Deck 2: The Economic Problem

Question 1

A person who has an absolute advantage in the production of all goods will

A)have a production possibilities frontier with a constant slope.
B)have a comparative advantage in the production of some goods but not in the production of others.
C)also have a comparative advantage in the production of all goods.
D)not be able to gain from specialisation and exchange.

Answer 1

have a comparative advantage in the production of some goods but not in the production of others.

Question 2

In the above figure, at point a, what is the opportunity cost of producing one more CD?

A)2 DVDs.
B)1 DVD.
C)14 DVDs.
D)There is no opportunity cost.

Answer 2

1 DVD.

Question 3

When the production possibilities frontier is bowed outwards, the opportunity cost of producing more of one good

A)decreases in terms of the amount forgone of the other good.
B)remains constant.
C)increases in terms of the amount forgone of the other good.
D)cannot be determined.

Answer 3

increases in terms of the amount forgone of the other good.

Question 4

The principle of decreasing marginal benefit implies that the

A)additional benefit from obtaining one more of a good or service decreases as more is consumed.
B)total benefit from obtaining more of a good or service decreases as more is consumed.
C)total benefit from obtaining more of a good or service remains the same as more is consumed.
D)additional benefit from obtaining one more of a good or service increases as more is consumed.

Question 5

Moving from one point on the production possibilities frontier to another

A)involves an opportunity cost but no tradeoff.
B)involves a tradeoff and incurs an opportunity cost.
C)involves a tradeoff but does not incur an opportunity cost.
D)involves no tradeoff but it does incur an opportunity cost.

Question 6

One of the opportunity costs of economic growth is

A)reduced current consumption.
B)technological change.
C)the gain in future consumption.
D)capital accumulation.

Question 7

Scarcity is represented on a production possibilities frontier figure by

A)the amount of the good on the horizontal axis forgone.
B)technological progress.
C)the fact that there are only two goods in the diagram.
D)the fact that there are attainable and unattainable points.

Question 8

In the above figure, when 2000 bicycles are produced each month, we can see that

A)the marginal benefit from another bicycle is greater than the marginal cost of another bicycle.
B)more bicycles should be produced to reach the allocatively efficient level of output.
C)the economy is very efficient at the production of bicycles because the marginal benefit exceeds the marginal cost.
D)Both answers A and B are correct.

Question 9

In the figure above, both Joe and Jill initially produce at point A. If Joe and Jill realise that they each possess a comparative advantage, which outcome can we expect?

A)Joe will specialise in shirts and Jill will specialise in pants.
B)Joe will specialise in pants and Jill will specialise in shirts.
C)Joe and Jill each will be able to consume more than 2 shirts and 2 pairs of pants.
D)Both answers B and C are correct.

Question 10

Markets

A)allow traders to enjoy gains from trade.
B)coordinate price information between buyers and sellers.
C)facilitate trade.
D)All of the above answers are correct.

Question 11

A marginal cost curve

A)is upward sloping.
B)shows that as more of a good is produced, opportunity costs of producing another unit increase.
C)is bowed inward so that its slope can become negative.
D)Both answers A and B are correct.

Question 12

In the figure above, the marginal cost of the second computer is

A)2 television sets.
B)30 television sets.
C)5 television sets.
D)3 television sets.

Question 13

In the above figure, in order for this country to move from production possibilities frontier PPF1 to
PPF₂, it might

A)engage in exchange with other nations.
B)increase the average level of prices for all goods produced and consumed.
C)increase the skills and productivity of its work force.
D)put all unemployed resources to work producing desired output.

Question 14

According to the figure above, the opportunity cost of producing another computer is

A)higher at A.
B)higher at B.
C)the same at every point along the frontier.
D)different at most points along the frontier but equal at points A and B because they are equally distant from the axes.

Question 15

Capital accumulation definitely

A)shifts the production possibilities frontier inward.
B)shifts the production possibilities frontier outward.
C)has no impact on the production possibilities frontier.
D)makes the production possibilities frontier steeper.

Question 16

An increase in the production of capital goods

A)shifts the production possibilities frontier outward in the future.
B)must increase the current production of consumer goods.
C)must decrease the future production of consumer goods.
D)shifts the production possibilities frontier inward in the future.

