Question 1

The negative slope of a production possibilities frontier is a graphic representation of opportunity cost.

Accepted Answer

The negative slope of a production possibilities frontier indicates that as the production of one good increases, the production of the other must decrease. This is because resources are limited and must be allocated between the two goods. Thus, the opportunity cost of producing one good is represented by the amount of the other good that must be given up.

Question 2

The production possibilities frontier has a tendency to bow outward from the origin.

Accepted Answer

The production possibilities frontier typically bows outward from the origin because of the law of increasing opportunity cost. As more resources are allocated towards producing a particular good, the opportunity cost of producing an additional unit of that good increases, causing the production possibilities frontier to curve.

Question 3

As more of a good is produced, its opportunity cost tends to increase because resources are not equally efficient at producing all goods.

Accepted Answer

This is due to the principle of increasing opportunity cost, which states that as production of a good increases, the opportunity cost of producing an additional unit of that good tends to increase as resources become less suited for production of that good and more specialized towards other goods.

Question 4

A society can occasionally produce at a point beyond its production possibilities frontier if there is an economic crisis.

Accepted Answer

The production possibilities frontier (PPF) represents the maximum output that a society can produce with its current resources and technology. Producing beyond the PPF is not possible under current conditions, even during an economic crisis. An economic crisis typically reduces production capabilities rather than expanding them.

Question 5

Some economies have production possibilities frontiers that are bowed inward toward the origin.

Accepted Answer

The bowed inward shape of the production possibilities frontier indicates that the opportunity cost of producing one good increases as more of it is produced, due to the limited availability of resources with different abilities to produce different goods. Therefore, the production possibilities frontier is not a straight line and is bowed inward toward the origin.

Question 6

If the quantity of one good that must be forgone increases as successive units of another good are produced, then there is said to be increasing opportunity cost between the two goods.

Accepted Answer

This statement describes the concept of increasing opportunity cost in production possibilities curves, where the resources are not perfectly adaptable to producing different goods.

Question 7

The political party that is in power determines the position and shape of the production possibilities frontier that constrains the choices of the economy.

Accepted Answer

The position and shape of the production possibilities frontier are determined by factors such as technology, resources, and efficiency. They are not directly affected by the political party in power. However, the policies and decisions made by the government can influence the economy's position on the production possibilities frontier.

Question 8

Being on the production possibilities frontier implies that increasing the production of one good or service can only be accomplished by decreasing the quantity produced of another good or service.

Accepted Answer

Being on the production possibilities frontier means that all resources are fully utilized, and any increase in the production of one good or service can only occur by decreasing the production of another good or service. This is the trade-off that occurs when an economy is operating at its maximum potential.

Question 9

The production possibilities frontier slopes downward and to the right because of limited resources.

Accepted Answer

The production possibilities frontier represents the maximum combinations of two goods that can be produced with a given set of resources. As resources are limited, producing more of one good means sacrificing some of the resources that could have been used to produce the other good. Therefore, the production possibilities frontier slopes downward and to the right, indicating that as we produce more of one good, we have to give up some of the production of the other good.

Question 10

If a society produces at a point on the production possibilities frontier, this is consistent with the full employment of resources.

Accepted Answer

If a society is producing at a point on the production possibilities frontier, it means that they are using all of their available resources efficiently and effectively. This would suggest that there is full employment of resources. If they were producing below the production possibilities frontier, it would indicate that there is some underutilization of resources, and if they were producing beyond the production possibilities frontier, it would suggest that resources are being overutilized, potentially leading to inefficiencies and negative consequences in the long run.

Question 11

From a society's viewpoint, when all resources are fully employed, a decision to have more of one thing means we must give up something else.

Accepted Answer

This is the basic concept of opportunity cost. When all resources are fully employed, to produce more of one good, we must divert resources from producing another good. Therefore, society must make choices about how to allocate its limited resources, and these choices involve trade-offs.

Question 12

If society produces at a point inside the production possibilities frontier, it is characterized by full employment of resources.

Accepted Answer

If society produces at a point inside the production possibilities frontier, it is not utilizing all available resources and therefore not at full employment.

Question 13

According to the principle of increasing costs, as the production of one good expands, the opportunity cost of producing another unit of the good tends to increase.

Accepted Answer

The principle of increasing costs states that as the production of one good expands, the opportunity cost of producing another unit of the good tends to increase. This is due to the fact that the resources used to produce the first good may be better suited for that specific production, making it more costly to use them for the production of the second good.

Question 14

A government, based upon its policy decisions, can determine the position and shape of the production possibilities frontier that the economy faces.

Accepted Answer

The answer of A government, based upon its policy decisions,...

Question 15

A production possibilities frontier shows the combinations of various goods that should be produced.

Accepted Answer

A production possibilities frontier shows the maximum combinations of two goods that can be produced given the available resources and technology. It does not make a normative judgment about what "should" be produced.

Question 16

The concept of opportunity cost is more applicable to society as a whole than it is for an individual household.

Accepted Answer

Opportunity cost is a fundamental economic principle that applies to all decision-makers, including individuals, households, businesses, and society as a whole, as it involves the cost of forgoing the next best alternative when making a choice.

Question 17

A society's decision to produce more tanks may require it to reduce the production of some cars.

Accepted Answer

The decision to produce more tanks requires the allocation of resources towards that production, which may mean reducing production of other goods such as cars. This is known as opportunity cost.

Question 18

Any point on or outside the production possibilities frontier is attainable.

Accepted Answer

Any point on or inside the production possibilities frontier is attainable, but any point outside the frontier is not attainable with current resources and technology.

Question 19

If the production possibilities frontier for guns and butter is bowed outward from the origin, this indicates constant opportunity cost between the two goods.

Accepted Answer

If the production possibilities frontier is bowed outward, it indicates increasing opportunity cost between the two goods. Constant opportunity cost would result in a straight line PPF.

Question 20

Society can produce at a point outside the production possibilities frontier, but only if it is using all of its resources efficiently.

Accepted Answer

A point outside the production possibilities frontier represents a combination of goods that cannot be produced using the current resources and technology. Therefore, society cannot produce at such a point even if it is using all its resources efficiently.

Quiz 3: The Fundamental Economic Problem: Scarcity and Choice