Question 1

Over time, an increase in a nation's stock of physical capital will
A)shift the production possibilities curve inward.
B)cause an economy to operate inside its production possibilities curve.
C)shift the production possibilities curve outward.
D)eliminate the basic economic problem of scarcity.

Accepted Answer

An increase in a nation's stock of physical capital (e.g. factories, machinery, equipment) allows for more output to be produced with the same amount of inputs. This leads to an outward shift of the production possibilities curve, showing that more goods and services can be produced with the same resources or that the same amount of goods and services can be produced with fewer resources.

Question 2

With time, which one of the following strategies would most likely result in an outward shift in the production possibilities curve of an economy?
A)passage of legislation reducing the workweek to 30 hours
B)instituting a tax policy encouraging consumption at the expense of investment
C)instituting a tax policy encouraging investment at the expense of consumption
D)an increase in the marginal income tax rate, which would reduce the work effort of individuals

Accepted Answer

Instituting a tax policy that encourages investment at the expense of consumption would likely result in an outward shift in the production possibilities curve of an economy. This is because investment typically leads to the development of new technology, the creation of new capital, and the expansion of production capabilities. As a result, this would enable an economy to produce more goods and services in the future, leading to an outward shift in its production possibilities curve.

Question 3

If an economy uses its resources inefficiently, this situation would be illustrated on a production possibilities diagram as
A)an inward shift of the production possibilities curve.
B)an outward shift of the production possibilities curve.
C)operating at a point outside the production possibilities curve.
D)operating at a point inside the production possibilities curve.

Accepted Answer

Operating at a point inside the production possibilities curve indicates that the economy is not efficiently using its resources, as it is producing less than it could with the given resources.

Question 4

Which of the following is true of a production possibilities curve?
A)It reveals the maximum amount of any two goods that can be produced from a fixed quantity of resources.
B)It reveals the ideal level of technology for a country.
C)It assumes that the prices of the two products are equal.
D)For a country that could produce many different goods, it shows which two goods are most important to produce.

Accepted Answer

A production possibilities curve shows the maximum amount of any two goods that can be produced from a fixed quantity of resources. This is because there are limited resources in any economy, and the production possibilities curve illustrates the trade-offs that must be made between producing different goods using those resources.

Question 5

Suppose that country A produces mostly consumption goods and few investment goods, while country B produces mostly investment goods with few consumption goods. Other things constant, which of the following is most likely to happen in the future?
A)The per capita income of country A will grow more rapidly than country B.
B)The population of country B will grow more rapidly than country A.
C)The production possibilities curve (PPC) of country B will shift out more rapidly than the PPC of country A.
D)The production possibilities curve (PPC) of country A will shift out more rapidly than the PPC of country B.

Accepted Answer

The answer of Suppose that country A produces mostly consumption...

Question 6

Other things constant, which of the following would you expect to increase the output growth rate of a country?
A)an increase in the rate of taxation on personal income
B)an increase in the rate of investment as a share of total output
C)passage of regulations restricting international trade
D)passage of regulations restricting domestic trade

Accepted Answer

An increase in the rate of investment as a share of total output would increase the output growth rate of a country as it would lead to more capital accumulation and productivity growth. Taxes and regulations restricting trade would have negative effects on economic growth.

Question 7

Using a production possibilities curve, a technological advance that increases the amount of output for the same amount of inputs would be illustrated as
A)an inward shift of the curve.
B)a movement from one point to another point along the curve.
C)an outward shift of the curve.
D)a movement from a point on the curve to a point inside the curve.

Accepted Answer

A technological advance that increases the amount of output for the same amount of inputs would lead to an increase in production capacity, which would be represented by an outward shift of the production possibilities curve. This is because the economy is now capable of producing more of both goods without sacrificing the production of the other. Therefore, the answer is an outward shift of the curve.

Question 8

Sally wishes to spend more time this week studying for her classes. Using the idea of a production possibilities curve, and assuming Sally is currently spending all of her time efficiently, Sally can spend more time studying this week only if
A)she also spends more time doing other things.
B)she spends less time doing other things.
C)Daylight Savings Time begins this week, so everyone moves their clocks ahead one hour.
D)none of the above.

