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

Ford faces a trade-off at its Dearborn, Michigan plant when deciding to produce more electric vehicles (EVs). What is the opportunity cost of producing more EVs?

Accepted Answer

The number of gasoline-powered F-150s that must be forgone to produce additional EVs.

Question 3

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 one more electric F-150 Lightning?

Accepted Answer

$1$ gasoline-powered F-150$

Question 4

Which of the following statements about the production possibilities frontier (PPF) is correct?

Accepted Answer

Points inside the PPF are inefficient, and points outside the PPF are unattainable with current resources.

Question 5

If Ford moves from producing 60 gasoline-powered F-150s and 20 electric F-150 Lightnings to producing 40 gasoline-powered F-150s and 40 electric F-150 Lightnings, what is the opportunity cost of this change?

Accepted Answer

$20$ gasoline-powered F-150s$

Question 6

Why does the PPF typically bow outward (concave to the origin) rather than being a straight line?

Accepted Answer

Because resources are not equally well-suited to producing every good, leading to increasing opportunity costs.

Question 7

Suppose the economy experiences economic growth. How would this be represented on a PPF diagram?

Accepted Answer

The PPF would shift outward, allowing more of both goods to be produced.

Question 8

If a technological improvement occurs only in the production of automobiles, what happens to the PPF for automobiles and tanks?

Accepted Answer

The PPF pivots outward along the automobile axis, increasing the maximum number of automobiles that can be produced.

Question 9

You and your neighbor can each pick apples and cherries. You can pick 20 pounds of apples or 20 pounds of cherries in a week. Your neighbor can pick 30 pounds of apples or 60 pounds of cherries. Who has the absolute advantage in picking apples and cherries?

Accepted Answer

Your neighbor has the absolute advantage in both apples and cherries.

Question 10

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 week?

Accepted Answer

$2$ pounds of cherries$

Question 11

If you specialize in picking apples and your neighbor specializes in picking cherries, and you trade 10 pounds of apples for 15 pounds of cherries, what is the main benefit of this trade?

Accepted Answer

Both you and your neighbor can consume more apples and cherries than without trade.

Question 12

Which of the following best defines comparative advantage?

Accepted Answer

The ability to produce a good at a lower opportunity cost than competitors.

Question 13

Suppose Jack is much faster than Jill at both cooking and laundry, but Jack gives up less laundry per meal cooked than Jill does. According to comparative advantage, who should specialize in cooking?

Accepted Answer

Jack should specialize in cooking.

Question 14

If the opportunity cost of producing 1 pound of apples for you is $1$ pound of cherries, and for your neighbor it is $2$ pounds of cherries, who has the comparative advantage in apples?

Accepted Answer

You have the comparative advantage in apples.

Question 15

Which of the following statements is true regarding specialization and trade?

Accepted Answer

Individuals, firms, and countries are better off if they specialize in goods for which they have a comparative advantage and trade for others.

Question 16

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

Accepted Answer

$2$ units of corn$

Question 17

If a country is operating inside its PPF, what does this indicate?

Accepted Answer

The country is not using all its resources efficiently.

Question 18

Which of the following is a positive statement about the PPF?

Accepted Answer

The PPF shows the maximum attainable combinations of two goods with current resources and technology.

Question 19

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

Accepted Answer

The PPF is bowed outward (concave to the origin).

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

Study Guide - Practice Questions

Study Guide - Flashcards