Question 1

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

Accepted Answer

The PPF shows the maximum combinations of two goods that can be produced given available resources and technology.

Question 2

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

Accepted Answer

Resources are being used inefficiently.

Question 3

Suppose moving from point B to point C on the PPF for smartphones and bikes results in the production of 1 additional smartphone but 2 fewer bikes. What is the opportunity cost of producing 1 more smartphone in this case?

Accepted Answer

$$2$$ bikes$

Question 4

Why is the PPF typically bowed outward (concave to the origin)?

Accepted Answer

Because opportunity costs increase as more of one good is produced.

Question 5

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

Accepted Answer

$$\frac{1}{x}$$ smartphones$

Question 6

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

Accepted Answer

Moving from a point inside the PPF to a point on the PPF without reducing the output of any good.

Question 7

Economic growth can be illustrated on a PPF diagram by:

Accepted Answer

An outward shift of the PPF.

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 smoothies?

Accepted Answer

Liz

Question 9

If Liz’s opportunity cost of producing 1 smoothie is 1 salad, and Joe’s opportunity cost of producing 1 smoothie is 5 salads, who should specialize in smoothies?

Accepted Answer

Liz, because she has a lower opportunity cost.

Question 10

Which of the following statements about absolute and comparative advantage is correct?

Accepted Answer

A person with a comparative advantage in producing a good has a lower opportunity cost for that good.

Question 11

If Liz and Joe specialize according to their comparative advantages and trade, what happens to their consumption possibilities?

Accepted Answer

They can consume at a point outside their individual PPFs.

Question 12

Suppose the United States produces most of its electricity using wind power, but operates inside its PPF. What does this imply?

Accepted Answer

Production is inefficient due to underutilization of resources.

Question 13

Which of the following best explains why wind power is not 'free' from an economic perspective?

Accepted Answer

Building wind turbines and transmission lines requires resources that could be used for other goods and services.

Question 14

If the opportunity cost of producing the first smartphone is 1 bike, and the opportunity cost of producing the fifth smartphone is 5 bikes, what does this illustrate?

Accepted Answer

Increasing opportunity cost.

Question 15

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

Accepted Answer

Unlimited production of all goods.

Question 16

If an economy moves from a point inside the PPF to a point on the PPF, what happens to the production of goods?

Accepted Answer

Production of both goods increases without sacrificing either good.

Question 17

Suppose a country invests more in capital goods (like factories) this year. What is the likely long-term effect on its PPF?

Accepted Answer

The PPF will shift outward in the future.

Question 18

Which of the following best describes a tradeoff?

Accepted Answer

Giving up one thing to get something else.

Question 19

If Joe’s opportunity cost of producing 1 salad is $$\frac{1}{5}$$ smoothie, and Liz’s opportunity cost of producing 1 salad is 1 smoothie, who should specialize in salads?

Accepted Answer

Joe

Production Possibilities, Opportunity Cost, and Gains from Trade: Microeconomics Study Notes

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