Question 1

Which of the following best describes the concept of scarcity in economics?

Accepted Answer

Scarcity means that resources are limited and cannot satisfy all human wants.

Question 2

Suppose Tesla can produce either 100 Model S cars or 200 Model 3 cars with its current resources. What is the opportunity cost of producing one Model S car?

Accepted Answer

$$\frac{200}{100} = 2$$ Model 3 cars

Question 3

A point inside the production possibilities frontier (PPF) represents:

Accepted Answer

Inefficient use of resources

Question 4

If the PPF for two goods is bowed outward, what does this indicate about opportunity costs?

Accepted Answer

Opportunity costs are increasing as more of one good is produced.

Question 5

Which of the following statements about economic growth is correct?

Accepted Answer

Economic growth shifts the production possibilities frontier outward.

Question 6

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. Who has the absolute advantage in picking apples?

Accepted Answer

Your neighbor

Question 7

What is the basis for trade according to the theory of comparative advantage?

Accepted Answer

Comparative advantage, or the ability to produce a good at a lower opportunity cost than others.

Question 8

If Jack can cook a meal in 1 hour or do laundry in 2 hours, and Jill can cook a meal in 2 hours or do laundry in 3 hours, who has the comparative advantage in cooking?

Accepted Answer

Jack, because his opportunity cost of cooking is lower.

Question 9

Which of the following is NOT a factor of production?

Accepted Answer

Money

Question 10

In the circular-flow diagram, households:

Accepted Answer

Provide factors of production to firms and receive income in return.

Question 11

Which of the following best describes the role of entrepreneurs in the market system?

Accepted Answer

They bring together the factors of production to create goods and services.

Question 12

According to Adam Smith, what mechanism allows markets to satisfy consumer wants?

Accepted Answer

The 'invisible hand' of the market

Question 13

Which of the following is necessary for a successful market system?

Accepted Answer

Protection of private property and enforcement of contracts

Question 14

If a country moves from a centrally planned economy to a free market system, what is the most likely outcome?

Accepted Answer

An increase in living standards over time

Question 15

Suppose the opportunity cost of producing 1 tank is 4 automobiles. If the economy produces 2 more tanks, how many automobiles must be given up?

Accepted Answer

$$2 	imes 4 = 8$$ automobiles

Question 16

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

Accepted Answer

"The government should provide free healthcare for all citizens."

Question 17

A straight-line PPF implies:

Accepted Answer

Constant opportunity costs between the two goods.

Question 18

Which of the following best explains why opportunity costs increase as more of a good is produced?

Accepted Answer

Resources are not equally well-suited to producing all goods.

Question 19

If a country can produce more of both goods than another country, but has a higher opportunity cost for one good, what should it do according to comparative advantage?

Accepted Answer

Specialize in the good for which it has a lower opportunity cost and trade for the other.

Question 20

Which of the following is NOT a characteristic of a free market?

Accepted Answer

Government sets all prices and production levels.

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

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