its future PPF?

Accepted Answer

The future PPF will shift outward.

Question 15

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

Accepted Answer

Absolute advantage is determined by productivity, while comparative advantage is determined by opportunity cost.

Question 16

If a country is producing at a point on its PPF, which of the following is true?

Accepted Answer

It is producing efficiently.

Question 17

Which of the following best explains why specialization and trade can make resources more efficient?

Accepted Answer

Because each person produces the good for which they have the lowest opportunity cost.

Question 18

In a circular flow diagram, which direction do goods and services flow between households and firms?

Accepted Answer

From firms to households.

Question 19

If the marginal benefit of a pizza is greater than its marginal cost, what should the economy do to achieve allocative efficiency?

Accepted Answer

Produce more pizzas.

Question 20

Which of the following is a real-world example of capital accumulation?

Accepted Answer

A company invests in new machinery to increase production.

The Economic Problem: Production Possibilities, Opportunity Cost, and Efficiency

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