Question 17

The opportunity cost of producing a unit of consumption goods at point b in the figure _ point a.

A)is greater than at
B)is the same as
C)is less than at
D)cannot be compared with

Question 18

Economic growth can be represented by

A)a movement down the production possibilities frontier (PPF).
B)an inward shift of the production possibilities frontier (PPF).
C)a movement up the production possibilities frontier (PPF).
D)an outward shift of the production possibilities frontier (PPF).

Question 19

The production possibilities frontier itself illustrates

A)all goods that can be produced by an economy.
B)all possible production of capital goods.
C)all goods and services that are desired but cannot be produced due to scarce resources.
D)the combination of goods and services that can be produced efficiently.

Question 20

Which of the following statements regarding the production possibilities frontier is true?

A)Points inside the frontier are attainable.
B)Points outside the frontier are attainable.
C)Points on the frontier are less efficient than points inside the frontier.
D)None of the above because all of the above statements are false.

Question 21

Production efficiency occurs when production

A)is on the production possibilities frontier.
B)is on the production possibilities frontier or inside it.
C)is at any attainable point.
D)is at a point beyond the production possibilities frontier.

Question 22

A tradeoff is

A)a transaction at a price either above or below the equilibrium price.
B)a constraint that requires giving up one thing to get another.
C)represented by a point outside a PPF.
D)represented by a point inside a PPF.

Question 23

Resource use is allocatively efficient when

A)we produce the amount of the different goods we value most highly.
B)we produce the goods with the lowest opportunity cost.
C)we cannot produce more goods and services.
D)we produce the goods with the highest opportunity cost.

Question 24

Some time ago the government of China required many highly skilled technicians and scientists to engage in unskilled agricultural labour in order to develop "proper social attitudes." This policy probably caused China to produce

A)inside its production possibilities frontier with respect to food, but outside with respect to high- technology goods.
B)inside its production possibilities frontier.
C)outside its production possibilities frontier with respect to food, but inside with respect to high- technology goods.
D)at an inappropriate point along its production possibilities frontier.

Question 25

If an economy is operating at a point inside the production possibilities frontier, then

A)the PPF curve will shift inward.
B)society's resources are being inefficiently utilised.
C)economic policy must retard further growth of the economy.
D)society's resources are being used to produce too many consumer goods.

Question 26

Homer and Teddy are stranded on a desert island. To feed themselves each day they can either catch fish or pick fruit. In a day, Teddy could pick 60 pieces of fruit or catch 20 fish. Homer could pick 100 pieces of fruit or catch 150 fish. Which of the following statements is correct?

A)Homer has an absolute advantage in picking fruit and Teddy has an absolute advantage in catching fish.
B)Teddy has an absolute advantage in both catching fish and picking fruit.
C)Homer has an absolute advantage in catching fish and Teddy has an absolute advantage in picking fruit.
D)Homer has an absolute advantage in both catching fish and picking fruit.

Question 27

Suppose Joe can prepare 20 sandwiches or 10 pizzas in an hour and Beth can produce 36 sandwiches or 27 pizzas. The concept of comparative advantage concludes that

A)Beth should produce both goods because she can produce more of both goods in an hour than can Joe.
B)Beth should produce both goods and Joe should produce sandwiches.
C)Beth should produce sandwiches and Joe should produce pizza.
D)Beth should produce pizza and Joe should produce sandwiches.

Question 28

According to the principle of comparative advantage, if a rich country trades with a poor country, then

A)the rich country will lose and the poor country will benefit.
B)the rich country will benefit and the poor country will lose.
C)both countries will benefit.
D)neither of the countries will benefit.

Question 29

In the above figure, once on PPF2, a country would grow slowest by producing at point

A)C.
B)B.
C)D.
D)A.

Question 30

In goods markets and in factor markets _ .

A)firms sell to households; households sell to firms
B)households sell to firms; firms sell to households
C)households sell to firms; households sell to firms
D)firms sell to households; firms sell to households

Question 31

The bowed outward shape of the production possibilities frontier in the above figure indicates that

A)computer technology is subject to the principle of decreasing costs.
B)some resources are better suited for producing computers.
C)the opportunity cost of producing more computers decreases as more computers are produced.
D)All of the above answers are correct.

