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IVY SOFTWARE MBA PREPWORKS FUNDAMENTALS OF
ECONOMICS EXAM 2026- QUESTIONS LATEST 2026 – 2027
VERSION SOLVED QUESTIONS & ANSWERS
IVY SOFTWARE MBA PREPWORKS
FUNDAMENTALS OF ECONOMICS
COMPREHENSIVE 250 QUESTION EXAM BANK
Updated 2026/2027 Edition
SECTION 1: PRODUCTION POSSIBILITIES FRONTIER & OPPORTUNITY COST
(Questions 1-30)
1. The main concept demonstrated by the production possibilities frontier (PPF) is:
A. Comparative advantage
B. Opportunity cost
C. Scarcity
D. Absolute advantage
Correct Answer: B
Rationale: The production possibilities frontier (PPF) is a graphical representation of the
maximum combinations of two goods or services that an economy can produce given
its available resources and technology. The fundamental economic concept illustrated
by the PPF is opportunity cost. As an economy moves along the PPF to produce more of
one good, it must sacrifice the production of another good, visually demonstrating that
resources are scarce and trade-offs are inevitable.
2. A graph that shows the combinations of two goods that the economy can
produce given the available scarce resources and available technology is called a:
A. Supply and demand curve
B. Production possibilities frontier
, Page 2 of 79
C. Lorenz curve
D. Laffer curve
Correct Answer: B
Rationale: The production possibilities frontier (PPF) is defined as a graph that shows
the combinations of two goods that an economy can produce given its available scarce
resources and available technology. It illustrates the maximum output combinations
achievable with full employment of resources and efficient production.
3. When country A has a lower opportunity cost of producing sugar relative to
country B, then country A is said to have:
A. Absolute advantage
B. Comparative advantage
C. Economies of scale
D. A trade deficit
Correct Answer: B
Rationale: Comparative advantage exists when a country has a lower opportunity cost
of producing a good relative to another country. This concept, developed by David
Ricardo, explains the basis for mutually beneficial trade between nations.
4. The opportunity cost of an item is best defined as:
A. The monetary price paid for the item
B. Whatever must be given up to obtain the item
C. The total cost of production
D. The benefit received from the item
Correct Answer: B
Rationale: Opportunity cost is defined as whatever must be given up to obtain an item.
It represents the value of the next best alternative that is foregone when a choice is
made. This concept is fundamental to economic decision-making and is the central
message of the PPF.
5. Assume a production possibilities frontier for pickup trucks and Big Mac
hamburgers. The economy is producing 20 Big Mac hamburgers and 65 pickup
trucks (point 20, 65). What is the opportunity cost of producing an additional 20 Big
Mac hamburgers (point 40, 60)?
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A. 20 Big Mac hamburgers
B. 5 pickup trucks
C. 65 pickup trucks
D. 40 Big Mac hamburgers
Correct Answer: B
Rationale: Moving from point (20, 65) to point (40, 60) means producing 20 more Big
Macs while pickup truck production falls from 65 to 60. The opportunity cost of the
additional 20 Big Macs is the 5 pickup trucks that must be given up. This illustrates the
trade-off inherent in production decisions.
6. A production possibilities frontier that is bowed outward (concave to the origin)
indicates:
A. Constant opportunity costs
B. Decreasing opportunity costs
C. Increasing opportunity costs
D. Zero opportunity costs
Correct Answer: C
Rationale: A bowed-outward (concave) PPF indicates increasing opportunity costs. As
production of one good increases, the opportunity cost of producing additional units
rises because resources are not perfectly adaptable to producing both goods. This is
the realistic shape of most PPFs.
7. Points inside the production possibilities frontier represent:
A. Efficient production levels
B. Unattainable production levels
C. Inefficient use of resources
D. Maximum production capacity
Correct Answer: C
Rationale: Points inside the PPF represent inefficient use of resources. At these points,
the economy is not producing the maximum possible output given its resources and
technology. This could be due to unemployment, underemployment, or inefficient
resource allocation.
8. Points outside the production possibilities frontier represent:
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A. Efficient production levels
B. Attainable production levels with current resources
C. Unattainable production levels with current resources
D. Optimal production levels
Correct Answer: C
Rationale: Points outside the PPF represent unattainable production levels given the
economy's current resources and technology. Such points could only be reached
through economic growth, technological advancement, or increased resources.
9. A technological advancement that improves production of one good will cause
the PPF to:
A. Shift inward
B. Remain unchanged
C. Pivot outward for that good
D. Become a straight line
Correct Answer: C
Rationale: A technological advancement that improves production of one good will
cause the PPF to pivot outward for that good. The maximum production of the improved
good increases, while the maximum production of the other good remains unchanged.
10. Economic growth is represented on a PPF by:
A. A movement from inside to on the PPF
B. An outward shift of the entire PPF
C. A movement along the PPF
D. An inward shift of the PPF
Correct Answer: B
Rationale: Economic growth is represented on a PPF by an outward shift of the entire
PPF. This occurs when the economy increases its productive capacity through factors
such as technological advancement, capital accumulation, or growth in the labor force.
