Question 1

All of the following could immediately or eventually lead to an inward shift of a nation's production possibilities curve, except
A)emigration of skilled workers to other nations.
B)a decline in the birthrate.
C)an increase in the average skill level of all occupational groups.
D)depletion and reduced availability of major energy resources.

Accepted Answer

An increase in the average skill level of all occupational groups would actually shift the production possibilities curve outward, as workers are able to produce more efficiently and effectively. The other options listed could lead to an inward shift of the curve. Emigration of skilled workers would decrease the available labor force, causing a reduction in production possibilities. A decline in the birthrate would also result in a reduced labor force over time. Depletion and reduced availability of major energy resources would limit a nation's ability to produce, leading to a decrease in production possibilities in the energy sector and potentially beyond.

Question 2

Which of the following will shift the production possibilities curve to the right?
A)an increase in the unemployment rate from 6 to 8 percent
B)a decline in the efficiency with which the present labor force is allocated
C)a decrease in the unemployment rate from 8 to 6 percent
D)a technological advance that allows farmers to produce more output from given inputs

Accepted Answer

A technological advance that allows farmers to produce more output from given inputs will increase the overall productivity of the economy, shifting the production possibilities curve to the right. The other choices do not directly impact the economy's productivity or production possibilities curve.

Question 3

Some agricultural sub-Saharan nations of Africa have overfarmed and overgrazed their land to the extent that significant portions of it have turned into desert.This suggests that
A)the production possibilities curves of such nations are more bowed out from the origin.
B)the production possibilities curves of such nations have shifted inward.
C)the production possibilities curves of such nations have shifted outward.
D)these nations are operating at some point outside of their production possibilities curves.

Accepted Answer

Overfarming and overgrazing lead to soil degradation, loss of nutrients and loss of topsoil, resulting in reduced agricultural productivity. This implies that the maximum potential output of these nations has decreased, causing a shift inward in their production possibilities curves.

Question 4

If all discrimination in the United States were eliminated, the economy would
A)have a less concave production possibilities curve.
B)produce at some point closer to its production possibilities curve.
C)be able to produce at some point outside of its production possibilities curve.
D)produce more consumer goods and fewer investment goods.

Accepted Answer

Discrimination can lead to inefficient allocation of resources and hinder the full utilization of available human capital. Elimination of discrimination would lead to better allocation of resources and production capabilities, allowing for production at a point closer to the production possibilities curve. However, it would not enable production outside the curve or necessarily result in a shift towards one type of goods over another.

Question 5

The law of increasing opportunity costs is reflected in a production possibilities curve that is
A)an upsloping straight line.
B)a downsloping straight line.
C)bowed out from the origin.
D)bowed in toward the origin.

Accepted Answer

The law of increasing opportunity costs states that as production of one good increases, the opportunity cost of producing that good increases as well. This is because resources are not perfectly adaptable to all purposes, and as more resources are allocated to one good, they become less well-suited for producing the other good. This results in a bowed-out shape for the production possibilities curve, with increasing opportunity costs as we move from left to right along the curve.

Question 6

The marginal cost curve is
A)upsloping because of increasing marginal opportunity costs.
B)upsloping because successive units of a specific product yield less and less extra utility.
C)downsloping because of increasing marginal opportunity costs.
D)downsloping because successive units of a specific product yield less and less extra utility.

Accepted Answer

The marginal cost curve is upsloping because of increasing marginal opportunity costs. As production increases, the resources become scarce, and the production cost increases, leading to an increase in the marginal cost.

Question 7

The basic difference between consumer goods and capital goods is that
A)consumer goods are produced in the private sector and capital goods are produced in the public sector.
B)an economy that commits a relatively large proportion of its resources to capital goods must accept a lower growth rate.
C)the production of capital goods is not subject to the law of increasing opportunity costs.
D)consumer goods satisfy wants directly, while capital goods satisfy wants indirectly.

Accepted Answer

Consumer goods are goods that are bought by individuals for their own enjoyment or satisfaction, whereas capital goods are goods that are used to produce other goods or services. Consumer goods directly satisfy wants and needs, while capital goods indirectly satisfy wants and needs by facilitating the production of consumer goods.

Question 8

Which of the following statements, if any, is correct for a nation that is producing only consumer and capital goods?
A)Other things equal, the more consumer goods a nation produces, the greater will be its future growth rate.
B)Other things equal, the more capital goods a nation produces, the greater will be its future growth rate.
C)There is no general relationship between the current division of output between consumer and capital goods and the future growth rate.
D)None of these statements are correct.