Question 32

Two countries, Alpha and Beta, have identical production possibilities frontiers. If Alpha produces at point a and Beta produces at point b, then

A)Alpha's and Beta's economic growth rates will be the same.
B)Beta's economic growth rate will exceed Alpha's.
C)Beta's future consumption will be greater than Alpha's.
D)Alpha consumes less than Beta today, but it will grow faster than Beta.

Question 33

Refer to the production possibilities frontier in the figure above. Which production point is unattainable?

A)Point a
B)Point b
C)Point c
D)Point e

Question 34

In the above figure, curve b shows the

A)bottles of cola that people are willing to forgo to get another bicycle.
B)benefits of producing more bicycles is greater than the benefits of producing more cola.
C)bottles of cola that people must forgo to get another bicycle.
D)benefits of producing more cola is greater than the benefits of producing more bicycles.

Question 35

In the above figure, which of the following is true regarding the movements from point A to B and from point C to D?

A)I and II
B)I and III
C)II and III
D)I, II and III

Question 36

Suppose a scientific breakthrough made free solar power available in unlimited quantities in Australia. The effect of this invention would be to move

A)the Australian production possibilities frontier outward.
B)Australia beyond its production possibilities frontier.
C)Australia inside its production possibilities frontier.
D)the Australian production possibilities frontier inward.

Question 37

A person has a comparative advantage in producing a particular good if that person

A)has higher productivity in producing it than anyone else has.
B)has less desire to consume that good than anyone else has.
C)can produce it at lower opportunity cost than anyone else can.
D)has more human capital related to that good than anyone else has.

Question 38

A PPF bows outward because

A)not all resources are equally productive in all activities.
B)resources are used inefficiently.
C)entrepreneurial talent is more abundant than human capital.
D)consumers prefer about equal amounts of the different goods.

Question 39

When resources are assigned to inappropriate tasks, the result will be producing at a point

A)outside the PPF.
B)where the slope of the PPF is zero.
C)inside the PPF.
D)where the slope of the PPF is positive.

Question 40

Betty and Ann live on a desert island. With a day's labour, Ann can produce 8 fish or 4 coconuts; Betty can produce 6 fish or 2 coconuts. Ann's opportunity cost of producing 1 coconut is and she should specialise in the production of .

A)0 fish per coconut; coconuts
B)6 fish per coconut; coconuts
C)8 fish per coconut; fish
D)2 fish per coconut; coconuts

Question 41

The above figure illustrates that if this country wishes to move from its current production point (labelled "Current")and have 10 more tonnes of food, it can do this by producing

A)10 more tonnes of clothing.
B)5 more tonnes of clothing.
C)10 fewer tonnes of clothing.
D)5 fewer tonnes of clothing.

Question 42

Suppose that the government is trying to decide between allocating its resources to build more dams or to build more freeways. In terms of forgone dams, as more freeways are constructed, the marginal benefit of additional freeways _ and the marginal cost of additional freeways
.

A)increases; decreases
B)increases; increases
C)decreases; decreases
D)decreases; increases

Question 43

In the figure above, Joe is producing at point A. Joe's opportunity cost of producing one shirt is

A)2 pairs of pants per shirt.
B)3/5 of a pair of pants per shirt.
C)5 pairs of pants per shirt.
D)5/3 of a pair of pants per shirt.

Question 44

Marginal cost is the one more unit of a good and of the good increases.

A)price that must be paid to consume; increases as consumption
B)opportunity cost of producing; increases as production
C)opportunity cost of producing; decreases as production
D)price that must be paid to consume; decreases as consumption

Question 45

Betty and Ann live on a desert island. With a day's labour, Ann can produce 6 fish or 4 coconuts; Betty can produce 3 fish or 1 coconut. Betty's opportunity cost of producing 1 fish is , and she should specialise in the production of .

A)1 coconut per fish; fish
B)4 coconuts per fish; fish
C)2/3 coconut per fish; coconuts
D)1/3 coconut per fish; fish

Question 46

In the figure above, the marginal cost of producing a computer

A)is the same as the marginal cost of producing a television set.
B)stays the same as more computers are produced.
C)increases as more computers are produced.
D)decreases as more computers are produced.

