PRACTICE QUESTIONS ON THE FIRST THREE WEEKS

Note: These practice questions are provided to students for practice purposes only. These
questions are not a substitute for classes, lecture slides or assigned books.

There are 15 multiple choice questions below:

1.A bakery produces cupcakes. If the bakery's total cost increases by $15 when they
increase production from 100 to 110 cupcakes, and their revenue increases by $20 for the
additional cupcake, what is the marginal profit from producing the 110th cupcake?

A) $5
B) $15
C) $20
D) $35

2. Sarah has the option to either work a shift at the café and earn 1000 taka per hour or go
to a concert that costs 500 taka. If she decides to attend the concert, what is her
opportunity cost?

A) The 500 taka spent on the concert

B) The 1000 taka she could have earned by working
C) The 1500 taka total value of both the work and concert cost
D) The enjoyment she misses from working at the café

3. An economy can produce either cars or computers. With all resources devoted to cars,
the economy can produce 1,000 cars. Alternatively, with all resources devoted to
computers, it can produce 5,000 computers. The economy decides to split its resources to
produce both goods and ends up making 600 cars and 2,000 computers. What is the
opportunity cost of producing an additional 100 cars, in terms of computers?

A) 250 computers
B) 300 computers
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C) 500 computers
D) 1,000 computers

4. What is the main difference between a trade-off and an opportunity cost?

A) A trade-off is what you give up to get something, while opportunity cost is the most valuable
thing you give up.
B) A trade-off only involves money, while opportunity cost involves time.
C) Trade-offs are decisions made by businesses, and opportunity cost applies only to individuals.
D) Trade-offs and opportunity cost are the same thing.

5. Which of the following is a factor of production?

A) Trade
B) Production Possibilities Frontier
C) Labour and Capital
D) Marginal cost

6. What does the Production Possibility Frontier (PPF) illustrate?

A) The total output of a country’s economy over time.

B) The maximum possible output combinations of two goods or services that can be produced
given available resources and technology.

C) The market equilibrium price and quantity for a good.

D) The distribution of income among different sectors of the economy.

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7. Country A can produce 10 units of cars or 20 units of computers with its resources.
Country B can produce 15 units of cars or 30 units of computers with its resources.

Which of the following statements is true regarding absolute advantage?

A) Country A has an absolute advantage in producing cars.

B) Country B has an absolute advantage in producing computers.
C) Country A has an absolute advantage in producing both cars and computers.
D) Country B has an absolute advantage in producing both cars and computers.

8. Given the production capabilities of Country A and Country B, which country has a
comparative advantage in producing cars, and which country has a comparative advantage
in producing computers?

A) Country A has a comparative advantage in cars; Country B has a comparative advantage in

computers.
B) Country A has a comparative advantage in computers; Country B has a comparative
advantage in cars.
C) Both countries have the same comparative advantage in cars.
D) Both countries have the same comparative advantage in computers.

9. A bakery's total cost of producing cakes is as follows:

● Producing 1 cake costs $15

● Producing 2 cakes costs $28
● Producing 3 cakes costs $40
● Producing 4 cakes costs $63

What is the marginal cost of producing the fourth cake?

A) $15
B) $23
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C) $35
D) $25

10. What should be the terms of trade between producers based on comparative
advantage?

A) Absolute advantage

B) Comparative advantage

C) Marginal analysis

D) It should be between the opportunity cost of producing the good for both producers

11. Suppose, an agricultural firm used to produce a combination of different units of rice
and corn. But, because of a natural disaster, they are able to produce both rice and corn
less this year compared to previous years. What will happen to the production possibility
curve of this firm as a result of this?

A) It will pivot along the axis with rice

B) It will shift to the right

C) It will shift to the left

D) It will pivot along the axis with corn

12. How can trade make everyone better off?

A) By increasing the amount of goods and services that can be consumed

B) By increasing the variety of goods and services that can be consumed

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C) A and B

D) By not increasing the amount of goods and services that can be consumed

13. The total revenue (TR) from selling 2 units is $20, and the total revenue from selling 3
units is $24. What is the marginal revenue (MR) of producing the third unit?

A) $7

B) $5

C) $4

D) $6

14. If an economy produces only two goods, cars and computers, and the PPF is currently
curved outward, what does a movement along the PPF to produce more cars indicate about
the opportunity cost?

A) The opportunity cost of producing cars decreases as more cars are made.
B) The opportunity cost of producing cars remains constant.
C) The opportunity cost of producing cars increases as more cars are made.
D) There is no opportunity cost associated with producing more cars.

15. Country X can produce either 20 units of cloth or 10 units of food. Country Y can
produce either 30 units of cloth or 15 units of food. If the opportunity cost for Country X to
produce 1 unit of food is 2 units of cloth, and for Country Y, it is 2 units of cloth as well,
what would be a reasonable range for the terms of trade for food in terms of cloth?

A) 1 unit of food = 1 unit of cloth

B) 1 unit of food = 2 units of cloth
C) 1 unit of food = 3 units of cloth
D) 1 unit of food = 4 units of cloth
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Answer key:
1. A
2. B
3. C
4. A
5. C
6. B
7. B
8. A
9. B
10. D
11. D
12. C
13. C
14. C
15. B