Question 1

All points on the production possibility frontier are:

Accepted Answer

All points on the production possibility frontier represent the maximum possible output of two goods, given the available resources and technology. Therefore, all points on the PPF are efficient, as they represent the best use of available resources to produce goods.

Question 2

The opportunity cost of production:

Accepted Answer

The opportunity cost of production is the cost of the next best alternative forgone. It is the value of the next best alternative that must be given up in order to pursue a certain action, in this case, producing a good. Therefore, the correct answer is B, which states that it is what you give up to produce the good. A, C, and D are incorrect as they do not accurately define the concept of opportunity cost.

Question 3

In terms of the production possibility frontier,the inefficient use of available resources is shown by:

Accepted Answer

Production at a point inside the production possibility frontier indicates that resources are not being utilized efficiently, as it is possible to produce more of one or both goods without sacrificing the production of the other. The other options (A, B, C) do not necessarily reflect inefficient use of available resources.

Question 4

The production possibility frontier is bowed out because:

Accepted Answer

The production possibility frontier is bowed out because of the differences in resources' suitability for the production of different goods. Some resources are better suited for the production of certain goods, while others are better suited for the production of other goods, resulting in a bowed-out shape of the production possibility frontier.

Question 5

The effect of an increase in productive inputs such as labor and capital can be shown by a(n):

Accepted Answer

An increase in productive inputs such as labor and capital will result in an increase in the potential output of an economy. This will cause the production possibility frontier to shift outward, indicating that more goods and services can be produced than before. Points inside the production possibility frontier (A) represent inefficient use of resources, movements from one point to another along the frontier (C) represent trade-offs between the production of different goods, and an inward shift of the frontier (D) represents a decrease in the amount of inputs available for production.

Question 6

Use the following to answer question: 
-(Figure: Production Possibility Frontier for Tealand)Use Figure: Production Possibility Frontier for Tealand.If Tealand is producing 10 million scones and 10 million cups of tea (point A),we know that the economy:

Accepted Answer

If Tealand is producing at a point inside the Production Possibility Frontier (such as point A with 10 million scones and 10 million cups of tea), it means the economy is using its resources inefficiently because it could produce more of one or both goods without sacrificing anything.

Question 7

Suppose Poland is producing on its production possibilities frontier,and it decides to increase the production of steel and decrease the production of vodka.The bowed-out production possibility frontier suggests that there will be a(n)_____ opportunity cost of producing more steel.

Accepted Answer

The bowed-out (concave) shape of the production possibilities frontier suggests increasing opportunity costs. This means that as Poland produces more steel, it will have to give up increasing amounts of vodka. Therefore, the opportunity cost of producing more steel will be increasing.

Question 8

One of the controversies surrounding the United States' energy markets is the trade-off between energy production and clean air.Assuming clean air has value,the United States will be on its production possibility frontier if and only if:

Accepted Answer

The production possibility frontier (PPF) represents the maximum combination of goods or services that can be produced with full and efficient use of resources. In this context, being on the PPF means that the resources used to produce clean air and energy are being fully and efficiently utilized, indicating an optimal trade-off between the two. Choices A, B, and C do not necessarily imply efficient resource use or an optimal trade-off.

Question 9

The production possibility frontier will shift outward because of:

Accepted Answer

Better technology that improves worker productivity will shift the production possibility frontier outward because it allows for more output to be produced with the same amount of inputs.

Question 10

Use the following to answer question: 
-(Figure: Production Possibility Frontier for Tealand)Use Figure: Production Possibility Frontier for Tealand.Tealand can produce at point E only if:

Accepted Answer

Point E is outside of the production possibility frontier, indicating that it is not currently achievable with Tealand's current resources and technology. Economic growth, such as through the development of new technology or improvements in productivity, could enable Tealand to reach this point in the future.

Question 11

All points inside the production possibility frontier represent:

Accepted Answer

Points inside the production possibility frontier represent inefficient production points because the economy could produce more of at least one good without sacrificing the production of any other good, indicating underutilization of resources.

Question 12

Use the following to answer question: 
-(Figure: Production Possibility Frontier for Tealand)Use Figure: Production Possibility Frontier for Tealand.Tealand is producing at point C on its production possibility frontier.What is the opportunity cost of increasing the production of tea from 20 million cups to 30 million cups?

Accepted Answer

The opportunity cost of moving from 20 million cups of tea to 30 million cups (assuming point C is on the curve) is the amount of scones Tealand must give up to increase tea production. This is represented by the movement along the production possibility frontier (PPF) and is quantified by the decrease in scones produced, which is 5 million scones.

Question 13

All points outside the production possibility frontier are:

Accepted Answer

The production possibility frontier represents the maximum output that can be produced with the given resources and technology. Any point outside the production possibility frontier is unattainable given the resources and technology available, and thus is deemed infeasible.

Question 14

A two-dimensional production possibility frontier illustrates the _____ facing an economy that _____ only two goods.

Accepted Answer

A production possibility frontier (PPF) shows the maximum amount of two goods that an economy can produce given its resources and technology. It illustrates the trade-offs facing the economy because producing more of one good necessitates producing less of the other good. The PPF does not show prices or shortages but rather the efficient combinations of production given the resources available. Therefore, choice B is the correct answer.

Question 15

Economists usually assume that production is subject to increasing opportunity costs because:

Accepted Answer

Increasing opportunity costs occur because not all resources are equally suitable for producing all goods. This means that as more of a certain good is produced, resources that are better suited for other goods must be diverted, resulting in increasing costs and a trade-off between producing different goods. The other choices are incorrect because higher production does not necessarily result in more inflation (A), individuals do not necessarily desire constantly increasing opportunities (C), and it is possible to increase the production of all goods simultaneously if resources are not limited (D).

Question 16

The production possibility frontier will NOT shift outward due to an:

Accepted Answer

An increase in the unemployment rate means there are fewer workers available, which results in a decrease in the production capacity of the economy. Therefore, the production possibility frontier will not shift outward.

Question 17

Consider a production possibility frontier for Italy.If in 2016 Italy's resources are not being fully utilized,Italy will be somewhere _____ of its production possibility frontier.

Accepted Answer

When Italy's resources are not being fully utilized, it indicates that they are not able to produce at their maximum capacity. This, in turn, means that their production level is below their production possibility frontier. Therefore, the correct choice is inside the production possibility frontier.

Question 18

Suppose Oklahoma decides to produce only two goods,oil and football helmets.If Oklahoma is producing on its production possibility frontier,as oil production increases,the production of football helmets will:

Accepted Answer

When Oklahoma is producing on its production possibility frontier (PPF) and decides to increase oil production, it must reallocate resources from producing football helmets to oil production. This trade-off results in a decrease in the production of football helmets. The rate of decrease can vary, but it is not specified as necessarily decreasing, hence the correct answer is that it will decrease at some rate.

Question 19

Technological improvements will:

Accepted Answer

Technological improvements enable firms to produce more output with the same inputs or to produce output with fewer inputs. Thus, the economy's production capacity increases, leading to a shift in the production possibility frontier outward. This means that the economy can now produce more goods and services than before, leading to potential economic growth. It does not necessarily lead to increased unemployment as firms may hire more workers to produce the additional output generated by technological improvements.

Question 20

If an economy is producing at a point on its production possibilities frontier,it is:

Accepted Answer

Producing on the production possibilities frontier indicates that an economy is using all its resources efficiently, meaning it is efficient in production. However, this does not guarantee that the resources are being allocated in the most beneficial way for society, hence not necessarily efficient in allocation.

Quiz 2: Economic Models: Trade-Offs and Trade