FREE AP Microeconomics Basic Economic Concepts Questions and Answers
A production possibilities curve (PPC) is bowed outwards. This indicates:
A bowed-out PPC reflects increasing opportunity costs, meaning producing more of one good requires giving up increasingly larger amounts of the other good due to resource specialization.
What is the opportunity cost of choosing to produce more of one good?
Opportunity cost is the value of the next best alternative that must be given up when a choice is made. It is not the total cost, but specifically the most valuable alternative lost.
Which of the following best describes the concept of scarcity?
Scarcity arises because resources (land, labor, capital, etc.) are limited, but human desires and needs are virtually unlimited. This fundamental concept drives the need for economic choices.
Which economic system relies on government planning to allocate resources?
A command economy is one where the government makes all major decisions about production and allocation of resources, unlike a market economy where decisions are driven by supply and demand.
If one country has an absolute advantage in producing all goods, can it still benefit from trade?
Even if a country has an absolute advantage in all goods, it can benefit from trade by specializing in goods where it has a comparative advantage (lower opportunity cost).