Question 1

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

Accepted Answer

The highest-valued alternative that must be given up to engage in an activity.

Question 2

Suppose Ford can produce either 80 gasoline-powered F-150s or 80 electric F-150 Lightnings per day, or any linear combination in between. What is the opportunity cost of producing 20 more electric F-150 Lightnings?

Accepted Answer

$$20$$ gasoline-powered F-150s$

Question 3

Why does the production possibilities frontier (PPF) typically bow outward rather than being a straight line?

Accepted Answer

Because some resources are better suited to producing one good than another, leading to increasing marginal opportunity costs.

Question 4

If an economy experiences technological improvement in the automobile industry but not in the tank industry, how will the PPF change?

Accepted Answer

The PPF will shift outward only along the automobile axis.

Question 5

Which of the following statements about points on, inside, and outside the PPF is correct?

Accepted Answer

Points on the PPF are efficient and attainable.

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 comparative advantage in picking apples?

Accepted Answer

You, because your opportunity cost of picking apples is lower.

Question 7

What is the opportunity cost for your neighbor to pick 1 pound of apples, given she can pick 30 pounds of apples or 60 pounds of cherries per day?

Accepted Answer

$$2$$ pounds of cherries$

Question 8

Which of the following best explains why both you and your neighbor can benefit from trade, even if your neighbor is better at picking both apples and cherries?

Accepted Answer

Because trade is based on comparative advantage.

Question 9

In the circular-flow diagram, what do households provide to firms?

Accepted Answer

Factors of production

Question 10

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

Accepted Answer

Money

Question 11

What role do entrepreneurs play in the market system?

Accepted Answer

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

Question 12

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

Accepted Answer

Protection of private property and enforcement of contracts

Question 13

According to Adam Smith, what mechanism allows individual self-interest to benefit society as a whole?

Accepted Answer

The invisible hand

Question 14

Suppose a country moves from a centrally planned economy to a free market system. What is the most likely long-term outcome?

Accepted Answer

Higher living standards due to more efficient allocation of resources

Question 15

If the opportunity cost of producing one more unit of a good increases as more of it is produced, what does this imply about the PPF?

Accepted Answer

The PPF is bowed outward.

Question 16

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

Accepted Answer

A supermarket where groceries are sold

Question 17

If Jack is much faster at cooking and only a little faster at laundry than Jill, who should specialize in what task according to comparative advantage?

Accepted Answer

Jack should specialize in cooking, Jill in laundry.

Question 18

Which of the following best describes a centrally planned economy?

Accepted Answer

An economy where the government makes all decisions about production and allocation.

Question 19

What is the main reason flexible prices are important in a market system?

Accepted Answer

They help signal the relative worth of goods and services to households and firms.

Question 20

Suppose you have 10 hours to study for two exams. The first hour spent on economics raises your grade more than the last hour. What does this imply about your PPF for exam grades?

Accepted Answer

It is bowed outward, reflecting increasing opportunity costs.

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

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