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1. A country produces computers and rice. If resources are fully employed and there is technological progress only in
the production of rice, the opportunity costs of producing computers and rice will change in which of the following
ways?

Opportunity Cost of Computers Opportunity Cost of Rice

(A)
Increase Increase

Opportunity Cost of Computers Opportunity Cost of Rice

(B)
Increase Decrease

Opportunity Cost of Computers Opportunity Cost of Rice

(C)
No change Decrease

Opportunity Cost of Computers Opportunity Cost of Rice

(D)
Decrease Increase

Opportunity Cost of Computers Opportunity Cost of Rice

(E)
Decrease Decrease

2. Cindy and Martin both sew t-shirts in a small factory. Using the same resources, Martin can sew twelve t-shirts and
Cindy can sew nine t-shirts in one day. Which of the following can be concluded from the given information?
(A) Martin has a higher opportunity cost of sewing t-shirts than Cindy does.
(B) Cindy has a comparative advantage in sewing t-shirts.
(C) Martin has a comparative advantage in sewing t-shirts.
(D) Martin has an absolute advantage in sewing t-shirts.
(E) Cindy has an absolute advantage in sewing t-shirts.

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3. Both Amy and Brad produce and consume apple pie and ice cream. In one hour, Brad makes five apple pies or ten
gallons of ice cream while Amy makes fifteen apple pies or fifteen gallons of ice cream. Based on the above
information, one can correctly conclude that
(A) Brad has an absolute advantage in making ice cream and will sell ice cream to Amy
(B) Brad has a comparative advantage in making ice cream and will sell ice cream to Amy
(C) Brad does not have a comparative advantage in making either good and will not trade with Amy
(D) Brad has an absolute advantage in making apple pies but a comparative advantage in making ice cream
(E) Brad’s opportunity cost of making ice cream is higher than Amy’s

4.

The table above shows the amount of labor required to produce a unit of corn and a unit of shoes in Brazil and
Spain. If both countries have equal numbers of workers, what pattern of international trade between Brazil and
Spain is most likely to emerge?
(A) Brazil will export both corn and shoes.
(B) Spain will export both corn and shoes.
(C) No mutually beneficial trade can occur.
(D) Brazil will export corn and import shoes.
(E) Brazil will import corn and export shoes.

5. The table provided shows the number of labor hours required to produce a cell phone or a unit of
lumber in Estonia and in Finland.

Cell Phone

Unit of Lumber

Estonia hours
hours

Finland hours
hours

Based on the information in the table, which of the following is true?

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(A) Estonia has a comparative advantage in producing lumber.

(B) Finland has a comparative advantage in producing cell phones.
(C) Finland has an absolute advantage in producing lumber.
(D) Estonia has both the absolute and comparative advantages in producing lumber.
(E) Neither country has a comparative advantage in producing cell phones.

6. A professor hires two aides, assigning them the tasks of reading student papers and of typing lecture notes on a
computer. One of the aides, Ben, can read 1 page of a student paper per minute or type 50 words of lecture notes per
minute, and the other aide, Ann, can read 3 pages of a student paper per minute or type 60 words of lecture notes
per minute.

Which of the following statements is true?

Ann has a comparative advantage in reading student papers, and Ben has a comparative advantage in typing
(A)
lecture notes.
Ann has an absolute advantage in reading student papers, and Ben has an absolute advantage in typing
(B)
lecture notes.
Ben has a comparative advantage in reading student papers, and Ann has a comparative advantage in typing
(C)
lecture notes.
(D) Ben has a comparative advantage in both reading student papers and typing lecture notes.
(E) Ben has an absolute advantage in both reading student papers and typing lecture notes.