Accepted Answer

The production possibilities curve assumes that all resources (including time) are being used efficiently. Therefore, in order for Sally to spend more time studying, she would need to reallocate some of the time she is currently using for other things. This means she would have to spend less time doing those other things. Option A suggests that Sally needs to spend more time doing other things, which would not allow her to spend more time studying. Option C regarding Daylight Savings Time is a red herring and not relevant to Sally's decision. Therefore, B is the correct answer.

Question 9

Which of the following will most likely cause an outward shift in the production possibilities curve?
A)a reduction in the man-made productive resources available to the economy as the result of a decline in investment
B)an increase in government payments to farmers for taking land out of production
C)an increase from 40 to 50 hours in the average number of hours worked per week
D)None of the above would cause an outward shift in the production possibilities curve.

Accepted Answer

An increase in the average number of hours worked per week would increase the labor input of the economy, which would shift the production possibilities curve outward. A reduction in man-made productive resources (A) or an increase in government payments to farmers for taking land out of production (B) would decrease the available resources for production, resulting in an inward shift of the production possibilities curve.

Question 10

A point on the production possibilities curve represents a combination of goods that is
A)inefficient.
B)efficient.
C)unattainable.
D)attainable.

Accepted Answer

A point on the production possibilities curve represents an efficient combination of goods where all resources are being fully utilized to produce the maximum output possible. Therefore, option B - efficient - is the correct answer. Option A - inefficient - would refer to a point inside the curve, where resources are not being used to their full potential. Option C - unattainable - would refer to a point outside the curve, where the economy does not have the resources to produce that combination of goods. Option D - attainable - refers to any point on or inside the curve, as both represent combinations of goods that can be produced with the available resources.

Question 11

A point outside the production possibilities curve represents a combination of goods that is
A)inefficient.
B)efficient.
C)unattainable.
D)attainable.

Accepted Answer

A point outside the production possibilities curve represents a combination of goods that is unattainable because it is beyond the economy's current resources and technology.

Question 12

A production possibilities curve graphically represents the maximum quantities of two products produced when all resources in the economy are efficiently utilized. An economy that operates inside this production possibilities curve
A)is using its resources inefficiently.
B)lacks the necessary technology to produce efficiently.
C)lacks the resources to produce goods efficiently.
D)is utilizing its available resources as efficiently as possible.

Accepted Answer

An economy operating inside the production possibilities curve is not using all of its resources efficiently. This means that it is producing less than the maximum amount of both products that it could be producing with all available resources.

Question 13

If the citizens of a country were to work harder and take less leisure time, it would
A)shift the production possibilities curve outward.
B)cause an economy to operate inside its production possibilities curve.
C)shift the production possibilities curve inward.
D)cause an economy to move from one point on the production possibilities curve to another point on the curve.

Accepted Answer

If citizens work harder and take less leisure time, they will increase their productivity and output, leading to an increase in the overall production possibilities of the country. This results in a shift of the production possibilities curve outward.

Question 14

A point inside the production possibilities curve represents a combination of goods that is
A)inefficient.
B)efficient.
C)unattainable.
D)attainable.

Accepted Answer

The answer of A point inside the production possibilities curve...

Question 15

In Europe during the 14th century, the Black Plague killed 24 million people or close to 37 percent of the population. How would this affect the production possibilities curves for the countries of Europe at that time?
A)The production possibilities curves for these countries would have shifted outward.
B)The production possibilities curves for these countries would have shifted inward.
C)The production possibilities curves for these countries would have been unaffected.
D)This would have been illustrated by a movement along the production possibilities curves for these countries, but it would not have shifted them.

Accepted Answer

The Black Plague killed a large portion of the European population. This would have led to a significant decrease in the labor force and a decrease in the amount of capital available for production. As a result, countries would have had to produce fewer goods and services, leading to a decrease in their production possibilities. Therefore, the production possibilities curves for these countries would have shifted inward.

