Question 1

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

Accepted Answer

The value of the next-best alternative that must be given up to engage in an activity.

Question 2

Suppose Ford can produce either 100 gasoline-powered F-150s or 100 electric F-150 Lightnings per day with its current resources. If Ford decides to produce 20 more electric F-150s, it must produce 20 fewer gasoline-powered F-150s. What is the opportunity cost of producing one additional electric F-150 Lightning?

Accepted Answer

$1$ gasoline-powered F-150$

Question 3

A production possibilities frontier (PPF) that is bowed outward (concave to the origin) illustrates which economic principle?

Accepted Answer

Increasing opportunity costs

Question 4

If a country is producing at a point inside its production possibilities frontier, what does this indicate?

Accepted Answer

The country is not using all its resources efficiently.

Question 5

Which of the following statements about comparative advantage is correct?

Accepted Answer

A country should specialize in producing goods for which it has the lowest opportunity cost.

Question 6

Suppose you can pick 20 pounds of apples or 40 pounds of cherries in a week, while your neighbor can pick 30 pounds of apples or 60 pounds of cherries. What is your opportunity cost of picking 1 pound of apples?

Accepted Answer

$2$ pounds of cherries$

Question 7

If two individuals specialize according to their comparative advantage and trade, what is the result?

Accepted Answer

Both individuals can consume more than they could without trade.

Question 8

Which of the following is NOT considered a factor of production?

Accepted Answer

Money

Question 9

In the circular-flow diagram, which of the following best describes the flow of goods and services?

Accepted Answer

From firms to households in the product market

Question 10

Which of the following best explains why markets with flexible prices are effective at allocating resources?

Accepted Answer

They enable the 'invisible hand' to coordinate individual decisions through price signals.

Question 11

Suppose a technological improvement occurs in the production of electric vehicles but not in gasoline vehicles. How would this affect the production possibilities frontier (PPF)?

Accepted Answer

The PPF would shift outward only along the electric vehicle axis.

Question 12

Which of the following is an example of a product market?

Accepted Answer

A market where computers are sold to consumers

Question 13

Which of the following is necessary for a successful market system according to the study materials?

Accepted Answer

Protection of private property rights

Question 14

If Jack can cook a meal in 1 hour or do laundry in 2 hours, while Jill can cook a meal in 2 hours or do laundry in 1 hour, who has the comparative advantage in cooking?

Accepted Answer

Jack, because his opportunity cost of cooking is lower

Question 15

Which of the following best describes economic growth on a PPF diagram?

Accepted Answer

An outward shift of the entire PPF

Question 16

Which of the following is an example of a trade-off faced by a firm?

Accepted Answer

Deciding whether to increase production of electric vehicles at the expense of gasoline vehicles

Question 17

Suppose a country can produce either 100 units of good X or 200 units of good Y. What is the opportunity cost of producing 1 unit of good X?

Accepted Answer

$2$ units of good Y$

Question 18

Which of the following is a key role of entrepreneurs in the market system?

Accepted Answer

Bringing together the factors of production to create new products

Question 19

Which of the following best explains why local knowledge is important in a market system?

Accepted Answer

It enables individuals to respond quickly to changing conditions, improving resource allocation.

Question 20

Which of the following is an example of a normative statement?

Accepted Answer

"The government should increase the minimum wage."

Trade-offs, Comparative Advantage, and the Market System: Chapter 2 Study Notes

Study Guide - Practice Questions

Study Guide - Flashcards