Question 1

Production possibilities frontiers cannot be used to illustrate trade-offs.

Accepted Answer

Production possibilities frontiers (PPFs) are specifically designed to illustrate the trade-offs between different choices in the allocation of resources, showing the maximum possible output combinations of two goods or services that an economy can achieve when all resources are fully and efficiently utilized.

Question 2

An assumption of the production possibilities frontier model is that technology is fixed.

Accepted Answer

The production possibilities frontier (PPF) model assumes that technology is fixed and constant during its analysis, meaning that the technology available to produce goods and services does not change.

Question 3

Opportunity cost refers to how many inputs a producer requires to produce a good.

Accepted Answer

Opportunity cost refers to the cost of forgoing the next best alternative when making a decision, not the amount of inputs required to produce a good.

Question 4

Opportunity cost measures the trade-off between two goods that each producer faces.

Accepted Answer

Opportunity cost refers to the value of the next best alternative that is forgone when a decision is made to produce or consume one good over another.

Question 5

For a country producing two goods, the opportunity cost of one good will be the inverse of the opportunity cost of the other good.

Accepted Answer

In a two-good scenario, the opportunity cost of producing one good is the amount of the other good that must be forgone. Since this relationship is reciprocal, the opportunity cost of the second good is the inverse of the first, reflecting a trade-off between the two goods.

Question 6

In most countries today, many goods and services consumed are imported from abroad, and many goods and services produced are exported to foreign customers.

Accepted Answer

Globalization has significantly increased international trade, leading to most countries importing a substantial amount of goods and services from abroad while exporting domestically produced goods and services to meet foreign demand.

Question 7

Assume a farmer has the ability to produce corn and/or beans. Whenever the farmer spends 1 hour less producing corn and 1 hour more producing beans, he reduces his output of corn by 2 bushels and raises his output of beans by 3 bushels. In view of these assumptions, the farmer's production possibilities frontier is bowed out.

Accepted Answer

The farmer's production possibilities frontier is a straight line, not bowed out, because the opportunity cost of producing corn in terms of beans is constant (2 bushels of corn for 3 bushels of beans).

Question 8

Jake can complete an oil change in 45 minutes and he can write a poem in 90 minutes. Ming-la can complete an oil change in 30 minutes and she can write a poem in 90 minutes. Jake's opportunity cost of writing a poem is lower than Ming-la's opportunity cost of writing a poem.

Accepted Answer

Jake can complete an oil change in 45 minutes and Ming-la can complete an oil change in 30 minutes. So, Jake's opportunity cost of writing a poem is 45 minutes (the time he could have spent completing an oil change) and Ming-la's opportunity cost of writing a poem is 30 minutes. Therefore, Jake's opportunity cost of writing a poem is lower than Ming-la's opportunity cost of writing a poem.

Question 9

Trade allows a country to consume outside its production possibilities frontier.

Accepted Answer

Trade enables a country to specialize in the production of goods and services in which it has a comparative advantage and then trade for other goods and services. This specialization and trade allow for consumption levels that can exceed what the country could achieve by itself without trade, effectively allowing it to consume outside its production possibilities frontier.

Question 10

Interdependence among individuals and interdependence among nations are both based on the gains from trade.

Accepted Answer

Both individual and national interdependence are rooted in the benefits derived from trade, where parties engage in exchanges that allow them to obtain goods and services they cannot produce as efficiently on their own, leading to mutual gains and increased welfare.

Question 11

It is possible for the U.S. to gain from trade with Germany even if it takes U.S. workers fewer hours to produce every good than it takes German workers.

Accepted Answer

This is possible due to the principle of comparative advantage, which suggests that even if one country is more efficient in producing all goods (absolute advantage), both countries can still benefit from trade if they specialize in producing goods for which they have the lowest opportunity cost.

Question 12

An economy can produce at any point on or inside its production possibilities frontier, but it cannot produce at points outside its production possibilities frontier.

Accepted Answer

The production possibilities frontier (PPF) represents the maximum combination of goods or services that can be produced with a given set of resources and technology. Points on or inside the PPF are attainable, while points outside the PPF are not achievable with the current resources and technology.

Question 13

If a person chooses self-sufficiency, then she can only consume what she produces.

Accepted Answer

Self-sufficiency means relying on one's own resources and capabilities to meet all of one's needs, implying that a person can only consume what they are able to produce themselves.

Question 14

In one month, Moira can knit 2 sweaters or 4 scarves. In one month, Tori can knit 1 sweater or 3 scarves. Moira's opportunity cost of knitting scarves is lower than Tori's opportunity cost of knitting scarves.

Accepted Answer

Moira's opportunity cost of knitting a scarf is 0.5 sweaters (2 sweaters / 4 scarves), while Tori's is 0.33 sweaters (1 sweater / 3 scarves), making Moira's opportunity cost higher.

Question 15

A production possibilities frontier is a graph that shows the combination of outputs that an economy should produce.

Accepted Answer

A production possibilities frontier shows the maximum combination of outputs that an economy can produce given its resources and technology, not what it should produce.

Question 16

The production possibilities frontier shows the trade-offs that the producer faces but does not identify the choice the producer will make.

Accepted Answer

The production possibilities frontier (PPF) illustrates the maximum possible output combinations of two goods or services an economy can achieve when all resources are fully and efficiently utilized, showing the trade-offs in production volume between two choices. However, the PPF itself does not determine which point or combination of goods the producer will choose; this decision depends on additional factors such as market demand, resource costs, and the producer's objectives.

Question 17

Suppose that in one hour Dewey can produce either 10 bushels of corn or 20 yards of cloth. Dewey's opportunity cost of producing one bushel of corn is 1/2 yard of cloth.

Accepted Answer

Dewey's opportunity cost of producing one bushel of corn is 2 yards of cloth, not 1/2 yard.

Question 18

Henry can make a bird house in 3 hours and he can make a bird feeder in 1 hour. The opportunity cost to Henry of making a bird house is 1/3 bird feeder.

Accepted Answer

The opportunity cost of making a bird house for Henry is 3 bird feeders because he could make 3 bird feeders in the time it takes to make one bird house.

Question 19

To produce 100 bushels of wheat, Farmer A requires fewer inputs than does Farmer B. We can conclude that Farmer A has an absolute advantage over Farmer B in producing wheat.

Accepted Answer

Farmer A requires fewer inputs to produce the same amount of wheat as Farmer B, indicating that Farmer A can produce wheat more efficiently, which is the definition of having an absolute advantage in production.

Question 20

If Wrex can produce more math problems per hour and more book reports per hour than Maxine can, then Wrex cannot gain from trading math problems and book reports with Maxine.

Accepted Answer

Even if Wrex is more efficient in both tasks, he can still benefit from trading with Maxine due to the principle of comparative advantage, which allows both parties to specialize in the production of goods for which they have a lower opportunity cost, leading to gains from trade for both.

Quiz 3: Interdependence and the Gains From Trade