Deck 2: Confronting Scarcity: Choices in Production

Question 1

The model that shows the goods and services the economy is capable of producing is the model of:

A) utility.
B) the fallacy of composition.
C) production possibilities.
D) scarcity.

Answer 1

production possibilities.

Question 2

The three broad types of resources used to produce goods and services are also known as:

A) economic systems.
B) factors of production.
C) production possibilities.
D) financial capital.

Answer 2

factors of production.

Question 3

The three broad types of factors of production are:

A) capital, labor, and natural resources.
B) money, profit, and interest.
C) stocks, bonds, and financial assets.
D) technology, human capital, and comparative advantage.

Answer 3

capital, labor, and natural resources.

Question 4

One of the two criteria for a resource to be considered capital is that it must:

A) occur naturally.
B) be part of a factory or building.
C) be a skill or talent possessed by a person.
D) be possible to use it to produce other goods and services.

Question 5

For a factor of production to be called capital it must:

A) be produced.
B) occur in the natural environment.
C) be a part of human skill.
D) be a result of a stock issue.

Question 6

A factor of production that has been produced for use in the production of other goods and services is:

A) labor.
B) money.
C) capital.
D) natural resources.

Question 7

An example of capital is:

A) cash.
B) a factory building.
C) money in a checking account.
D) the existing state of technology.

Question 8

Human effort that can be applied in the production process is called:

A) natural resources.
B) technology.
C) labor.
D) specialization.

Question 9

To be considered capital, a factor of production must:

A) have been produced.
B) occur naturally.
C) be part of a factory or building.
D) be a skill or talent possessed by a person.

Question 10

Labor is the _____ that can be applied to production.

A) the natural environment.
B) produced resources.
C) financial assets.
D) human effort.

Question 11

Any factor of production is capital if it:

A) was produced and can be used to produce other goods and services.
B) generates utility.
C) uses human effort to produce goods and services.
D) is included in financial capital.

Question 12

Resources from nature that can be used to produce other goods and services are called:

A) money.
B) natural resources.
C) labor.
D) capital.

Question 13

A factor of production that is produced in order to produce something else is called:

A) money.
B) labor.
C) technology.
D) capital.

Question 14

Which of the following is an example of capital?

A) a gravel truck
B) a savings account
C) a share of General Motors stock
D) a lake

Question 15

An economic system is the set of rules that define _______ and _______.

A) resources; prices
B) who gets to vote; when elections will be held
C) market prices; factors of production
D) how an economy's resources are to be owned; how decisions about the resources are to be made

Question 16

Economic resources used in the production process are called:

A) free gifts of the natural environment.
B) factors of production.
C) consumer items.
D) money capital.

Question 17

The factors of production are:

A) money, labor, natural resources, and capital.
B) technology, human capital, and natural resources.
C) money, capital, and natural resources.
D) labor, capital, and natural resources.

Question 18

Capital is best considered as:

A) the natural environment.
B) a factor of production that has been produced.
C) financial assets.
D) money.

Question 19

Factors of production are:

A) the resources the economy has available to produce goods and services.
B) generally unlimited in modern economies.
C) always employed in modern economies.
D) the knowledge that can be applied to the production of goods and services.

Question 20

Increasing the level of education in the United States will:

A) shift the production possibilities curve to the left.
B) improve the level of technology.
C) lead to increased natural resource use.
D) lead to workers possessing greater human capital.

Question 21

Use the following to answer question(s):
Exhibit: Guns and Butter

(Exhibit: Guns and Butter) Points A, B, E, and F:

A) indicate combinations of guns and butter that society can produce using all of its factors efficiently.
B) show that the opportunity cost of more guns increases, but that of more butter decreases as more of each good is produced..
C) indicate that society wants butter more than guns.
D) indicate constant costs for guns and increasing costs for butter.

Question 22

In drawing a production possibilities curve, it is assumed that:

A) technology does not change.
B) the economy is fully employed and may not be efficient.
C) there are increasing qualities of the factors of production.
D) all of the above are true.

Question 23

Which of the following is not capital?