Question 47

In the figure above, suppose that Mac and Izzie specialise and trade to reach point c. Mac sends Izzie

A)12 computers in exchange for 6 TVs.
B)6 computers in exchange for 12 TVs.
C)12 computers in exchange for 12 TVs.
D)6 computers in exchange for 6 TVs.

Question 48

Resource use is allocatively efficient when marginal benefit is

A)less than marginal cost.
B)greater than marginal cost.
C)equal to marginal cost.
D)at its maximum value.

Question 49

Economic growth is the result of all of the following EXCEPT

A)opportunity cost.
B)technological change.
C)capital accumulation.
D)investment in human capital.

Question 50

In the figure above, suppose that Mac and Izzie trade and reach point c. Then

A)Mac should produce at point b and Izzie should produce at point d.
B)Mac should produce at point d and Izzie should produce at point b.
C)Mac and Izzie should both produce at point a.
D)Mac and Izzie should both produce at point c.

Question 51

A nation's production possibilities frontier is bowed outward. Suppose that the government decides to increase the production of armaments by $20 billion, and that as a result the output of consumer goods falls by $20 billion. If a further $20 billion increase beyond the initial $20 billion increase in armaments output is sought, we can expect that the output of consumer goods and services will fall further by

A)less than $20 billion.
B)more than $20 billion.
C)$20 billion.
D)There is not enough information to determine the answer.

Question 52

Marginal cost

A)remains constant as more is produced.
B)decreases as marginal benefits decrease.
C)increases as more is produced.
D)decreases as more is produced.

Question 53

When economic growth occurs, the

A)production possibilities frontier shifts outward.
B)production possibilities frontier becomes steeper.
C)economy moves along its production possibilities frontier.
D)production possibilities frontier shifts outward but no longer limits the amount that can be produced.

Question 54

As an economy's capital stock increases, the economy

A)gains an absolute advantage in the production of capital goods.
B)experiences economic growth.
C)generally decides to engage in international trade.
D)generally experiences increased unemployment of other resources, such as labour.

Question 55

A computer software program is most strongly an example of

A)intellectual property.
B)real property.
C)vicarious property.
D)fiat property.

Question 56

Tom takes 20 minutes to cook an egg and 5 minutes to make a sandwich. Jerry takes 15 minutes to cook an egg and 3 minutes to make a sandwich. Both individuals will be better off if

A)they don't trade as no one has the comparative advantage in either of the two goods.
B)they trade, no matter who trades sandwiches and who eggs.
C)Jerry trades sandwiches in exchange for eggs.
D)Tom trades sandwiches in exchange for eggs.

Question 57

In March a factory used new technology to produce its output. Then in August a fire destroyed half the factory. The new technology shifted the factory's PPF _ and the fire shifted it _.

A)outward; outward
B)inward; outward
C)outward; inward
D)inward; inward

Question 58

Individual economic decisions are coordinated by

A)governments through adjustments in income taxes.
B)governments through adjustments in sales taxes.
C)markets through adjustments in sales levels.
D)markets through adjustments in prices.

Question 59

If property rights are not clearly defined and enforced, then

A)resources are devoted to protecting possessions rather than to production.
B)incentives for specialisation based on comparative advantage are weakened.
C)some potential gains from specialisation and trade are lost.
D)All of the above answers are correct.

Question 60

The production possibilities frontier is the boundary between

A)those wants that are limited and those that are unlimited.
B)those combinations of goods and services that can be produced and those that can be consumed.
C)those resources that are limited and those that are unlimited.
D)those combinations of goods and services that can be produced and those that cannot.

Question 61

Marginal cost curves slope

A)downward because of increasing opportunity cost.
B)downward because of decreasing opportunity cost.
C)upward because of increasing opportunity cost.
D)upward because of decreasing opportunity cost.

Question 62

Harry produces two balloon rides and four boat rides an hour. Harry could produce more balloon rides but to do so he must produce fewer boat rides. Harry is his production possibilities frontier.

A)producing either inside or on
B)producing inside
C)producing on
D)producing outside

Question 63

When we cannot produce more of any good without giving up some other good that we value more highly, we have achieved

A)the production point where the marginal benefit exceeds the marginal cost by as much as possible.
B)equity.
C)allocative efficiency.
D)economic growth.

