Question 1

Suppose Liz can produce either 30 smoothies or 30 salads per hour. What is Liz’s opportunity cost of producing 1 smoothie?

Accepted Answer

$$1$$ salad$

Question 2

Joe can produce 6 smoothies or 30 salads per hour. What is Joe’s opportunity cost of producing 1 smoothie?

Accepted Answer

$$5$$ salads$

Question 3

Which of the following statements best describes the difference between absolute advantage and comparative advantage?

Accepted Answer

Absolute advantage compares input requirements, while comparative advantage compares opportunity costs.

Question 4

If Liz and Joe each specialize according to their comparative advantage and trade, which good should Liz produce?

Accepted Answer

Smoothies

Question 5

Suppose the opportunity cost of 1 smoothie for Liz is $$1$$ salad, and for Joe it is $$5$$ salads. If they trade at a rate of $$1$$ smoothie for $$2$$ salads, who benefits from trade?

Accepted Answer

Both Liz and Joe

Question 6

Which point on a production possibilities frontier (PPF) represents productive efficiency?

Accepted Answer

Any point on the PPF

Question 7

Why is the typical PPF bowed outward?

Accepted Answer

Because opportunity cost increases as more of one good is produced

Question 8

A point inside the PPF is:

Accepted Answer

Feasible but not efficient

Question 9

If the United States can produce an aircraft in $$10,000$$ hours and a shirt in $$2$$ hours, while China can produce an aircraft in $$40,000$$ hours and a shirt in $$4$$ hours, which country should export aircraft?

Accepted Answer

United States

Question 10

Which of the following best explains the gains from trade?

Accepted Answer

Both parties can consume outside their individual PPFs by specializing and trading.

Question 11

Suppose a country is operating at a point inside its PPF. What does this imply?

Accepted Answer

The country is not using all its resources efficiently.

Question 12

If Liz and Joe both produce only salads, what is their combined maximum output per hour?

Accepted Answer

$$60$$ salads$

Question 13

Which of the following is NOT a reason for increasing opportunity cost as shown by a bowed-out PPF?

Accepted Answer

All resources are perfectly adaptable to producing any good.

Question 14

If the opportunity cost of producing 1 salad for Joe is $$0.2$$ smoothies, how many salads does Joe give up to produce 1 smoothie?

Accepted Answer

$$5$$ salads$

Question 15

Which principle is best illustrated by the PPF model?

Accepted Answer

Scarcity and opportunity cost.

Question 16

If Liz and Joe trade at a rate of $$1$$ smoothie for $$2$$ salads, which of the following is true?

Accepted Answer

Both Liz and Joe can benefit because the rate is between their opportunity costs.

Question 17

Which of the following is an example of allocative efficiency?

Accepted Answer

Producing at the point on the PPF that matches society’s preferences.

Question 18

If a country has the same productivity in all goods as another country, what is the likely gain from trade?

Accepted Answer

There will be no gains from trade.

Question 19

Which of the following best describes the opportunity cost of attending college for one year?

Accepted Answer

The total cash expenditure plus the value of your time.

Question 20

Suppose Frank can produce 8 oz of potato or 4 oz of meat in 8 hours, and Ruby can produce 16 oz of potato or 24 oz of meat in 8 hours. Who has the comparative advantage in meat?

Accepted Answer

Ruby

2. Production Possibilities, Opportunity Cost, and Gains from Trade

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