A) a computer in the office of an accountant
B) a migrant worker in the fields of California
C) a wrench in an auto-repair shop
D) a new machine used for producing microchips

Question 24

Use the following to answer question(s):
Exhibit: Production Possibilities Schedule 1

(Exhibit: Production Possibilities Schedule 1) If the economy produces 2 units of consumer goods per period, it also can produce at most _______ units of capital goods per period.

A) 30
B) 28
C) 24
D) 18

Question 25

Use the following to answer question(s):
Exhibit: Production Possibilities Schedule 1

(Exhibit: Production Possibilities Schedule 1) If the economy produces 10 units of capital goods per period, it also can produce at most _______ unit(s) of consumer goods per period.

A) 5
B) 4
C) 3
D) 2

Question 26

Use the following to answer question(s):
Exhibit: Production Possibilities Schedule 1

(Exhibit: Production Possibilities Schedule 1) The opportunity cost of producing the fourth unit of consumer goods is ___ __ units of capital goods.

A) 2
B) 4
C) 6
D) 8

Question 27

One of the two criteria for a resource to be considered as a natural resource is that it must:

A) have been produced.
B) not be part of the environment.
C) be part of a factory or building.
D) be available for the production of goods and services.

Question 28

A person who seeks to earn profits by finding ways to organize factors of production is called a(n):

A) foreman
B) finance capitalist.
C) entrepreneur.
D) manager.

Question 29

Who may benefit from technological progress?

A) consumers
B) workers
C) firms.
D) all of the above.

Question 30

The textbook classifies technology as _______ and entrepreneurs as _______ .

A) knowledge; persons who seek profit by finding new ways to organize factors of production
B) capital; labor
C) labor skills; capital
D) a factor of production; a factor of production

Question 31

The set of acquired skills and abilities that workers bring to the production of goods and services is:

A) money.
B) wealth.
C) human capital.
D) natural ability.

Question 32

The difference between iron ore deposits and the steel produced from these deposits that is later used to make factory equipment illustrates the difference between:

A) labor and a natural resource.
B) labor and capital.
C) a natural resource and capital.
D) a natural resource and entrepreneurship.

Question 33

Knowledge that can be applied to the production of goods and services is:

A) natural resources.
B) specialization.
C) technology.
D) comparative advantage.

Question 34

Improvements in technology provide benefits to:

A) consumers, through lower prices.
B) workers, although some jobs may be eliminated.
C) firms, through lower production costs.
D) all of the above.

Question 35

Two components of labor are:

A) residential location and education.
B) natural ability and human capital.
C) money and financial wealth.
D) ingenuity and job-specific machinery.

Question 36

The production possibilities curve represents the fact that:

A) the economy will automatically end up at full employment.
B) an economy's productive capacity increases proportionally with its population.
C) if all resources of an economy are being used efficiently, more of one good can be produced only if less of another good is produced.
D) economic production possibilities have no limit.

Question 37

Technology is:

A) knowledge that can be applied to the production of goods and services.
B) generally unlimited in modern economies.
C) a graphical illustration of the alternative combinations of goods and services an economy can produce.
D) the resources the economy has available to produce goods and services.

Question 38

An example of a natural resource is:

A) oil in the ground.
B) oil in storage tanks.
C) a factory.
D) a computer program.

Question 39

One of the two criteria for a resource to be considered as a natural resource is that it must:

A) have been produced.
B) be found in nature.
C) be part of a factory or building.
D) not be used to produce goods and services.

Question 40

Human capital is:

A) the set of acquired skills and abilities that workers bring to the production of goods and services.
B) the financial wealth the economy has available to produce goods and services.
C) the ability to produce one of two goods at relatively lower cost.
D) a factor of production only if it occurs naturally.

Question 41

Use the following to answer question(s):
Exhibit: Guns and Butter

(Exhibit: Guns and Butter) If the economy were producing 8 units of guns and 12 units of butter per period:

A) this is a possible choice, but would involve unemployment and/or inefficiency.
B) the notion of increasing opportunity cost is invalidated.
C) the economy is still efficient but has made a decision not to buy as much as it could.
D) something must be done to reduce the amount of employment.

Question 42

Use the following to answer question(s):
Exhibit: Guns and Butter

(Exhibit: Guns and Butter) This production possibilities curve is:

A) linear and because of the constant cost and
B) bowed in toward the origin because of increasing opportunity costs.
C) bowed in toward the origin because of constant cost of guns and butter.
D) bowed out from the origin because of increasing opportunity costs.

