( 1.) Comparative advantage is based on the economic concept of: A. marginal cos
ID: 1127735 • Letter: #
Question
( 1.) Comparative advantage is based on the economic concept of:
A. marginal cost.
B. opportunity cost.
C. nonsatiety
D. rationality.
( 2.) Akbar can write 5 pages or bake 1 pie in an hour. What is his opportunity cost of writing 1 page?
A. 1 pie
B. .2 pies
C. 5 pies
D. 2.5 pies
( 3.) A point inside the production possibilities frontier is said to be:
A. inefficient.
B. efficient.
C. unfeasible.
D. None of the above.
( 4.) The production possibilities frontier (PPF) shows us
A. all possible 2 good combinations in a simple economy.
B. opportunity cost.
C. the tradeoffs that a society makes.
D. all of the above.
( 5.) An economy is efficient if ________
A. it produces enough for everyone equally.
B. it wastes a lot of resources.
C. it gets all it can from available resources.
D. Both A and C.
Explanation / Answer
Answer 1 - Comparative advantage theory is based on opportunity cost. A country will specialize in the production of that good in which opportunity cost is low. The theory was founded by David Ricardo which is a modification on absolute advantage cost theory by Adam Smith.
Option B is the correct answer.
Answer 2 - Akbar can write 5 pages and bake 1 pie in an hour. The opportunity cost of 5 pages is 1 pie. Opportunity cost means, the amount we sacrifice in order to get one additional unit of other good. So the opportunity cost of 1 page is. (OC) =1/5
OC = 0.2 pies.
Option B is the correct answer.
Answer 3 - The point inside PPF curve is called inefficient. The economy has enough resource but they would not be fully utilize if economy works on a point which lies inside the production possibility curve. There will be unused resources.
Option A is the correct answer.
Answer 4 - The production possibility frontier (PPF) shows combination of two goods that a society can produce. It shows opportunity cost and trade off between societies also. Therefore all options are correct.
Option D is the correct answer.
Answer 5 - An economy is efficient if it does not waste any resources. The economy must work on it's potential level. Production point should be lying on PPF curve. The economy produces enough for everyone.
Option D is the correct answer.
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