7. A linear production possibilities curve indicates which of the following?

(A) Constant opportunity costs
(B) Decreasing opportunity costs
(C) Increasing opportunity costs
(D) Diminishing marginal returns
(E) Labor-intensive production

8. A farmer in Country A can harvest 20 bushels of wheat or 10 bushels of corn in a day, while a farmer in Country B
can harvest 8 bushels of wheat or 8 bushels of corn in a day. If Country A and Country B specialize and trade,
Country A will
(A) export wheat and import corn
(B) export corn and import wheat
(C) export both wheat and corn
(D) import both wheat and corn
(E) benefit more from trade than will Country B

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9.
Country Opportunity Cost of 1 Ton of Apples Opportunity Cost of 1 Ton of Oranges
X 1 ton of oranges 1 ton of apples
Y 2 tons of oranges 0.5 ton of apples

The table above shows the opportunity costs of producing apples and oranges in Countries X and Y. Which of the
following can be concluded based on the data given in the table?
(A) Country Y has an absolute advantage in producing both goods.
(B) Country Y has a comparative advantage in producing both goods.
(C) Country X has an absolute advantage in producing both goods.
(D) Country X has a comparative advantage in producing oranges.
(E) Country X has a comparative advantage in producing apples.

10.

According to the information in the table above, which of the following statements is true if both countries have the
same number of workers?
(A) Country A has both an absolute and a comparative advantage in manufactured goods.
(B) Country A has an absolute advantage in manufactured goods but a comparative advantage in service goods.
(C) Country B has a comparative advantage in service goods but no absolute advantage in either good.
(D) Country A has an absolute advantage in service goods but a comparative advantage in manufactured goods.
Country B has an absolute advantage in manufactured goods, but without more information, it is not possible
(E)
to tell in which product it has a comparative advantage.

11. Dana and Robin produce smoothies and pizza. In one hour Dana can make 20 smoothies or 10 pizzas. In one hour
Robin can make 18 smoothies or 6 pizzas. Which of the following statements is true?
(A) Robin has an absolute advantage in making smoothies and a comparative advantage in making pizzas.
(B) Robin has both an absolute advantage and a comparative advantage in making pizzas.
(C) Dana has a comparative advantage in making both smoothies and pizzas.
Dana has a comparative advantage in making pizzas, and Robin has a comparative advantage in making
(D)
smoothies.
Dana has a comparative advantage in making smoothies, and Robin has a comparative advantage in making
(E)
pizzas.

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12.

Of the feasible and efficient points on the production possibilities curve above, producing at which point
will lead to the most economic growth in the future?
(A) Point M
(B) Point N
(C) Point R
(D) Point J
(E) Point S

13. Where on a graph of a production possibilities curve would a point showing that an economy is using its resources
efficiently be located?
(A) On the production possibilities curve
(B) Inside the production possibilities curve
(C) Beyond the production possibilities curve
(D) On the -axis and below the production possibilities curve
(E) On the -axis and below the production possibilities curve

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14.

The diagram above shows an economy's current production possibilities curve for capital goods and consumer
goods. If society chooses point B over point A, society is choosing
(A) more future consumption in exchange for less current consumption
(B) more current capital goods in exchange for less future consumption
(C) more future and current consumption
(D) less future consumption in exchange for more current consumption
(E) less current capital goods in exchange for greater future consumption

15. The chart below shows the number of resource units the countries Gamma and Omega must use to produce one unit
of food or one unit of clothing.

Which of the following statements is true according to the chart above?

Trade should take place, with Gamma specializing in clothing production and Omega specializing in food
(A)
production.
Trade should take place, with Gamma specializing in food production and Omega specializing in clothing
(B)
production.
Each country should devote half of its resources to food production and half to clothing production and not
(C)
trade.
Since Omega can produce both food and clothing using fewer resources than Gamma, it cannot benefit from
(D)
trade with Gamma
Since Gamma can produce both food and clothing using fewer resources than Omega, it cannot benefit trade
(E)
with Omega.

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16.

The graph above shows an economy's production possibilities frontier for the production of two goods, X and Y.
Assume that the economy is currently at point B. The opportunity cost of moving from point B to point C is
(A) AH units of good Y
(B) HG units of good Y
(C) OG units of good Y
(D) EF units of good X
(E) OF units good X

17. Improvements in technology for producing all goods must result in

(A) an inward shift in the production possibilities curve
(B) an outward shift in the production possibilities curve
(C) a flatter production possibilities curve
(D) a steeper production possibilities curve
(E) greater unemployment of labor

18. Which of the following statements regarding specialization and trade is true?
With specialization and trade, a country’s production possibilities curve shifts out, showing an increase in
(A)
productive capacity.
With specialization and trade, a country will produce a combination of goods beyond its production
(B)
possibilities curve.
To gain from trade, countries specialize in producing goods and services in which they have an absolute
(C)
advantage.
(D) With specialization and trade, a country can consume beyond its production possibilities curve.
A country must have both the comparative and the absolute advantage in a product to specialize and gain
(E)
from trade.