Question 43

If the production possibilities curve were a straight line sloping down from left to right, this would suggest that:

A) more of both goods could be produced moving along the curve.
B) the two products must have the same price.
C) no factor of production has any particular comparative advantage over other resources.
D) the utility of the two goods must be equal to consumers.

Question 44

The concept of comparative advantage is based upon:

A) absolute labor productivity.
B) relative labor costs.
C) dollar prices of labor.
D) relative opportunity costs.

Question 45

Use the following to answer question(s):
Exhibit: Guns and Butter

(Exhibit: Guns and Butter) If the economy were operating at point B, producing 16 units of guns and 12 units of butter per period, a decision to move to point E and produce 18 units of butter:

A) indicates you can have more butter and guns simultaneously.
B) makes it clear that this economy experiences decreasing opportunity costs.
C) involves a loss of 8 units of guns per period.
D) involves a loss of 4 units of guns per period.

Question 46

The law of increasing opportunity cost means that:

A) higher wages, rents, and interest will increase opportunity costs.
B) opportunity cost will decrease the more you decide to produce more of one good along a production possibilities curve.
C) opportunity cost increases when you produce more of one good while moving along a production possibilities curve.
D) costs of production decrease at first, but then eventually rise.

Question 47

When moving along a production possibilities curve, the opportunity cost to society of getting more of the good on the horizontal axis:

A) is constant.
B) is measured in dollar terms.
C) is measured by the amount of the other good that must be given up.
D) usually decreases.

Question 48

If Farmer Sam MacDonald can produce 200 pounds of cabbages and 0 pounds of potatoes or 0 pounds of cabbages and 100 pounds of potatoes and faces a linear production possibilities curve for his farm, the opportunity cost of producing an additional pound of potatoes is _____ _ pound(s) of cabbage.

A) 1/2
B) 2
C) 100
D) 200

Question 49

Comparative advantage leads to producing at a:

A) higher opportunity cost.
B) lower opportunity cost.
C) higher dollar cost.
D) point where costs just begin to fall.

Question 50

Use the following to answer question(s):
Exhibit: Guns and Butter

(Exhibit: Guns and Butter) The maximum amounts of guns and butter this economy can produce is:

A) 18 units of guns and 0 units of butter per period.
B) 0 units of guns and 20 units of butter per period.
C) 16 units of guns and 12 units of butter per period.
D) all of the above combinations are maximum possible combinations.

Question 51

If an economy has to sacrifice only one unit of good X for each unit of good Y produced throughout the relevant range, then its production possibilities curve has a(n):

A) zero slope.
B) constant, negative slope.
C) increasing, negative slope.
D) decreasing, negative slope.

Question 52

Use the following to answer question(s):
Exhibit: Guns and Butter

(Exhibit: Guns and Butter) The combination of guns and butter at point H:

A) can be obtained, but would cost too much.
B) cannot be attained given the level of technology and the factors of production available.
C) has no meaning since it does not relate to the

Question 53

The law of increasing opportunity costs is a result of the fact that:

A) the value of the dollar has declined over time.
B) wage rates rise as the economy reaches full employment.
C) consumers tend to value a good more when they don't have much of it.
D) resources are not equally productive in all output categories.

Question 54

An economy is said to have a comparative advantage in the production of a good if it can:

A) produce that good with more resources than another economy.
B) produce that good with a higher opportunity cost than another economy.
C) produce that good outside its production possibilities curve.
D) produce the good at a lower opportunity cost than another economy.

Question 55

An economy is said to have a comparative advantage in producing a particular good if it:

A) can produce more of all goods than another economy.
B) can produce less of all goods than another economy.
C) has the highest cost for producing that good.
D) has the lowest cost for producing that good.

Question 56

Use the following to answer question(s):
Exhibit: Guns and Butter

(Exhibit: Guns and Butter) A movement from producing 12 units of guns and 16 units of butter per period to point B means a:

A) gain of 4 units of guns and a loss of 6 units of butter per period.
B) gain of 2 units of guns and a loss of 4 units of butter per period.
C) loss of 4 units of butter and a gain of 4 units of guns per period.
D) loss of 2 units of guns and a gain of 4 units of butter per period.

