Question 1

Which of the following best describes the concept of opportunity cost?

Accepted Answer

The best alternative that is forgone when a choice is made.

Question 2

According to the production possibility frontier (PPF), what does a point inside the curve represent?

Accepted Answer

Inefficient use of resources.

Question 3

If Colleen can produce 10 logs or 10 bushels of food in a day, and Bill can produce 4 logs or 8 bushels of food, who has the absolute advantage in producing logs?

Accepted Answer

Colleen, because she can produce more logs with the same resources.

Question 4

What does the law of increasing opportunity cost state?

Accepted Answer

Opportunity cost increases as more of a good is produced.

Question 5

Which equation represents the marginal rate of transformation (MRT) on a PPF?

Accepted Answer

$$ MRT = -\frac{\Delta Y}{\Delta X} $$

Question 6

In a command economy, who primarily decides what gets produced, how, and for whom?

Accepted Answer

A central government authority.

Question 7

If a country moves from point E to point F on its PPF, increasing capital goods from 550 to 800 and decreasing consumer goods from 1,300 to 1,100, what is the opportunity cost of this move?

Accepted Answer

200 consumer goods.

Question 8

Which of the following is NOT a factor of production?

Accepted Answer

Money.

Question 9

What is the main coordinating mechanism in a laissez-faire economy?

Accepted Answer

Price.

Question 10

If Bill specializes in food and Colleen specializes in wood, and they trade, what economic principle explains why both can be better off?

Accepted Answer

Comparative advantage.

Question 11

Which of the following shifts the PPF outward?

Accepted Answer

Technological improvement.

Question 12

What does consumer sovereignty mean in a market economy?

Accepted Answer

Consumers determine what is produced by their purchasing choices.

Question 13

Suppose the opportunity cost of producing 100 million bushels of corn increases from 50 to 100 million bushels of wheat as production shifts from point D to point A on the PPF. What does this illustrate?

Accepted Answer

Increasing opportunity cost.

Question 14

Which of the following best describes economic growth?

Accepted Answer

An outward shift of the PPF.

Question 15

In the context of the PPF, what does output efficiency mean?

Accepted Answer

Producing at the point on the PPF that matches consumer preferences.

Question 16

Which of the following is an example of investment in economic terms?

Accepted Answer

Building a new factory.

Question 17

If a country can produce more of both goods than another country, but has a lower opportunity cost in only one, what should it do according to the theory of comparative advantage?

Accepted Answer

Specialize in the good with the comparative advantage.

Question 18

Which of the following is NOT a basic question every economic system must answer?

Accepted Answer

How much profit is earned?

Question 19

In a mixed economy, how are the basic economic questions answered?

Accepted Answer

By a combination of market forces and government intervention.

Question 20

If a country devotes more resources to capital goods rather than consumer goods, what is the likely long-term effect?

Accepted Answer

Faster economic growth.

The Economic Problem: Scarcity, Choice, and Opportunity Cost

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