19. An outward shift in the production possibilities curve of an economy can be caused be an increase in

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(A) unemployment
(B) the labor force
(C) inflation
(D) output
(E) demand

20. Which of the following explains why a production possibilities curve is often represented as concave (bowed out)
from the origin?
(A) The law of demand
(B) The law of supply
(C) Constant returns to scale
(D) Decreasing opportunity cost
(E) Increasing opportunity cost

21. Assume both Italy and Greece produce only two goods: wine and olive oil. If Italy holds a comparative advantage in
the production of wine, then which of the following statements is NOT true?
(A) Italy must hold an absolute advantage in the production of wine.
(B) Greece holds a comparative advantage in the production of olive oil.
(C) Italy's opportunity cost of producing one additional unit of wine is lower than Greece's.
(D) Greece's opportunity cost of producing one additional unit of olive oil is lower than Italy's.
(E) If trade is open between them, these countries have an incentive to trade.

22. Using the same amount of time and resources, Jack can assemble either 10 bikes or 5 computers, whereas Sam can
assemble either 5 bikes or 5 computers. Based on the data, which of the following statements is correct?
(A) Sam has an absolute advantage in assembling bikes.
(B) Sam has an absolute advantage in assembling computers.
(C) Sam has a comparative advantage in assembling bikes.
(D) Jack has a comparative advantage in assembling bikes.
(E) Jack has a comparative advantage in assembling both bikes and computers.

23. The table below shows the number of hours it takes for Kim to install a computer or to paint a garage and for Maria
to install a computer or to paint a garage.

If tasks are assigned according to comparative advantage, which of the following is true?

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(A) Kim should perform both tasks.

(B) Maria should perform both tasks.
(C) Kim should install computers and Maria should paint garages.
(D) Kim should paint garages and Maria should install computers.
(E) Kim and Maria should both install computers.

24. Assume that an economy produces televisions and shoes. Which of the following would cause the production
possibilities curve for this economy to shift outward?
(A) An increase in the labor force
(B) An increase in the prices of both goods
(C) An increase in the prices of resources used to produce both goods
(D) A decrease in the demand for shoes
(E) A change in consumers’ tastes in favor of televisions

25. An economy produces two goods: X and Y. Its production possibilities curve is linear with the intercept on the Y
axis at 1,000 units and the intercept on the X axis at 100 units. Which of the following statements is correct?
There is an increasing opportunity cost of producing good X, beginning with 1 unit of X costing 0.1 unit of
(A)
Y.
There is an increasing opportunity cost of producing good Y but not of producing good X, which has a
(B)
constant opportunity cost.
(C) There is a constant opportunity cost with each unit of good X costing 10 units of good Y.
(D) There is a constant opportunity cost with 10 units of good X costing 1 unit of good Y.
With a linear production possibilities curve, total production of goods X and Y will be the same at each point
(E)
on the curve.

26.
Good X (units) Good Y (units)
0 100
20 95
40 85
60 65
80 35
100 0

The table above shows the maximum possible output combinations of good X and good Y that Microland can
produce by using all of its available resources and technology. As the production of good X increases, what happens
to the opportunity cost of producing good X?

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(A) It decreases, because the production of good Y decreases by greater amounts.

(B) It decreases, because the production of good Y increases by smaller amounts.
(C) It remains constant, because the production of good X increases by the same amount.
(D) It increases, because the production of good Y decreases by greater amounts.
(E) It increases, because the production of good Y increases by smaller amounts.

27. Movement along a production possibilities curve shows which of the following?
(A) The trade-offs society faces
(B) The total amount of available resources
(C) The combination of inputs required for a given output
(D) The relationship between the price of an input and the quantity demanded
(E) The decrease in efficiency

28.