Question 57

If an economy has to sacrifice increasing amounts of good X for each additional unit of good Y produced, then its production possibilities curve is:

A) bowed out from the origin.
B) bowed in toward the origin.
C) a straight line.
D) a vertical line.

Question 58

The slope of a typical production possibilities curve is:

A) 0.
B) vertical.
C) positive.
D) negative.

Question 59

An economy that has the lowest cost for producing a particular good is said to have a(n):

A) technological advantage.
B) comparative advantage.
C) convex news production possibilities curve.
D) all of the above are correct and

Question 60

If Farmer Sam MacDonald can produce 200 pounds of cabbages and 0 pounds of potatoes or 0 pounds of cabbages and 100 pounds of potatoes and faces a linear possibilities curve for his farm, the opportunity cost of producing an additional pound of cabbage is ____ __ pound(s) of potatoes.

A) 1/2
B) 2
C) 100
D) 200

Question 61

Use the following to answer question(s):
Exhibit: Sugar and Freight Trains

(Exhibit: Sugar and Freight Trains) Suppose the economy is operating at point B. The opportunity cost of producing the third freight train would be:

A) 6 tons of sugar.
B) 19 tons of sugar.
C) 45 tons of sugar.
D) 80 tons of sugar.

Question 62

Use the following to answer question(s):
Exhibit: Bicycles and Radishes 2

(Exhibit: Bicycles and Radishes 2) The country depicted in this exhibit is currently operating at point M. It could achieve production at point I only if it:

A) used its resources more efficiently.
B) devoted more resources to radish production.
C) devoted more resources to bicycle production.
D) increased the quantities of capital, natural resources, or labor available or improved its technology.

Question 63

Use the following to answer question(s):
Exhibit: Bicycles and Radishes 1

(Exhibit: Bicycles and Radishes 1) The exhibit shows production possibilities curves for two countries that produce only radishes and bicycles. The axes of both graphs are measured in equivalent units. Country A is now operating at point M, and Country B is now operating at point N. Suppose Country B wants to be able to produce more radishes and more bicycles. To do this, it must:

A) Use its resources more efficiently.
B) achieve full employment in its use of resources.
C) acquire more capital, more labor, more natural resources, and/or better technology.
D) do all of the above.

Question 64

Use the following to answer question(s):
Exhibit: Sugar and Freight Trains

(Exhibit: Sugar and Freight Trains) Suppose the economy is producing 180 tons of sugar and 2 freight trains. This implies that:

A) the economy is operating at full employment.
B) the economy is operating efficiently.
C) the economy is not producing as much as it could.
D) economic growth would help the economy move to its production possibilities curve.

Question 65

Use the following to answer question(s):
Exhibit: Bicycles and Radishes 1

(Exhibit: Bicycles and Radishes 1) The exhibit shows production possibilities curves for two countries that produce only radishes and bicycles. The axes of both graphs are measured in equivalent units. Country A is now operating at point M, and Country B is now operating at point N. The opportunity cost of producing an additional ton of radishes would be greater in:

A) Country A.
B) Country B.
C) neither; the opportunity cost would be the same in both countries.
D) there is not enough information given to answer the question.

Question 66

The law of increasing opportunity cost is associated with the slope of the:

A) demand curve.
B) supply curve.
C) output curve.
D) production possibilities curve.

Question 67

The fact that a society's production possibilities curve is bowed out from the origin of a graph demonstrates the law of:

A) increasing opportunity cost.
B) decreasing opportunity cost.
C) constant opportunity cost.
D) convex opportunity cost.

Question 68

The proposition that states that as output increases for one good in an economy that is on its production possibilities curve, the cost of additional units of the good on the horizontal axis will be greater and greater is the:

A) law of absolute advantage.
B) law of increasing opportunity cost.
C) law of policy ineffectiveness.
D) law of demand.

Question 69

Use the following to answer question(s):
Exhibit: Sugar and Freight Trains

(Exhibit: Sugar and Freight Trains) Suppose the economy is operating at point A, producing 244 tons of sugar and 1 freight train. The opportunity cost of producing the second freight train is:

A) 225 tons of sugar.
B) 25 tons of sugar.
C) 19 tons of sugar.
D) 6 tons of sugar.

