Deck 2: Choices and Trade - Offs in the Market

Question 1

The principle of opportunity cost is that

A) in a market economy, taking advantage of profitable opportunities involves some money cost.
B) the economic cost of using a factor of production is the alternative use of that factor that is given up.
C) taking advantage of investment opportunities involves costs.
D) the cost of production varies depending on the opportunity for technological application.

Answer 1

B

Question 2

A production possibility frontier with a bowed outward shape indicates

A) the possibility of inefficient production.
B) constant opportunity costs as more and more of one good is produced.
C) increasing opportunity costs as more and more of one good is produced.
D) decreasing opportunity costs as more and more of one good is produced.

Answer 2

C

Question 3

The production possibility frontier model shows that

A) if consumers decide to buy more of a product, its price will increase.
B) a market economy is more efficient in producing goods and services than is a centrally planned economy.
C) economic growth can only be achieved by free market economies.
D) if all resources are fully and efficiently utilised, more of one good can be produced only by producing less of another good.

Answer 3

D

Question 4

Refer to Figure 2-1. Point A is

A) technically efficient.
B) unattainable with current resources.
C) inefficient in that not all resources are being used.
D) the equilibrium output combination.

Question 5

In a production possibility frontier model, a point ________ the frontier is productively inefficient.

A) along
B) inside
C) outside
D) at either intercept of

Question 6

If opportunity costs are constant, the production possibility frontier would be graphed as

A) a ray from the origin.
B) a positively sloped straight line.
C) a negatively sloped curve bowed in toward the origin.
D) a negatively sloped straight line.

Question 7

Scarcity

A) stems from the incompatibility between limited resources and unlimited wants.
B) can be overcome by discovering new resources.
C) can be eliminated by rationing products.
D) is a bigger problem in market economies than in socialist economies.

Question 8

Refer to Figure 2-2. Steve Vignetto raises cattle and llamas on his land. His land is equally suitable for raising either animal. Which of the graphs in Figure 2-2 represents his production possibility frontier?

A) Graph A
B) Graph B
C) Graph C
D) either Graph B or Graph C

Question 9

The slope of a production possibility frontier

A) has no economic relevance or meaning.
B) is always constant.
C) is always varying.
D) measures the opportunity cost of producing one more unit of a good.

Question 10

The production possibility frontier shows the ________ combinations of two products that may be produced in a particular time period with available resources.

A) minimum attainable
B) maximum attainable
C) only
D) equitable

Question 11

Refer to Figure 2-1. Point C is

A) technically efficient.
B) unattainable with current resources.
C) inefficient in that not all resources are being used.
D) the equilibrium output combination.

Question 12

The attainable production points on a production possibility curve are

A) the horizontal and vertical intercepts.
B) the points along the production possibility frontier.
C) the points outside the area enclosed by the production possibility frontier.
D) the points along and inside the production possibility frontier.

Question 13

Refer to Figure 2-1. Point B is

A) technically efficient.
B) unattainable with current resources.
C) inefficient in that not all resources are being used.
D) the equilibrium output combination.

Question 14

The points outside the production possibility frontier are

A) efficient.
B) attainable.
C) inefficient.
D) unattainable.

Question 15

Peter can produce either a combination of 20 bow ties and 30 neckties or a combination of 35 bow ties and 15 neckties. If he now produces 35 bow ties and 15 neckties, what is the opportunity cost of producing an additional 15 neckties?

A) 2 bow ties
B) 15 bow ties
C) 20 bow ties
D) 35 bow ties

Question 16

If the production possibility frontier is ________, then opportunity costs are constant as more of one good is produced.

A) bowed out
B) bowed in
C) non-linear
D) linear

Question 17

Increasing opportunity cost is represented by a ________ production possibility frontier.

A) linear
B) bowed in
C) bowed out
D) vertical

Question 18

Bella can produce either a combination of 60 silk roses and 80 silk leaves or a combination of 70 silk roses and 55 silk leaves. If she now produces 60 silk roses and 80 silk leaves, what is the opportunity cost of producing an additional 10 silk roses?

A) 2.5 silk leaves
B) 10 silk leaves
C) 25 silk leaves
D) 55 silk leaves

Question 19

The production possibility frontier model assumes which of the following?

A) Labour, capital, land and natural resources are unlimited in quantity.
B) The economy produces only two products.
C) Any level of the two products that the economy produces is currently possible.
D) The level of technology is variable.

Question 20

________ marginal opportunity cost implies that the more resources already devoted to any activity, the payoff from allocating yet more resources to that activity increases by progressively smaller amounts.

A) Increasing
B) Decreasing
C) Constant
D) Negative

Question 21

Refer to Figure 2-3. Consider the following events: a. a reduction in the patent protection period to no more than 2 years
B. a war that destroys a substantial portion of a nation's capital stock
C. the lack of a secure and enforceable property rights system
Which of the events listed above could cause a movement from W to V?

