Question 1

How are the slope of a production possibilities frontier and the opportunity cost of the goods related?
A) The slope is a graphical representation of the cost of expanding production of both goods.
B) The slope is a graphical measure of the growth rate of the economy.
C) The slope is a graphical representation of the cost of decreasing unemployment.
D) The slope is a graphical representation of the rate of trade-off between the goods.
E) The slope is a graphical representation of the cost of economic growth in the economy.

Accepted Answer

The slope of a production possibilities frontier represents the rate of trade-off between the production of two goods. The steeper the slope, the greater the opportunity cost of producing one good in terms of the other. Therefore, the slope and the opportunity cost are closely related.

Question 2

A ticket to an Eric Clapton concert costs $45.If you have a ticket,you can "scalp" it (sell it illegally)for $75.To a ticket holder,the opportunity cost of actually attending the concert is
A) $45.
B) $50.
C) $75.
D) $115.

Accepted Answer

The opportunity cost of attending the concert is the value of the next best alternative foregone, which in this case is the $75 that could have been earned by scalping the ticket.

Question 3

A recent study found that it was cheaper to buy a chicken dinner from Kentucky Fried Chicken than it was to prepare it at home.The researcher included all costs including the imputed value of time involved to prepare the meal at home.This study illustrates the
A) value of marginal analysis.
B) law of increasing costs.
C) difference between real costs and money costs.
D) cost disease of the service sector.

Accepted Answer

The study highlights the difference between real costs (which include the imputed value of time and other non-monetary factors) and money costs (the actual cash spent to purchase goods or services). By accounting for the value of time, it demonstrates how the real cost of preparing a meal at home can exceed the money cost of buying it ready-made.

Question 4

Why would it be a mistake to treat opportunity costs and explicit monetary costs as identical?
A) Because sometimes the market does not function well.
B) Because opportunity costs are different for different goods.
C) Because there are trade-offs involved in any decision.
D) Because of existence of efficient markets.

Accepted Answer

The answer of Why would it be a mistake to...

Question 5

Figure 3-7
 
-What is the opportunity cost of moving from point B to point A in Figure 3-7?
A) 20 units of X
B) 50 units of X
C) 25 units of X
D) 75 units of X

Accepted Answer

Moving from point B to point A means giving up 50 units of Y (the difference between the Y coordinate of point B and the Y coordinate of point A). Therefore, the opportunity cost in terms of X is the increase in X needed to compensate for the loss of 50 units of Y. From point B to point A, this is an increase of 50 units of X (the difference between the X coordinate of point A and the X coordinate of point B). Therefore, the opportunity cost of moving from point B to point A is 50 units of X.

Best choice(s): 
Buyers would prefer to move towards point B from point A as they can get more of both goods. However, sellers would prefer to move from point B to point A as they can sell more of both goods. So, the best choice depends on the perspective of the decision maker.

Question 6

The production possibilities curve illustrates the basic principle that
A) an economy's capacity to produce increases in proportion to its population.
B) if all resources of an economy are in use, more of one good can be produced only if less of another is produced.
C) an economy will automatically seek that output at which all of its resources are employed.
D) no opportunity cost exists in production.

Accepted Answer

The production possibilities curve demonstrates the concept of opportunity cost, which implies that producing more of one good requires sacrificing the production of another good. Therefore, if all resources of an economy are in use, an increase in the production of one good can occur only at the expense of producing less of another. The other choices are incorrect because (A) population size is not directly related to a country's ability to produce and (C) the economy may not naturally seek full employment of all resources. Additionally, (D) opportunity cost exists in all production scenarios, as resources are scarce and cannot be used to produce every conceivable good simultaneously.

Question 7

Figure 3-1
 
-The shape of the production possibilities frontier in Figure 3-1 implies that
A) some resources are better suited for producing wheat than for producing barley.
B) the opportunity cost of producing more wheat falls as wheat production rises.
C) the farmer's technology is not subject to the principle of increasing costs.
D) the financial cost of producing wheat is higher than the financial cost of producing barley.

Accepted Answer

The answer of Figure 3-1
 
-The shape of the production...

Question 8

Money costs and opportunity costs are concepts that are
A) not related in any meaningful way.
B) used by tax accountants.
C) related through relative prices of goods and services.
D) used by economists to learn the most efficient level of output.

