Q: Suppose moving from point C to D on a PPF for smartphones and bikes means producing 1 more smartphone and 3 fewer bikes. What is the opportunity cost of producing that additional smartphone?

The opportunity cost is 3 bikes per smartphone. $\frac{3\text{ bikes}}{1\text{ smartphone}}$

Question 1

Which of the following best describes the Production Possibilities Frontier (PPF)?

Accepted Answer

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

Question 2

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

Accepted Answer

Production is inefficient because more of one or both goods could be produced without sacrificing the other.

Question 3

Suppose moving from point C to D on a PPF for smartphones and bikes means producing 1 more smartphone and 3 fewer bikes. What is the opportunity cost of producing that additional smartphone?

Accepted Answer

The opportunity cost is 3 bikes per smartphone. $\frac{3	ext{ bikes}}{1	ext{ smartphone}}$

Question 4

Why is the PPF typically bowed outward rather than a straight line?

Accepted Answer

Because resources are not equally efficient in producing all goods, leading to increasing opportunity costs.

Question 5

Which of the following scenarios represents a 'free lunch' in the context of the PPF?

Accepted Answer

Moving from an inefficient point inside the PPF to a point on the PPF, increasing output without sacrificing any other good.

Question 6

If the opportunity cost of producing a smartphone is 5 bikes, what is the opportunity cost of producing a bike?

Accepted Answer

The opportunity cost is $\frac{1}{5}$ smartphone per bike.

Question 7

Economic growth can be illustrated on a PPF by:

Accepted Answer

An outward shift of the PPF, showing increased production possibilities.

Question 8

Which of the following will NOT cause the PPF to shift outward?

Accepted Answer

A decrease in the quantity of available resources.

Question 9

Liz can produce either 30 smoothies or 30 salads per hour. Joe can produce either 5 smoothies or 25 salads per 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 10

If Liz and Joe specialize according to their comparative advantage and trade, what is the result?

Accepted Answer

Both can consume at a point outside their individual PPFs.

Question 11

Suppose the opportunity cost of producing a smoothie for Liz is 1 salad, and for Joe it is 5 salads. What is the range of possible prices (in salads per smoothie) at which both will benefit from trade?

Accepted Answer

Between 1 and 5 salads per smoothie. $1 < 	ext{price} < 5$

Question 12

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

Accepted Answer

A person can have an absolute advantage in both goods but a comparative advantage in only one.

Question 13

If the United States produces most of its electricity using wind power and operates inside its PPF, what does this imply?

Accepted Answer

The U.S. is producing electricity inefficiently, and could increase output of other goods without reducing electricity production.

Question 14

Which of the following best explains why wind power is not 'free'?

Accepted Answer

Building wind turbines and transmission lines requires resources that could be used to produce other goods and services.

Question 15

If the opportunity cost of producing more smartphones increases as more are produced, what does this indicate about the shape of the PPF?

Accepted Answer

The PPF is bowed outward, reflecting increasing opportunity costs.

Question 16

Which of the following is a direct result of specialization and trade between two individuals or nations?

Accepted Answer

Both parties can consume more than they could produce alone.

Question 17

Suppose an economy invests more in capital goods this year. What is the likely effect on its PPF in the future?

Accepted Answer

The PPF will shift outward, allowing greater production of both consumption and capital goods.

Question 18

If the opportunity cost of producing a good is constant for two individuals, but increasing for society as a whole, what does this imply?

Accepted Answer

Society's PPF is bowed outward, even if individual PPFs are straight lines.

The Economic Problem: Production Possibilities, Opportunity Cost, and Gains from Trade

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