11. The law of increasing opportunity costs states that:
A. Costs decrease as production increases
B. As production of a good increases, the opportunity cost of producing an additional
unit rises
IVY SOFTWARE MBA PREPWORKS FUNDAMENTALS OF
ECONOMICS EXAM 2026- QUESTIONS LATEST 2026 – 2027
VERSION SOLVED QUESTIONS & ANSWERS
IVY SOFTWARE MBA PREPWORKS
FUNDAMENTALS OF ECONOMICS
COMPREHENSIVE 250 QUESTION EXAM BANK
Updated 2026/2027 Edition
SECTION 1: PRODUCTION POSSIBILITIES FRONTIER & OPPORTUNITY COST
(Questions 1-30)
1. The main concept demonstrated by the production possibilities frontier (PPF) is:
A. Comparative advantage
B. Opportunity cost
C. Scarcity
D. Absolute advantage
Correct Answer: B
Rationale: The production possibilities frontier (PPF) is a graphical representation of the
maximum combinations of two goods or services that an economy can produce given
its available resources and technology. The fundamental economic concept illustrated
by the PPF is opportunity cost. As an economy moves along the PPF to produce more of
one good, it must sacrifice the production of another good, visually demonstrating that
resources are scarce and trade-offs are inevitable.
2. A graph that shows the combinations of two goods that the economy can
produce given the available scarce resources and available technology is called a:
A. Supply and demand curve
B. Production possibilities frontier
, Page 2 of 79
C. Lorenz curve
D. Laffer curve
Correct Answer: B
Rationale: The production possibilities frontier (PPF) is defined as a graph that shows
the combinations of two goods that an economy can produce given its available scarce
resources and available technology. It illustrates the maximum output combinations
achievable with full employment of resources and efficient production.
3. When country A has a lower opportunity cost of producing sugar relative to
country B, then country A is said to have:
A. Absolute advantage
B. Comparative advantage
C. Economies of scale
D. A trade deficit
Correct Answer: B
Rationale: Comparative advantage exists when a country has a lower opportunity cost
of producing a good relative to another country. This concept, developed by David
Ricardo, explains the basis for mutually beneficial trade between nations.
4. The opportunity cost of an item is best defined as:
A. The monetary price paid for the item
B. Whatever must be given up to obtain the item
C. The total cost of production
D. The benefit received from the item
Correct Answer: B
Rationale: Opportunity cost is defined as whatever must be given up to obtain an item.
It represents the value of the next best alternative that is foregone when a choice is
made. This concept is fundamental to economic decision-making and is the central
message of the PPF.
5. Assume a production possibilities frontier for pickup trucks and Big Mac
hamburgers. The economy is producing 20 Big Mac hamburgers and 65 pickup
trucks (point 20, 65). What is the opportunity cost of producing an additional 20 Big
Mac hamburgers (point 40, 60)?
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A. 20 Big Mac hamburgers
B. 5 pickup trucks
C. 65 pickup trucks
D. 40 Big Mac hamburgers
Correct Answer: B
Rationale: Moving from point (20, 65) to point (40, 60) means producing 20 more Big
Macs while pickup truck production falls from 65 to 60. The opportunity cost of the
additional 20 Big Macs is the 5 pickup trucks that must be given up. This illustrates the
trade-off inherent in production decisions.
6. A production possibilities frontier that is bowed outward (concave to the origin)
indicates:
A. Constant opportunity costs
B. Decreasing opportunity costs
C. Increasing opportunity costs
D. Zero opportunity costs
Correct Answer: C
Rationale: A bowed-outward (concave) PPF indicates increasing opportunity costs. As
production of one good increases, the opportunity cost of producing additional units
rises because resources are not perfectly adaptable to producing both goods. This is
the realistic shape of most PPFs.
7. Points inside the production possibilities frontier represent:
A. Efficient production levels
B. Unattainable production levels
C. Inefficient use of resources
D. Maximum production capacity
Correct Answer: C
Rationale: Points inside the PPF represent inefficient use of resources. At these points,
the economy is not producing the maximum possible output given its resources and
technology. This could be due to unemployment, underemployment, or inefficient
resource allocation.
8. Points outside the production possibilities frontier represent:
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A. Efficient production levels
B. Attainable production levels with current resources
C. Unattainable production levels with current resources
D. Optimal production levels
Correct Answer: C
Rationale: Points outside the PPF represent unattainable production levels given the
economy's current resources and technology. Such points could only be reached
through economic growth, technological advancement, or increased resources.
9. A technological advancement that improves production of one good will cause
the PPF to:
A. Shift inward
B. Remain unchanged
C. Pivot outward for that good
D. Become a straight line
Correct Answer: C
Rationale: A technological advancement that improves production of one good will
cause the PPF to pivot outward for that good. The maximum production of the improved
good increases, while the maximum production of the other good remains unchanged.
10. Economic growth is represented on a PPF by:
A. A movement from inside to on the PPF
B. An outward shift of the entire PPF
C. A movement along the PPF
D. An inward shift of the PPF
Correct Answer: B
Rationale: Economic growth is represented on a PPF by an outward shift of the entire
PPF. This occurs when the economy increases its productive capacity through factors
such as technological advancement, capital accumulation, or growth in the labor force.
11. The law of increasing opportunity costs states that:
A. Costs decrease as production increases
B. As production of a good increases, the opportunity cost of producing an additional
unit rises