Accepted Answer

Money costs refer to the price or monetary value that one has to pay to acquire a good or service, while opportunity costs refer to the value of the best alternative forgone when making a choice. Both concepts are related through the relative prices of goods and services, as the opportunity cost of choosing one option over another is influenced by the prices of both options. Economists use these concepts to make decisions about resource allocation and learn the most efficient level of output.

Question 9

Which of the following is likely to affect the position and shape of society's production possibilities frontier?
A) volume of physical resources
B) level of labor skills
C) level of technology
D) amount of factories on hand
E) All of the above are correct.

Accepted Answer

All of the listed factors (volume of physical resources, level of labor skills, level of technology, and amount of factories on hand) can affect the position and shape of society's production possibilities frontier. The volume of physical resources can affect the amount of goods that can be produced, the level of labor skills can affect productivity, the level of technology can increase efficiency and open new production possibilities, and the amount of factories on hand can impact a society's capacity to produce goods.

Question 10

Rational production decisions require an understanding of
A) trade-offs.
B) opportunity costs.
C) scarcity of resources.
D) All of the above are correct.

Accepted Answer

Rational production decisions take into account the trade-offs between different choices, the opportunity costs of choosing one option over another, and the scarcity of resources available for production. All three factors are important in making informed and efficient decisions.

Question 11

In an attempt to boost enrollment,in January,1996,a private college in Iowa offered free tuition for graduating high school seniors from the county where it is located.For students who accepted the offer,how did this offer affect the opportunity cost of attending college?
A) The opportunity cost did not change, since lost earnings were still a factor.
B) The opportunity cost became zero for the typical student.
C) The opportunity cost was very low, because the only cost was for books and supplies.
D) The opportunity cost did not change, since tuition was not a factor in computing opportunity cost.
E) The opportunity cost was lower than if tuition was charged, but there was still a cost.

Accepted Answer

The opportunity cost is the value of the next best alternative that must be given up in order to pursue a certain action. In this case, the typical opportunity cost of attending college would include the cost of tuition. With the offer of free tuition, the cost of attending college is lower than it would have been with tuition, but there may still be other costs such as room and board, books and supplies, and lost earnings from not working full-time. Therefore, the opportunity cost is lower than if tuition was charged, but there is still a cost.

Question 12

The notion of opportunity cost can be represented graphically by the
A) area inside the production possibilities frontier.
B) slope of the production possibilities frontier.
C) vertical distance from the horizontal axis to the production possibilities frontier.
D) horizontal distance from the vertical axis to the production possibilities frontier.
E) sum of the horizontal and vertical distances to the production possibilities frontier.

Accepted Answer

The answer of The notion of opportunity cost can be...

Question 13

Figure 3-1
 
-According to Figure 3-1,the opportunity cost of one more bushel of wheat is
A) higher at B than at D.
B) lower at B than at D.
C) equal at B and D.
D) impossible to determine from the information given.

Accepted Answer

According to the slope of the Production Possibility Frontier (PPF), the opportunity cost of one more bushel of wheat increases as we move from point A to point D. Therefore, the opportunity cost of one more bushel of wheat is lower at point B than at point D.

Question 14

Do all valuable items have price tags?
A) No, because some valuable items have no opportunity cost.
B) Yes, because everything has its price.
C) Yes, because price is the measure of opportunity cost.
D) No, some have no explicit price on them.
E) Yes, because only items that can be sold in markets have value.

Accepted Answer

Some valuable items, such as sentimental items or experiences, may not have an explicit price tag on them. Prices are typically determined by supply and demand in markets, but there are other factors that can contribute to value outside of market dynamics. Therefore, not all valuable items have price tags.

Question 15

If a market system is functioning well,we can conclude that goods with
A) high opportunity costs tend to have high money costs.
B) low opportunity costs tend to have high money costs.
C) high opportunity costs tend to have low money costs.
D) low opportunity costs tend to have zero money costs.
E) high opportunity costs tend to have zero money costs.

Accepted Answer

In a functioning market system, goods with high opportunity costs tend to cost more in terms of money as producers must allocate more resources to produce them, leading to higher prices for consumers. Conversely, goods with low opportunity costs can be produced more easily and with fewer resources, leading to lower prices.