Question 70

The economy's factors of production are not equally suitable for producing different types of goods. This principle generates:

A) economic growth.
B) technical efficiency.
C) resource underutilization.
D) the law of increasing opportunity cost.

Question 71

Use the following to answer question(s):
Exhibit: Bicycles and Radishes 2

(Exhibit: Bicycles and Radishes 2) In the country depicted in this exhibit, the opportunity cost of an additional ton of radishes would be greater at:

A) point K.
B) point M.
C) point L.
D) none of the above points; the opportunity cost is the same at every point on a production possibilities curve.

Question 72

If a production possibilities curve were bowed in or convex to the origin of a graph, it would demonstrate:

A) increasing opportunity cost.
B) decreasing opportunity cost.
C) constant opportunity cost.
D) fluctuating opportunity cost.

Question 73

Use the following to answer question(s):
Exhibit: Sugar and Freight Trains

(Exhibit: Sugar and Freight Trains) The downward slope of the production possibilities curve implies:

A) resources in the economy are scarce.
B) the economy must be controlled by the government.
C) sugar is more important than freight trains.
D) the economy produces more sugar than freight trains.

Question 74

In the 1980s, the federal government undertook a major build-up of the military sector, leading to reports that prices charged by military contractors were spiraling upward. According to production possibilities analysis, this result is not surprising due to:

A) the law of increasing opportunity cost.
B) economic efficiency.
C) technical efficiency.
D) resource underutilization.

Question 75

Use the following to answer question(s):
Exhibit: Bicycles and Radishes 1

(Exhibit: Bicycles and Radishes 1) The exhibit shows production possibilities curves for two countries that produce only radishes and bicycles. The axes of both graphs are measured in equivalent units. Country A is now operating at point M, and Country B is now operating at point N. Suppose Country A discovered a new technology that greatly increased its ability to produce bicycles. This would:

A) lower the opportunity cost of producing radishes in Country A.
B) increase the opportunity cost of producing radishes in Country A.
C) have no effect on the opportunity cost of producing radishes in country A.
D) increase the opportunity cost of producing radishes in Country B.

Question 76

The law of increasing opportunity cost says that:

A) opportunity costs of production always tend to increase.
B) increases in wages cause increases in the opportunity costs of production.
C) as output increases for one good on its production possibilities curve, the opportunity cost of additional units of the other good will be greater and greater.
D) along a production possibilities curve, as output increases in the production of one good, the opportunity costs of additional units of the other good will be less and less.

Question 77

Use the following to answer question(s):
Exhibit: Sugar and Freight Trains

(Exhibit: Sugar and Freight Trains) The "bowed-out" shape of the production possibilities curve shown here demonstrates:

A) that freight trains cost more than sugar.
B) that sugar costs more than freight trains.
C) that the opportunity cost of additional freight trains increases as the economy produces more and more of them.
D) that the opportunity cost of additional freight trains decreases as the economy produces more and more of them.

Question 78

Use the following to answer question(s):
Exhibit: Strawberries and Submarines

(Exhibit: Strawberries and Submarines) Suppose the economy is now operating at point G. This implies that:

A) the economy can move to a point such as C only if it improves its technology.
B) the economy is experiencing unemployment and/or inefficient allocation of resources.
C) the economy lacks the resources to achieve a combination such as C.
D) people in this economy don't really like strawberries and submarines.

Question 79

Use the following to answer question(s):
Exhibit: Strawberries and Submarines

(Exhibit: Strawberries and Submarines) Suppose the economy is now operating at point A. The first submarine, which is achieved at point B, would have an opportunity cost of _______ million tons of strawberries.

A) 50
B) 150
C) 400
D) 950

Question 80

Use the following to answer question(s):
Exhibit: Sugar and Freight Trains

(Exhibit: Sugar and Freight Trains) Suppose the economy is operating at point C. The opportunity cost of producing the fourth freight train would be:

A) 19 tons of sugar.
B) 45 tons of sugar.
C) 80 tons of sugar.
D) 3 freight trains.