Accepted Answer

The production of capital goods leads to an increase in the productive capacity of the economy, making it more efficient and effective in the long run. This can lead to higher future growth rates as the economy can produce more goods and services with the same amount of resources. Therefore, producing more capital goods is generally associated with a higher future growth rate, making option B the correct choice. Option A is incorrect because producing more consumer goods does not necessarily lead to higher future growth rates. Option C is incorrect because there is a relationship between the current division of output and the future growth rate. Option D is incorrect because option B is correct.

Question 9

Other things equal, which of the following would shift an economy's production possibilities curve to the left?
A)the discovery of a low-cost means of generating and storing solar energy
B)the entrance of more women into the labor force
C)a law requiring mandatory retirement from the labor force at age 55
D)an increase in the proportion of total output that consists of capital or investment goods

Accepted Answer

Mandatory retirement would reduce the size of the labor force and therefore the economy's total output, shifting the production possibilities curve to the left.

Question 10

If the output of product X is such that marginal benefit equals marginal cost,
A)the correct amount of resources is being allocated to X's production.
B)the value of producing X exceeds the value of producing alternative products with the available resources.
C)there can be a net gain to society by allocating either more or less resources to producing X.
D)resources are overallocated to the production of X.

Accepted Answer

When marginal benefit equals marginal cost, it means that the last unit produced provides as much benefit as the cost incurred to produce it. This suggests that the correct amount of resources is being allocated to the production of X, as there is no additional benefit to be gained from producing more units of X or allocating more resources to its production. Therefore, option A is the correct choice.

Question 11

A nation's production possibilities curve might shift to the left (inward) as a result of
A)technological advance.
B)increases in the size of the labor force.
C)the depletion of its soil fertility due to overplanting and overgrazing.
D)investing in more capital goods.

Accepted Answer

Overplanting and overgrazing can lead to soil degradation, reducing the nation's agricultural output and moving the production possibilities frontier inward (to the left). The other options listed would shift the curve outward (to the right).

Question 12

Suppose that a fully employed economy produces only two goods, hamburgers and flat-panel TVs.If the economy is currently producing more than the optimal quantity of hamburgers, then to attain the optimal allocation of resources, it should
A)produce more hamburgers and fewer TVs.
B)produce more TVs and fewer hamburgers.
C)produce more of both goods.
D)produce fewer of both goods.

Accepted Answer

If the economy is producing more than the optimal quantity of hamburgers, it means resources are not being allocated efficiently. To reach optimal allocation, the economy should produce fewer hamburgers and more TVs, balancing the production to meet the optimal point on the production possibility frontier.

Question 13

The optimal allocation of resources is found
A)where MB = MC.
B)at every point along a production possibilities curve.
C)where the marginal benefit is at its greatest.
D)where the marginal cost is at its lowest.

Accepted Answer

The optimal allocation of resources occurs where marginal benefit (MB) equals marginal cost (MC), as this is the point where resources are used most efficiently to maximize net benefits.

Question 14

The marginal benefit curve is
A)upsloping because of increasing marginal opportunity costs.
B)upsloping because successive units of a specific product yield less and less extra benefit.
C)downsloping because of increasing marginal opportunity costs.
D)downsloping because successive units of a specific product yield less and less extra benefit.

Accepted Answer

The marginal benefit curve is downsloping because successive units of a specific product yield less and less extra benefit. This is due to the law of diminishing marginal utility, which states that as a consumer consumes more and more units of a specific good or service, the additional satisfaction or benefit they receive from each additional unit will eventually start to decrease. Therefore, the marginal benefit curve is downsloping.

Question 15

Through specialization and international trade, a nation
A)can attain some combination of goods lying outside its production possibilities curve.
B)can move from a high consumption-low investment to a high investment-low consumption point on its production possibilities curve.
C)will only attain some combination of goods lying within its production possibilities curve.
D)will cause its production possibilities curve to shift leftward.

Accepted Answer

Through specialization and international trade, a nation can produce the goods in which it has a comparative advantage and trade them for goods that lie outside its production possibilities curve. This can allow a nation to consume a combination of goods that it would not be able to produce on its own due to resource constraints.

Question 16

The optimal point on a production possibilities curve is achieved where
A)the smallest physical amounts of inputs are used to produce each good.
B)each good is produced at a level where marginal benefits equal marginal costs.
C)large amounts of capital goods are produced relative to consumer goods.
D)large amounts of consumer goods are produced relative to capital goods.