According to the data above, if Mr. X and Ms. Y have the opportunity to trade, which of the following will be
mutually beneficial?
(A) Ms. Y sells shoes to and buys bread from Mr. X.
(B) Ms. Y sells bread to and buys shoes from Mr. X.
(C) Ms. Y sells both bread and shoes to Mr. X.
(D) Ms. Y buys both bread and shoes from Mr. X.
(E) Ms. Y and Mr. X do not trade with each other.

29. A production possibilities curve can shift inward if there is

(A) an increase in productivity
(B) an increase in unemployment
(C) an increase in the price of raw materials
(D) a misallocation of resources
(E) a natural disaster

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30.

Based on the production possibilities curve for books and pencils shown above, what is the opportunity cost of
producing a book?
(A) 30 pencils
(B) 10 pencils
(C) 3 pencils
(D) 1/3 of a pencil
(E) 1/10 of a pencil

31.
Combination

Houses

Grain (in bushels)

The table above shows six possible combinations of houses and grain that a country can produce in a year using all
currently available resources and technology. The opportunity cost of changing production from combination to
combination is
(A) house
(B) houses
(C) bushels of grain
(D) bushels of grain
(E) bushels of grain

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32. Two alternative production possibility frontiers for apples and wheat are shown in the figures below.

As more wheat is produced, how will the opportunity cost of producing wheat, as represented in Figures 1 and 2, be
affected?

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Figure 1 Figure 2
(A)
Decrease Increase

Figure 1 Figure 2
(B)
Increase Decrease

Figure 1 Figure 2
(C)
No change Increase

Figure 1 Figure 2
(D)
No change Decrease

Figure 1 Figure 2

(E)
Increase No change

33. The table below represents points on an economy's current production possibilities curve.

The opportunity cost of increasing the production of good Y from 0 to 200 is

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(A) 1,000 units of X

(B) 980 units of X
(C) 200 units of X
(D) 20 units of X
(E) 5 units of X

34. An outward shift of a production possibilities curve can be caused by

(A) planting a more profitable farm crop
(B) improving technology
(C) using idle resources
(D) changing consumer preferences
(E) increasing the minimum wage

The table below shows the total labor hours required to produce a unit of gold and the total labor hours required to
produce a unit of sugar in Portugal and Spain, respectively.

35. Which country has an absolute advantage in sugar production?

Neither Spain nor Portugal, because both require fewer labor hours to produce a unit of gold than to produce
(A)
a unit of sugar.
(B) Spain, because the opportunity cost of sugar in terms of gold is lower.
(C) Spain, because it requires fewer total labor hours than Portugal to produce a unit of sugar.
(D) Portugal, because it requires more total labor hours than Spain to produce a unit of sugar.
(E) Portugal, because it takes only a quarter of an hour to produce a unit of sugar.

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36.

According to the graph above, if a country is currently producing at point X, the opportunity cost of producing
another consumer good is
(A) 20 capital goods
(B) more than 20 capital goods
(C) fewer than 20 capital goods
(D) 20 consumer goods
(E) fewer than 20 consumer goods

Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly labeled diagram must
have all axes and curves clearly labeled and must show directional changes. If the question prompts you to “Calculate,”
you must show how you arrived at your final answer.

Assume both Atlantis and Zanadu produce helmets and baseballs. Using equal amounts of resources, Atlantis can produce
100 helmets or 200 baseballs, whereas Zanadu can produce 100 helmets or 400 baseballs.

(a) Assume both Atlantis and Zanadu experience constant opportunity costs in producing helmets and baseballs. Draw a
correctly labeled graph illustrating the production possibilities curves for Atlantis and Zanadu, showing helmets
on the horizontal axis and baseballs on the vertical axis. Plot the numerical values provided above on your graph.

(b) Calculate the opportunity cost of one helmet for Atlantis. Show your work.

(c) Which country has an absolute advantage in the production of baseballs?

(d) Which country has a comparative advantage in the production of baseballs? Explain.

(e) If Atlantis and Zanadu specialize based on comparative advantage and trade, would they be able to gain from trade if
the terms of trade are 1 helmet for 3 baseballs? Explain.

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37. Respond to all parts of the question.

Please respond on separate paper, following directions from your teacher.

38.