Question 64

When operating on its PPF, a country can produce two tonnes of butter and 200 cars OR three tonnes of butter and 150 cars. The opportunity cost of one tonne of butter is cars per tonne of butter.

A)50
B)0.75
C)300
D)200

Question 65

Refer to the production possibilities frontier in the figure above. Suppose a country is producing at point a. A movement to point means that the country .

A)b; is producing at an inefficient point.
B)e; is not operating efficiently
C)d; gives up 10 million consumer goods.
D)d; must give up 20 million capital goods

Question 66

We measure the marginal _ of a good by what a for another unit of the good.

A)cost; person's preferences are
B)cost; person is willing to pay
C)benefit; person must pay
D)benefit; person is willing to pay

Question 67

Comparative advantage is

A)the ability to perform an activity at a lower opportunity cost than anyone else.
B)the ability to perform an activity at a zero opportunity cost.
C)the ability to perform an activity at a higher opportunity cost than anyone else.
D)another name for absolute advantage.

Question 68

Jane produces only corn and cloth. Taking account of her preferences for corn and cloth

A)makes her production possibilities frontier flatter.
B)makes her production possibilities frontier steeper.
C)makes her production possibilities frontier straighter.
D)does not affect her production possibilities frontier.

Question 69

The production possibilities frontier separates

A)the combinations of goods that people value and those that they don't.
B)the types of goods that can be attained from those that can't be attained.
C)the goods and services people want from those they do not want.
D)the quantities of goods and services that can be produced from those that cannot be produced.

Question 70

Economic growth comes from

A)capital accumulation and the avoidance of opportunity cost.
B)people willing to increase their skills, in which case, economic growth is free.
C)producing more goods than people want to consume.
D)capital accumulation and technological advance.

Question 71

If the marginal benefit of a good exceeds its marginal cost,

A)we should produce less to achieve the allocatively efficient use of resources.
B)we should produce more to achieve the allocatively efficient use of resources.
C)we've achieved efficient resource use.
D)we cannot tell if more or less should be produced to achieve the allocatively efficient use of resources.

Question 72

The term "market" refers to

A)physical structures only.
B)trading arrangements that have been approved by the government.
C)locations where buyers and sellers physically meet.
D)any arrangement that enables buyers and sellers to get information and trade with one another.

Question 73

Allocative efficiency occurs when

A)we cannot produce more of any good without giving up some other good that we value more highly.
B)opportunity costs are decreasing.
C)marginal benefit exceeds marginal cost.
D)we cannot produce more of any one good without giving up some other good.

Question 74

In 2006, Country X and Country Y had the same production possibilities, illustrated in the figure above. Country X chose to produce at point A, while country Y chose to produce at point B. In 2012, most likely, Country X will be at a point such as _ while Country Y will be at a point such as .

A)N; Q
B)A; B
C)Q; N
D)B; A

Question 75

Which of the following is NOT illustrated by a production possibilities frontier?

A)Opportunity cost
B)The necessity for choice
C)Who gets the goods
D)Scarcity

Question 76

In the figure above, at the allocatively efficient level of computer production consumers are willing to give up

A)3 televisions per computer.
B)more than 3 televisions per computer.
C)0 televisions per computer.
D)between 0 and 3 televisions per computer.

Question 77

Susan likes to drink colas. The cola Susan drinks, the of the last cola.

A)less; higher the opportunity cost
B)more; higher the marginal benefit
C)less; lower the marginal benefit
D)more; lower the marginal benefit

Question 78

In the above figure, the curve labelled a is the curve and the curve labelled b is the
Curve.

A)marginal cost; marginal benefit
B)production possibilities frontier; trade line
C)marginal benefit; trade line
D)marginal cost; trade line

Question 79

Molly just graduated from high school. The figure shows her possibilities frontier. If Molly goes to university, she will move from point M to point K. In terms of consumption goods, Molly's opportunity cost of going to university is

A)OL.
B)MK.
C)LM.
D)KL.

Question 80

Which of the following is true regarding markets?

A)I only
B)I and III
C)II and III
D)I, II and III