A) a only
B) a and b only
C) a and c only
D) a, b, and c

Question 22

Which of the following would shift a nation's production possibility frontier outward?

A) discovering a cheap way to convert sunshine into electricity
B) an increase in demand for the nation's products
C) a decrease in the unemployment rate
D) a law requiring workers to retire at age 50

Question 23

Refer to Table 2-2. Assume Billie's Bedroom Shop only produces pillows and blankets. A combination of 5 pillows and 21 blankets would appear

A) along Billie's production possibility frontier.
B) inside Billie's production possibility frontier.
C) outside Billie's production possibility frontier.
D) at the vertical intercept of Billie's production possibility frontier.

Question 24

An inward shift of a nation's production possibility frontier can occur due to

A) a reduction in unemployment.
B) a natural disaster like a hurricane or bad earthquake.
C) a change in the amounts of one good desired.
D) an increase in the labour force.

Question 25

An outward shift of a nation's production possibility frontier represents

A) economic growth.
B) rising prices of the two goods on the production possibility frontier model.
C) an impossible situation.
D) a situation in which a country produces more of one good and less of another.

Question 26

Refer to Figure 2-2. Steve Vignetto raises cattle and llamas on his land. A portion of his land is more suitable for raising cattle, and the other portion is better suited for raising llamas. Which of the graphs in Figure 2-2 represents his production possibility frontier?

A) Graph A
B) Graph B
C) Graph C
D) either Graph B or Graph C

Question 27

Refer to Table 2-1. Assume Tomaso's Trattoria only produces pizzas and calzones. A combination of 36 pizzas and 30 calzones would appear

A) along Tomaso's production possibility frontier.
B) inside Tomaso's production possibility frontier.
C) outside Tomaso's production possibility frontier.
D) at the horizontal intercept of Tomaso's production possibility frontier.

Question 28

Refer to Figure 2-3. Consider the following events: a. an increase in the unemployment rate
B. a decrease in a nation's money supply
C. a war that kills a significant portion of a nation's population
Which of the events listed above could cause a movement from Y to W?

A) a, b and c
B) a and b only
C) a and c only
D) c only

Question 29

Refer to Figure 2-3. Consider the following events: a. a decrease in the unemployment rate
B. general technological advancement
C. an increase in consumer wealth
Which of the events listed above could cause a movement from V to W?

A) a only
B) a and b only
C) b and c only
D) a, b, and c

Question 30

Refer to Table 2-1. Assume Tomaso's Trattoria only produces pizzas and calzones. Tomaso faces ________ opportunity costs in the production of pizzas and calzones.

A) increasing
B) decreasing
C) constant
D) negative

Question 31

Without an increase in the supplies of factors of production, how can a nation achieve economic growth?

A) by producing more high-value goods and less of low-value goods
B) through technological advancement which enables more output with the same quantity of resources
C) by lowering the prices of factors of production
D) by increasing the prices of factors of production

Question 32

Refer to Figure 2-3. A movement from X to Y

A) could be due to a change in consumers' tastes and preferences.
B) could occur because of an influx of immigrant labour.
C) is the result of advancements in food production technology only, with no change in the technology for plastic production.
D) is the result of advancements in plastic production technology only, with no change in food production technology.

Question 33

Refer to Table 2-1. Assume Tomaso's Trattoria only produces pizzas and calzones. A combination of 24 pizzas and 15 calzones would appear

A) along Tomaso's production possibility frontier.
B) inside Tomaso's production possibility frontier.
C) outside Tomaso's production possibility frontier.
D) at the horizontal intercept of Tomaso's production possibility frontier.

Question 34

Refer to Table 2-2. Assume Billie's Bedroom Shop only produces pillows and blankets. A combination of 9 pillows and 14 blankets would appear

A) along Billie's production possibility frontier.
B) inside Billie's production possibility frontier.
C) outside Billie's production possibility frontier.
D) at the vertical intercept of Billie's production possibility frontier.

Question 35

Refer to Table 2-1. Assume Tomaso's Trattoria only produces pizzas and calzones. A combination of 24 pizzas and 30 calzones would appear

A) along Tomaso's production possibility frontier.
B) inside Tomaso's production possibility frontier.
C) outside Tomaso's production possibility frontier.
D) at the horizontal intercept of Tomaso's production possibility frontier.

Question 36

Economic decline (negative growth) is represented on a production possibility frontier model by the production possibility frontier

A) shifting outward.
B) shifting inward.
C) becoming steeper.
D) becoming flatter.

Question 37

Refer to Table 2-2. Assume Billie's Bedroom Shop only produces pillows and blankets. Billie faces ________ opportunity costs in the production of pillows and blankets.

