Question 1

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

Accepted Answer

Scarcity is a situation in which unlimited wants exceed the limited resources available to fulfill those wants.

Question 2

Suppose Tesla can produce either 800 Model 3 Sedans or 800 Cybertruck Pickups with its current resources. If Tesla decides to produce 200 more Cybertruck Pickups, it must produce 200 fewer Model 3 Sedans. What is the opportunity cost of producing 200 more Cybertruck Pickups?

Accepted Answer

$200$ Model 3 Sedans$

Question 3

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

Accepted Answer

The PPF is a positive tool that shows the maximum attainable combinations of two goods with available resources and technology.

Question 4

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

Accepted Answer

The country is not using all its resources efficiently.

Question 5

Which of the following best explains why the PPF is typically bowed outward?

Accepted Answer

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

Question 6

Suppose you can pick either 20 kg of apples or 20 kg of cherries in a week, while your neighbor can pick either 30 kg of apples or 60 kg 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 7

What is the opportunity cost for you of picking 1 kg of apples, given you can pick either 20 kg of apples or 20 kg of cherries in a week?

Accepted Answer

$1$ kg of cherries$

Question 8

If your neighbor can pick either 30 kg of apples or 60 kg of cherries in a week, what is her opportunity cost of picking 1 kg of cherries?

Accepted Answer

$0.5$ kg of apples$

Question 9

Which of the following statements is true regarding comparative advantage?

Accepted Answer

Comparative advantage is based on having the lowest opportunity cost in producing a good.

Question 10

Suppose you and your neighbor specialize according to comparative advantage and trade 10 kg of apples for 15 kg of cherries. After trade, you consume 10 kg of apples and 15 kg of cherries, while your neighbor consumes 10 kg of apples and 45 kg of cherries. What does this outcome demonstrate?

Accepted Answer

Both parties can consume more than they could without trade.

Question 11

Which of the following is NOT a factor of production?

Accepted Answer

Money

Question 12

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

Accepted Answer

From firms to households in product markets

Question 13

Which of the following is a key role of government in a market economy?

Accepted Answer

Protecting private property rights and enforcing contracts

Question 14

According to Adam Smith, what mechanism allows individuals pursuing their own self-interest to benefit society as a whole?

Accepted Answer

The invisible hand

Question 15

Which of the following scenarios best illustrates increasing marginal opportunity costs?

Accepted Answer

As more resources are devoted to producing cars instead of computers, the opportunity cost of producing additional cars increases.

Question 16

Which of the following would cause an outward shift of the PPF?

Accepted Answer

An improvement in technology

Question 17

Why is it important for a market system to have well-defined property rights?

Accepted Answer

Property rights provide incentives for individuals and firms to work, invest, and trade.

Question 18

Which of the following is a real-world example of a trade-off faced by governments during the COVID-19 pandemic?

Accepted Answer

Increasing health care spending meant less funding was available for other government-provided goods and services.

Question 19

Which of the following statements about free markets is supported by economic theory and historical evidence?

Accepted Answer

Countries with more free markets tend to have higher living standards than those with centrally planned economies.

Tradeoffs, Comparative Advantage, and the Market System: Study Notes

Study Guide - Practice Questions

Study Guide - Flashcards