Accepted Answer

The optimal point on a production possibilities curve is where the economy produces a combination of goods that maximizes total benefit. This occurs where marginal benefits are equal to marginal costs, meaning that the last unit of each good produced provides the same amount of additional benefit as the last unit of the other good that could have been produced instead. This is known as allocative efficiency and is the most desirable point on the production possibilities curve. Therefore, the correct choice is B.

Question 17

Suppose that an economy is producing on its production possibilities curve but is not producing quantities of each good where the marginal benefit equals the marginal cost for each good.This economy
A)should not change its production, because it cannot improve its allocation by shifting resources.
B)can improve its allocation by lowering the unemployment rate.
C)can improve its allocation by producing more of one good and less of the other.
D)can improve its allocation by producing more of both goods.

Accepted Answer

The economy can improve its allocation by producing more of one good and less of the other until the marginal benefit equals the marginal cost for each good, achieving allocative efficiency.

Question 18

The concept of opportunity cost
A)is irrelevant in socialistic economies because of central planning.
B)suggests that the use of resources in any particular line of production means that alternative outputs must be forgone.
C)is irrelevant if the production possibilities curve is shifting to the right.
D)suggests that insatiable wants can be fulfilled.

Accepted Answer

Opportunity cost refers to the idea that choosing to use resources in any particular way means that other potential uses of those resources must be given up. This is true regardless of the type of economy or whether the production possibilities curve is shifting. Insatiable wants cannot be fulfilled, so this is not a relevant factor in understanding opportunity cost.

Question 19

Which of the following will enable a nation to obtain a combination of consumer goods and capital goods outside its production possibilities curve?
A)full employment
B)international specialization and trade
C)full production
D)productive efficiency

Accepted Answer

International specialization and trade allows a nation to obtain goods that are outside of its production possibilities curve by specializing in the production of certain goods and trading them for goods that it cannot efficiently produce.

Question 20

Suppose that Scoobania, which has full employment, can obtain 1 unit of capital goods by sacrificing 2 units of consumer goods domestically but can obtain 1 unit of capital goods from another country by trading 1 unit of consumer goods for it.This reality illustrates
A)a rightward (outward) shift of the production possibilities curve.
B)increasing opportunity costs.
C)achieving points beyond the production possibilities curve through international specialization and trade.
D)productive efficiency.

Accepted Answer

By engaging in international trade and specializing in the production of the good in which they have a comparative advantage, Scoobania is able to obtain capital goods at a lower opportunity cost than if they were to produce it domestically. This allows them to reach points beyond their production possibilities curve and achieve a higher level of consumption and production than they would be able to without trade.

Quiz 1: Limits, Alternatives, and Choices

All of the following could immediately or eventually lead to an inward shift of a nation's production possibilities curve, except

Which of the following will shift the production possibilities curve to the right?

Some agricultural sub-Saharan nations of Africa have overfarmed and overgrazed their land to the extent that significant portions of it have turned into desert.This suggests that

If all discrimination in the United States were eliminated, the economy would

The law of increasing opportunity costs is reflected in a production possibilities curve that is

The marginal cost curve is

The basic difference between consumer goods and capital goods is that

Which of the following statements, if any, is correct for a nation that is producing only consumer and capital goods?

Other things equal, which of the following would shift an economy's production possibilities curve to the left?

If the output of product X is such that marginal benefit equals marginal cost,

A nation's production possibilities curve might shift to the left (inward) as a result of

Suppose that a fully employed economy produces only two goods, hamburgers and flat-panel TVs.If the economy is currently producing more than the optimal quantity of hamburgers, then to attain the optimal allocation of resources, it should

The optimal allocation of resources is found

The marginal benefit curve is

Through specialization and international trade, a nation

The optimal point on a production possibilities curve is achieved where

Suppose that an economy is producing on its production possibilities curve but is not producing quantities of each good where the marginal benefit equals the marginal cost for each good.This economy

The concept of opportunity cost

Which of the following will enable a nation to obtain a combination of consumer goods and capital goods outside its production possibilities curve?

Suppose that Scoobania, which has full employment, can obtain 1 unit of capital goods by sacrificing 2 units of consumer goods domestically but can obtain 1 unit of capital goods from another country by trading 1 unit of consumer goods for it.This reality illustrates