Question 1

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

Accepted Answer

Scarcity arises because wants always exceed what can be produced with available resources.

Question 2

Which of the following is NOT considered a factor of production?

Accepted Answer

Money

Question 3

Suppose a student has 6 hours to study for two exams: Economics and Mathematics. If the student spends 4 hours on Economics and 2 hours on Mathematics, what is the opportunity cost of spending an additional hour on Economics?

Accepted Answer

The grade improvement in Mathematics that is forgone by not spending that hour on Mathematics.

Question 4

Which of the following statements about the Production Possibilities Curve (PPC) is correct?

Accepted Answer

Points on the PPC represent full and efficient employment of resources.

Question 5

If an economy is operating at a point inside its PPC, what does this indicate?

Accepted Answer

The economy is experiencing unemployment or inefficiency.

Question 6

According to the law of increasing opportunity cost, as an economy produces more of one good, the opportunity cost of producing additional units of that good:

Accepted Answer

Increases because resources are not equally suited to all activities.

Question 7

Which of the following best illustrates a trade-off between present and future consumption?

Accepted Answer

Allocating more resources to the production of capital goods, thereby reducing current consumption to increase future production possibilities.

Question 8

Suppose Canada can produce either 50 million smartphones or 60 million tablets per year. If Canada is currently producing 40 million smartphones and 30 million tablets, what is the opportunity cost of increasing tablet production from 30 million to 40 million?

Accepted Answer

$$40 - 33 = 7$$ million smartphones (the reduction in smartphone production to increase tablet production by 10 million)

Question 9

Which of the following is an example of comparative advantage?

Accepted Answer

A country that can produce a good at a lower opportunity cost than another country.

Question 10

If a neurosurgeon can change her own car oil in 1 hour, but could earn $$1000 performing surgery in that hour, and a mechanic charges 100 $$for an oil change that takes 2 hours, what is the opportunity cost for the neurosurgeon to change her own oil?

Accepted Answer

$1000, the forgone income from not performing surgery.

Question 11

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

Accepted Answer

An increase in the quantity or quality of factors of production.

Question 12

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

Accepted Answer

Absolute advantage is about producing more with the same resources, while comparative advantage is about producing at a lower opportunity cost.

Question 13

If a country is producing at a point on its PPC, what must be true?

Accepted Answer

The country is using all its resources efficiently.

Question 14

Which of the following is an example of a capital good?

Accepted Answer

A factory used to produce cars.

Question 15

Suppose the opportunity cost of producing 1 unit of Good A in Canada is 2 units of Good B, and in the US it is 3 units of Good B. Which country has the comparative advantage in producing Good A?

Accepted Answer

Canada, because it gives up fewer units of Good B per unit of Good A.

Question 16

Which of the following best explains why the PPC is typically bowed outward (concave to the origin)?

Accepted Answer

The law of increasing opportunity cost: as more of one good is produced, increasingly more of the other good must be given up.

Question 17

If a country decides to produce more capital goods and fewer consumer goods today, what is the likely long-term effect?

Accepted Answer

The country will experience greater economic growth and be able to produce more of both goods in the future.

Question 18

Which of the following is an example of a real-world trade-off?

Accepted Answer

A government increases spending on healthcare, resulting in less funding available for education.

Question 19

Which of the following statements about opportunity cost is correct?

Accepted Answer

Opportunity cost is the highest-valued, next-best alternative that is forgone.

Scarcity, Trade-Offs, and Production Possibilities in Microeconomics

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