Question 1

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

Accepted Answer

A curve showing the maximum attainable combinations of two goods that can be produced with available resources and technology.

Question 2

Suppose a country can produce either 100 units of wheat or 200 units of corn with its resources. What is the opportunity cost of producing one unit of wheat?

Accepted Answer

$$\frac{200}{100} = 2$$ units of corn

Question 3

If the PPF for an economy shifts outward, which of the following could be a cause?

Accepted Answer

An increase in the labor force

Question 4

Why do opportunity costs increase as more of one good is produced, according to the law of increasing marginal opportunity costs?

Accepted Answer

Because resources are not equally well suited to the production of all goods

Question 5

Country A can produce 40 tons of steel or 20 tons of wheat. Country B can produce 30 tons of steel or 30 tons of wheat. Who has the comparative advantage in wheat?

Accepted Answer

Country B, because its opportunity cost of wheat is lower

Question 6

Which of the following is NOT a factor that shifts the PPF outward?

Accepted Answer

A decrease in the labor force

Question 7

If a point lies inside the PPF, what does this indicate?

Accepted Answer

Resources are not being used efficiently

Question 8

Which of the following statements about trade is correct?

Accepted Answer

Trade allows both parties to consume outside their individual PPFs

Question 9

Adam Smith’s ‘invisible hand’ refers to:

Accepted Answer

The self-regulating nature of markets through individual pursuit of self-interest

Question 10

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

Accepted Answer

A labor market where workers are hired by firms

Question 11

Suppose technological change occurs only in the automobile industry. What happens to the PPF?

Accepted Answer

The PPF shifts outward more along the automobile axis than the other axis

Question 12

Which of the following best defines comparative advantage?

Accepted Answer

The ability to produce a good at a lower opportunity cost than another producer

Question 13

Which of the following is NOT a characteristic of private property rights?

Accepted Answer

The right to ignore the wishes of others without consequence

Question 14

A country can produce either 100 units of good X or 400 units of good Y. What is the opportunity cost of producing one unit of good Y?

Accepted Answer

$$\frac{100}{400} = 0.25$$ units of good X

Question 15

Which of the following is a direct result of specialization and trade?

Accepted Answer

An increase in total output and consumption possibilities

Question 16

Which of the following is necessary for a market system to function effectively?

Accepted Answer

Enforcement of contracts and property rights

Question 17

If a country has an absolute advantage in producing both goods, should it still trade?

Accepted Answer

Yes, because comparative advantage determines the gains from trade

Question 18

Which of the following best explains why market economies tend to have higher standards of living?

Accepted Answer

They make better use of knowledge through competition and decentralized decision-making

Question 19

Suppose you can pick 20 pounds of apples or 20 pounds of cherries in a day, 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

1 pound of cherries

Question 20

Which of the following is an example of economic growth?

Accepted Answer

An outward shift of the PPF due to technological advancement

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

Study Guide - Practice Questions

Study Guide - Flashcards