Question 16

In a market economy,the decision regarding allocation of resources is made by
A) automatic forces of supply and demand.
B) authorities in Washington, D.C.
C) planners in state capitals.
D) committees from a variety of economic interest groups.
E) All of the above are correct.

Accepted Answer

In a market economy, the allocation of resources is primarily determined by the interaction of supply and demand in the marketplace. Prices serve as signals for producers and consumers, indicating where resources are needed and where they are abundant. This "invisible hand" guides the economy without the need for central planning or decision-making by authorities or interest groups.

Question 17

Generally,the opportunity cost and the money cost of a good
A) are identical only if the good sells in a free market.
B) are different.
C) matter only to the purchaser of the good.
D) are not reflected in its price.

Accepted Answer

Opportunity cost refers to the value or benefit that is forgone when choosing one alternative over another. Money cost, on the other hand, refers to the actual amount of money paid for a good or service. These two costs are different because just because a good is expensive doesn't mean it has a high opportunity cost. Opportunity cost depends on the alternative foregone, which may be different for different individuals. These costs are not always reflected in the price of the good, and they matter to both the purchaser and the seller.

Question 18

A production possibilities curve always slopes downward to the right because resources
A) are not scarce.
B) have no opportunity cost.
C) are freely available.
D) are limited.
E) are not related to outputs.

Accepted Answer

A production possibilities curve shows the maximum combinations of two goods that can be produced with a given set of resources. Resources are limited, so as you produce more of one good, you have to give up some production of the other. This means the curve always slopes downward to the right, indicating the opportunity cost of producing one good in terms of the other.

Question 19

For a given production possibilities frontier,which points are attainable?
A) points inside the frontier
B) points outside the frontier
C) points on or outside the frontier
D) points on the frontier only
E) points on or inside the frontier

Accepted Answer

The production possibilities frontier represents the maximum amount of goods that can be produced given the resources and technology available. Therefore, points on or inside the frontier are attainable because they represent combinations of goods that can be produced using the available resources and technology. Points outside the frontier are unattainable because they represent combinations of goods that cannot be produced with the given resources and technology. Points on the frontier represent the efficient use of resources, but they are not the only attainable points.

Question 20

Table 3-1
 
-Suppose a farmer produces 50 bushels of corn and 10 bushels of peanuts.According to Table 3-1,the opportunity cost of 10 more bushels of peanuts is
A) 8 bushels of corn.
B) 42 bushels of corn.
C) 50 bushels of corn.
D) impossible to determine from the information given.

Accepted Answer

The answer of Table 3-1
 
-Suppose a farmer produces 50...

Quiz 3: The Fundamental Economic Problem: Scarcity and Choice

How are the slope of a production possibilities frontier and the opportunity cost of the goods related?

A ticket to an Eric Clapton concert costs $45.If you have a ticket,you can "scalp" it (sell it illegally) for $75.To a ticket holder,the opportunity cost of actually attending the concert is

A recent study found that it was cheaper to buy a chicken dinner from Kentucky Fried Chicken than it was to prepare it at home.The researcher included all costs including the imputed value of time involved to prepare the meal at home.This study illustrates the

Why would it be a mistake to treat opportunity costs and explicit monetary costs as identical?

Figure 3-7 -What is the opportunity cost of moving from point B to point A in Figure 3-7?

The production possibilities curve illustrates the basic principle that

Figure 3-1 -The shape of the production possibilities frontier in Figure 3-1 implies that

Money costs and opportunity costs are concepts that are

Which of the following is likely to affect the position and shape of society's production possibilities frontier?

Rational production decisions require an understanding of

In an attempt to boost enrollment,in January,1996,a private college in Iowa offered free tuition for graduating high school seniors from the county where it is located.For students who accepted the offer,how did this offer affect the opportunity cost of attending college?

The notion of opportunity cost can be represented graphically by the

Figure 3-1 -According to Figure 3-1,the opportunity cost of one more bushel of wheat is

Do all valuable items have price tags?

If a market system is functioning well,we can conclude that goods with

In a market economy,the decision regarding allocation of resources is made by

Generally,the opportunity cost and the money cost of a good

A production possibilities curve always slopes downward to the right because resources

For a given production possibilities frontier,which points are attainable?

Table 3-1 -Suppose a farmer produces 50 bushels of corn and 10 bushels of peanuts.According to Table 3-1,the opportunity cost of 10 more bushels of peanuts is