A) increasing
B) constant
C) decreasing
D) negative

Question 38

Refer to Table 2-2. Assume Billie's Bedroom Shop only produces pillows and blankets. A combination of 9 pillows and 21 blankets would appear

A) along Billie's production possibility frontier.
B) inside Billie's production possibility frontier.
C) outside Billie's production possibility frontier.
D) at the vertical intercept of Billie's production possibility frontier.

Question 39

Refer to Figure 2-3. Consider the following movements: a. from point V to point W
B. from point W to point Y
C. from point Y to point Z
Which of the movements listed above represents economic growth?

A) a, b, and c
B) b and c only
C) a only
D) b only

Question 40

Refer to Figure 2-3. A movement from Y to Z

A) represents an increase in the demand for plastic products.
B) could occur because of general technological advancements.
C) is the result of advancements in food production technology.
D) is the result of advancements in plastic production technology.

Question 41

Refer to Figure 2-3. Consider the following movements: a. from point V to point W
B. from point W to point Y
C. from point Y to point Z
Which of the movements listed above represents advancements in technology with respect to only plastic production?

A) a, b, and c
B) b and c only
C) b only
D) c only

Question 42

Refer to Figure 2-5. If the economy is currently producing at point E, what is the opportunity cost of moving to point B?

A) 13 thousand hammers
B) 10 thousand hammers
C) 30 thousand wrenches
D) 0 wrenches

Question 43

Suppose there is no unemployment in the economy and society decides that it wants more of one good. Which of the following statements is true?

A) It can only achieve this with an advance in technology.
B) It can increase output without giving up another good.
C) It can only achieve this with an increase in resource supplies.
D) It will have to give up production and consumption of some other good.

Question 44

Refer to Figure 2-4. If the economy is currently producing at point X, what is the opportunity cost of moving to point Y?

A) 5 million tons of steel
B) 9 million tons of paper
C) 5 million tons of paper
D) 14 million tons of steel

Question 45

The Great Depression of the 1930s, with a large number of workers and factories unemployed, would be represented in a production possibility frontier graph by

A) a point inside the frontier.
B) a point outside the frontier.
C) a point on the frontier.
D) an intercept on either the vertical or the horizontal axis.

Question 46

Refer to Figure 2-5. If the economy is currently producing at point C, what is the opportunity cost of moving to point B?

A) 10 thousand wrenches
B) 13 thousand hammers
C) 30 thousand wrenches
D) 23 thousand hammers

Question 47

Refer to Figure 2-5. If the economy is currently producing at point A, what is the opportunity cost of moving to point B?

A) 8 thousand wrenches
B) 6 thousand hammers
C) 30 thousand wrenches
D) 23 thousand hammers

Question 48

Refer to Figure 2-3. Consider the following events: a. an increase in the unemployment rate
B. general technological advancement
C. a decrease in consumer wealth
Which of the events listed above could cause a movement from X to V?

A) a only
B) a and b only
C) b and c only
D) a, b, and c

Question 49

Refer to Figure 2-3. Consider the following events: a. a decrease in the unemployment rate
B. an increase in a nation's money supply
C. an influx of immigrant workers
Which of the events listed above could cause a movement from X to Z?

A) a and b only
B) a and c only
C) a only
D) c only

Question 50

Jane can bake either a combination of 25 cakes and 15 pies or a combination of 10 cakes and 20 pies. If she now bakes 10 cakes and 20 pies, what is the opportunity cost of baking an additional 15 cakes?

A) 5 pies
B) 10 pies
C) 15 pies
D) 20 pies

Question 51

Refer to Figure 2-6. What is the opportunity cost of 80 dozen orchids?

A) 0 roses
B) 2.5 dozen roses
C) 40 dozen roses
D) 200 dozen roses

Question 52

The opportunity cost of taking a semester-long economics class is

A) the cost of tuition and fees only.
B) the value of the time spent in the classroom.
C) zero because there is no admission charged if you are enrolled in the course.
D) equal to the highest value of an alternative use of the time and money spent on the class.

Question 53

If society decides it wants more of one good and all resources are fully utilised, then

A) it is unable to do this unless technology advances.
B) additional resource supplies will have to be found.
C) it has to give up some of another good and incur some opportunity costs.
D) more unemployment will occur.

Question 54

According to the production possibility model, if more resources are allocated to the production of physical and human capital, then which of the following is likely to happen?

A) Fewer goods will be produced for consumption today.
B) The production possibility frontier will be shifted inward in the future.
C) Future economic growth will decline.
D) The country's total production will fall.

Question 55

Refer to Figure 2-3. Consider the following events: a. an increase in the patent protection period to 30 years
B. an increase of a nation's capital stock
C. an improved property rights system
Which of the events listed above could cause a movement from V to W?