The diagram above shows the production possibilities curve for Country Y. Which of the following statements is
true?
(A) If Country Y is producing at point C, it is using all its resources efficiently.
(B) The opportunity cost of producing more machines is constant.
(C) Producing at point C is the most preferable, because butter is a nondurable good.
(D) Country Y cannot produce at point E.
(E) The economy is not producing at its potential, since it is not producing at point D.

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Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly labeled diagram must
have all axes and curves clearly labeled and must show directional changes. If the question prompts you to “Calculate,”
you must show how you arrived at your final answer.

The data provided below describe an ice-cream store’s daily production possibilities for milkshakes and sundaes.

Milkshakes 0 20 40 60 80 100 120

Sundaes 210 200 180 150 110 60 0

(a) Draw a correctly labeled graph of the store’s production possibilities curve with milkshakes on the horizontal
axis and sundaes on the vertical axis and label the endpoints using the numbers provided above.

(b) Is the opportunity cost of producing milkshakes increasing, decreasing, or constant? Explain using numbers in the
table.

(c) The store is currently producing 80 milkshakes and 110 sundaes. Calculate the opportunity cost of increasing
milkshake production from 80 to 100 milkshakes. Show your work.

(d) Would it be efficient for the store to produce 80 milkshakes and 150 sundaes? Explain using numbers in the table.

(e) Suppose the ice-cream store purchases a new machine that increases the output of milkshakes and sundaes. Show the
effect of the change on the store’s on your graph in part (a).

39. Respond to all parts of the question.

Please respond on separate paper, following directions from your teacher.

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40.

According to the production possibilities curve above, which of the following is true?
The opportunity cost of producing another unit of good Y in terms of good X increases as more of good Y is
(A)
produced.
The opportunity cost of producing another unit of good Y in terms of good X decreases as more of good Y is
(B)
produced.
The opportunity cost of producing another unit of good X in terms of good Y increases as more of good X is
(C)
produced.
The opportunity cost of producing another unit of good X in terms of good Y decreases as more of good X is
(D)
produced.
The opportunity cost of producing another unit of either good remains constant as the production of the other
(E)
good increases.

The following questions are based on the production possibilities curve depicted below.

41. Based on a comparison of points X, Y, and Z, the opportunity cost of an additional consumer good is

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(A) highest at point X

(B) highest at point Y
(C) highest at point Z
(D) lowest at point Y
(E) the same at points X, Y, and Z

42. Given the production possibilities curve above, which of the following represents a movement from efficiency to
inefficiency?
(A) Point X to point W
(B) Point X to point Z
(C) Point Y to point Z
(D) Point W to point Z
(E) Point V to point Y

43. Economic growth can be depicted using a production possibilities curve by which of the following?
(A) A rightward shift of the curve
(B) A movement upward on an existing curve
(C) A movement downward on an existing curve
(D) A movement from a point outside the curve to a point on the curve
(E) A movement from a point on the curve to a point inside the curve

44. Which of the following is true of an economy’s production possibilities curve?

(A) It shows the combinations of any two resources that can be used to produce an efficient level of output.
(B) It shows the alternative combinations of goods that can be produced by fully employing scarce resources.
(C) It must be a straight line when all resources are fully employed.
(D) It is bowed in (convex to the origin) because of changing levels of technology.
(E) It is bowed out (concave to the origin) when marginal opportunity costs are constant.

45. A production possibilities curve is bowed out, indicating increasing opportunity cost because of
(A) the law of demand
(B) the law of diminishing marginal utility
(C) the existence of unemployment
(D) differences in consumer tastes
(E) imperfect adaptability of resources to alternative uses

46. If resources were perfectly substitutable in all activities, which of the following would be true?

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(A) Output of all goods could be increased at zero opportunity cost.

(B) The production possibilities curve would be a straight line.
(C) Specialization and mutually beneficial trade would be impossible.
(D) No country or individual would have a comparative advantage in any activity.
(E) Scarcity of resources would be eliminated.

