Question 1

Which of the following best describes the Production Possibilities Frontier (PPF)?

Accepted Answer

The PPF is a boundary between attainable and unattainable combinations of goods and services, given available resources and technology.

Question 2

If an economy is producing at a point inside its PPF, what does this indicate?

Accepted Answer

Production is inefficient because more of one or both goods could be produced without sacrificing the other.

Question 3

Suppose moving from point C to point D on the PPF for smartphones and bikes results in an increase of 1 smartphone and a decrease of 3 bikes. What is the opportunity cost of producing 1 additional smartphone?

Accepted Answer

The opportunity cost is $$3$$ bikes per smartphone.

Question 4

Which of the following statements about opportunity cost is correct?

Accepted Answer

Opportunity cost is the value of the next best alternative forgone when a choice is made.

Question 5

Why is the PPF typically bowed outward rather than a straight line?

Accepted Answer

Because resources are not equally productive in all uses, leading to increasing opportunity costs as more of one good is produced.

Question 6

If the opportunity cost of producing a smartphone is $$x$$ bikes, what is the opportunity cost of producing a bike?

Accepted Answer

The opportunity cost is $$1/x$$ smartphones per bike.

Question 7

Which of the following will cause the PPF to shift outward?

Accepted Answer

An improvement in technology or an increase in the quantity or quality of resources.

Question 8

Liz can produce either 30 smoothies or 30 salads in an hour. Joe can produce either 6 smoothies or 30 salads in an hour. Who has the comparative advantage in producing salads?

Accepted Answer

Joe, because his opportunity cost of producing a salad is lower than Liz's.

Question 9

If Liz and Joe specialize according to their comparative advantage and then trade, what is the result?

Accepted Answer

Both Liz and Joe can consume at a point outside their individual PPFs.

Question 10

Suppose the opportunity cost of producing the first 30 smoothies is 1 salad per smoothie, but the 31st smoothie costs 5 salads. What economic concept does this illustrate?

Accepted Answer

Increasing opportunity cost.

Question 11

Which of the following is NOT a consequence of scarcity as illustrated by the PPF?

Accepted Answer

Unlimited production of all goods.

Question 12

If an economy moves from producing only consumption goods to producing more capital goods, what is the likely long-term effect?

Accepted Answer

The PPF will shift outward in the future, allowing for greater production possibilities.

Question 13

Which of the following best defines absolute advantage?

Accepted Answer

The ability to produce more of a good or service with fewer inputs than another person or nation.

Question 14

Which scenario below is an example of a 'free lunch' in the context of the PPF?

Accepted Answer

Moving from an inefficient point inside the PPF to a point on the PPF, increasing output without sacrificing any other good.

Question 15

Which formula correctly calculates the opportunity cost of producing one more unit of Good X in terms of Good Y?

Accepted Answer

Opportunity cost of Good X = $$\frac{	ext{Decrease in Good Y}}{	ext{Increase in Good X}}$$

Question 16

Which of the following is a real-world example of opportunity cost?

Accepted Answer

Building wind turbines requires resources that could have been used to produce other goods and services.

Question 17

If the United States produces most of its electricity using wind power and operates inside its PPF, what does this imply?

Accepted Answer

The U.S. is producing inefficiently and could increase output of one or both goods without sacrificing the other.

Question 18

Which of the following statements about specialization and trade is correct?

Accepted Answer

Specialization and trade allow individuals or nations to consume beyond their own PPF.

Question 19

If Liz's opportunity cost of producing a smoothie is 1 salad and Joe's is 5 salads, what is the range of possible prices (in salads per smoothie) at which both can benefit from trade?

Accepted Answer

Between $$1$$ and $$5$$ salads per smoothie.

Question 20

Which of the following best explains why almost every activity has increasing opportunity cost?

Accepted Answer

Resources are not perfectly adaptable to all uses, so reallocating them increases the cost of producing additional units.

The Economic Problem: Production Possibilities, Opportunity Cost, and Gains from Trade

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