A) a only
B) a and b only
C) a and c only
D) a, b, and c

Question 56

Refer to Figure 2-5. If the economy is currently producing at point E, what is the opportunity cost of moving to point D?

A) 13 thousand hammers
B) 10 thousand hammers
C) 8 thousand wrenches
D) 0 wrenches

Question 57

Refer to Figure 2-3. A movement from ________ could occur because of an influx of immigrant labour.

A) W to V
B) X to W
C) W to Z
D) Y to W

Question 58

Refer to Figure 2-5. If the economy is currently producing at point D, what is the opportunity cost of moving to point B?

A) 8 thousand wrenches
B) 23 thousand hammers
C) 30 thousand wrenches
D) 0 hammers

Question 59

Refer to Figure 2-4. If the economy is currently producing at point Y, what is the opportunity cost of moving to point W?

A) 2 million tons of steel
B) zero
C) 9 million tons of paper
D) 16 million tons of paper

Question 60

Refer to Figure 2-3. A movement from ________ is the result of negative technological change in plastic production.

A) V to X
B) X to W
C) W to Z
D) Z to Y

Question 61

The opportunity cost of going to an outdoor music festival is

A) the enjoyment you receive from going to the festival.
B) the value of the time spent at the festival.
C) equal to the highest value of an alternative use of the time and money spent on the festival.
D) zero because there is no overhead costs for an outdoor festival.

Question 62

Any output combination outside a production possibility frontier is associated with unused or underutilised resources.

Question 63

An increase in the labour force shifts the production possibility frontier inwards over time.

Question 64

Any output combination along a production possibility frontier is associated with fully utilised resources.

Question 65

If a country is producing efficiently and is on the production possibility frontier, the country can produce more of one good without producing less of the other good.

Question 66

Refer to Table 2-3. Assume Dina's Cafe only produces sliders and hot wings. A combination of 120 sliders and 100 hot wings would appear

A) along Dina's production possibility frontier.
B) inside Dina's production possibility frontier.
C) outside Dina's production possibility frontier.
D) at the vertical intercept of Dina's production possibility frontier.

Question 67

Suppose your expenses for this term are as follows: tuition: $10 000, room and board: $6000, books and other educational supplies: $1000. Further, during the term, you can only work part-time and earn $8000 instead of your full-time salary of $20 000. What is the opportunity cost of going to university this term, assuming that your room and board expenses would be the same even if you did not go to university?

A) $11 000
B) $17 000
C) $23 000
D) $29 000

Question 68

Refer to Figure 2-6. What is the opportunity cost of 100 dozen roses?

A) 0.8 dozen orchids
B) 5 dozen orchids
C) 40 dozen orchids
D) 80 dozen orchids

Question 69

If a country is producing efficiently and is on the production possibility frontier, the only way to produce more of one good is to produce less of the other.

Question 70

Refer to Figure 2-6. Suppose Vidalia is currently producing 120 dozen roses per period. How many orchids is it also producing, assuming that resources are fully utilised?

A) 20 dozen orchids
B) 32 dozen orchids
C) 44 dozen orchids
D) 68 dozen orchids

Question 71

Refer to Figure 2-6. Suppose Vidalia is currently producing 60 dozen orchids per period. How many roses is it also producing, assuming that resources are fully utilised?

A) 40 dozen roses
B) 50 dozen roses
C) 60 dozen roses
D) 100 dozen roses

Question 72

An increase in the unemployment rate may be represented as a movement from a point on the production possibility frontier to a different point on the frontier.

Question 73

Refer to Table 2-3. Assume Dina's Cafe only produces sliders and hot wings. A combination of 80 sliders and 50 hot wings would appear

A) along Dina's production possibility frontier.
B) inside Dina's production possibility frontier.
C) outside Dina's production possibility frontier.
D) at the vertical intercept of Dina's production possibility frontier.

Question 74

A decrease in the unemployment rate may be represented as a movement from a point on the production possibility frontier to a point outside the frontier.

Question 75

Refer to Table 2-3. Assume Dina's Cafe only produces sliders and hot wings. A combination of 80 sliders and 100 hot wings would appear

A) along Dina's production possibility frontier.
B) inside Dina's production possibility frontier.
C) outside Dina's production possibility frontier.
D) at the vertical intercept of Dina's production possibility frontier.

Question 76

If additional units of a good could be produced at an increasing opportunity cost, the production possibility frontier would be linear.

Question 77

If additional units of a good could be produced at a constant opportunity cost, the production possibility frontier would be bowed outward (concave).

Question 78

A decrease in population shifts the production possibility frontier outwards over time.

Question 79

On a diagram of a production possibility frontier, opportunity cost is represented by the production possibility frontier shifting outward.

Question 80

Refer to Table 2-3. Dina faces ________ opportunity costs in the production of sliders and hot wings.

A) increasing
B) decreasing
C) constant
D) negative