Assume that Countries A and B have equal amounts of resources and identical technologies. Country A can produce 100
bushels of wheat or 100 yards of cloth or any combination, as shown by the line XZ in the figure above. Country B can
produce 100 bushels of wheat or 300 yards of cloth or any combination, as shown by the line XY in the figure above.

a. Which country has an absolute advantage in the production of wheat and which has an absolute advantage in the
production of cloth? Explain how you determined your answer.

b. Which country has a comparative advantage in the production of wheat and which has a comparative advantage
in the production of cloth? Explain how you determined your answer.

c. With specialization and trade, which country will import wheat? Explain why.

d. Assume that the two countries trade, and that one bushel of wheat is exchanged for two yards of cloth. Explain
why the country that imports wheat will gain from trade.

47. Respond to all parts of the question.

Please respond on separate paper, following directions from your teacher.

48.

The table above shows the maximum number of palm leaves or coconuts that Robert and Frank can pick
respectively in a single day. Which of the following is true?

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(A) Robert has a comparative advantage in picking coconuts.

(B) Frank has a comparative advantage in picking palm leaves.
(C) Robert and Frank can both benefit from trade with each other if 1 coconut is traded for 1 palm leaf.
(D) Robert and Frank can both benefit from trade with each other if 1 coconut is traded for 3 palm leaves.
(E) Robert and Frank can both benefit from trade with each other if 1 coconut is traded for 5 palm leaves.

49. Suppose that in one week Sam can knit 5 sweaters or make 4 blankets and Rob can knit 10 sweaters or make 6
blankets. Which of the following is true?
(A) Sam has an absolute advantage in making blankets.
(B) Sam has an absolute advantage in knitting sweaters.
(C) Sam has a comparative advantage in making blankets.
(D) Sam has a comparative advantage in knitting sweaters.
(E) Sam has neither a comparative nor an absolute advantage in knitting sweaters or making blankets.

50. Assume an economy uses one input, labor, to produce two goods, X and Y, with constant opportunity cost. Which
of the following would cause a parallel shift to the right of the production possibilities curve ?
(A) An increase in the productivity of labor with respect to producing good X
(B) An increase in the amount of labor available for production
(C) A reduction in the unemployment of labor
(D) An increase in the demand for good X and good Y
(E) A change in consumer tastes from good Y to good X

51. If nations specialize according to their comparative advantage and engage in international trade with each other,
each nation can
(A) produce outside its production possibilities curve
(B) consume outside its production possibilities curve
(C) shift its production possibilities curve to the right
(D) become more self-sufficient
(E) produce more of all goods

52. A country can consume beyond its present production possibilities curve when it
(A) trades with other countries, thus taking advantages of different opportunity costs
(B) reduces unemployment, thus increasing output
(C) experiences decreasing opportunity costs.
(D) faces an upward-sloping production possibilities curve
(E) faces a downward-sloping production possibilities curve

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53. For an economy with a straight-line production possibilities curve, which of the following must be true?

I. The opportunity cost of producing another unit is constant.

II. Resources are completely adaptable to alternative uses.

III. Resources are used efficiently.

(A) I only
(B) II only
(C) III only
(D) I and II
(E) II and III

54. In the country Beta it takes two hours of labor to produce a unit of tea and four hours of labor to produce a unit of
bread. In the country Zeta it takes three hours of labor to produce a unit of tea and nine hours of labor to produce a
unit of bread. Which of the following is true?
(A) Country Zeta has an absolute advantage in producing both tea and bread.
(B) Country Zeta has an absolute advantage and a comparative advantage in producing tea.
(C) Country Beta has an absolute advantage and a comparative advantage in producing tea.
Country Beta has the lower opportunity cost in producing bread and therefore a comparative advantage in
(D)
producing bread.
(E) Country Beta, with trade, will export both tea and bread to country Zeta.

55.

The diagram above shows the production possibilities curves for two countries, Country X and Country Y. Assume
that both countries use equal amounts of resources in production. If the two countries engage in trade, both would
be better off under which of the following conditions?

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Country X produced both cars and planes, because it has an absolute advantage in the production of both
(A)
goods.
Country Y produced both cars and planes, because it has a comparative advantage in the production of both
(B)
goods.
Country X specialized in the production of cars, because it has an absolute advantage in the production of
(C)
cars.
Country X specialized in the production of cars, because it has a comparative advantage in the production of
(D)
cars.
Country Y specialized in the production of cars, because it has a comparative advantage in the production of
(E)
cars.

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