Question 16

An improvement in a country's legal system that enhanced the ability of citizens to protect their property rights and enforce contracts would result in which of the following changes to the country's production possibilities curve?
A)a movement from a point on the curve to a point outside the curve
B)a movement from one point to another point along the curve
C)an outward shift of the curve
D)a movement from a point on the curve to a point inside the curve

Accepted Answer

An improvement in the legal system that enhances property rights and contract enforcement leads to increased certainty and security in conducting economic transactions. This leads to greater investment, entrepreneurship, and productivity which in turn leads to an outward shift of the production possibilities curve.

Question 17

If an economy operates at a point within its production possibilities curve,
A)it lacks the resources necessary to reach the curve.
B)it is utilizing all of its resources efficiently.
C)it does not confront the problem of scarce goods relative to unlimited wants.
D)it is not efficiently using all of its resources.

Accepted Answer

Operating within the production possibilities curve implies that there is potential to produce more goods and services with the available resources. Therefore, the economy is not efficiently using all of its resources.

Question 18

If the resources of an economy are being used inefficiently, it would be
A)possible to increase production of all goods simultaneously.
B)possible to increase production of one good only if production decreased for the other goods.
C)not possible to increase production of any good.
D)not possible to increase economic growth.
E)possible to increase production with no effort.

Accepted Answer

The answer of If the resources of an economy are...

Question 19

Which of the following will be most likely to cause the production possibilities curve for a country to shift inward?
A)an increase in the labor force
B)an increase in unemployment
C)development of an improved technological method of production
D)a decrease in the stock of physical capital

Accepted Answer

A decrease in the stock of physical capital, such as a natural disaster destroying factories and equipment, would decrease a country's ability to produce goods and services. This would lead to a shift inward of the production possibilities curve. An increase in the labor force or unemployment would not lead to a shift in the curve, as it only affects the quantity of inputs available, not the production technology or resources available. The development of an improved technological method of production would actually shift the curve outward, as it would allow for more efficient production and a greater output of goods and services.

Question 20

Suppose an economy produces only two goods, computers and TVs. If the economy operates at a point on its production possibilities curve, it can produce more computers only if
A)it also produces more TVs.
B)it charges more for TVs.
C)it shifts to a point inside its production possibilities curve.
D)it produces fewer TVs.

Accepted Answer

The production possibilities curve shows the maximum possible combinations of two goods that can be produced by an economy with the given resources and technology. If the economy wants to produce more computers, it needs to shift resources from TV production to computer production because both goods require the same resources. Therefore, it can produce more computers only if it produces fewer TVs.

Quiz 2: A: Some Tools of the Economist

Over time, an increase in a nation's stock of physical capital will

With time, which one of the following strategies would most likely result in an outward shift in the production possibilities curve of an economy?

If an economy uses its resources inefficiently, this situation would be illustrated on a production possibilities diagram as

Which of the following is true of a production possibilities curve?

Suppose that country A produces mostly consumption goods and few investment goods, while country B produces mostly investment goods with few consumption goods. Other things constant, which of the following is most likely to happen in the future?

Other things constant, which of the following would you expect to increase the output growth rate of a country?

Using a production possibilities curve, a technological advance that increases the amount of output for the same amount of inputs would be illustrated as

Sally wishes to spend more time this week studying for her classes. Using the idea of a production possibilities curve, and assuming Sally is currently spending all of her time efficiently, Sally can spend more time studying this week only if

Which of the following will most likely cause an outward shift in the production possibilities curve?

A point on the production possibilities curve represents a combination of goods that is

A point outside the production possibilities curve represents a combination of goods that is

A production possibilities curve graphically represents the maximum quantities of two products produced when all resources in the economy are efficiently utilized. An economy that operates inside this production possibilities curve

If the citizens of a country were to work harder and take less leisure time, it would

A point inside the production possibilities curve represents a combination of goods that is

In Europe during the 14th century, the Black Plague killed 24 million people or close to 37 percent of the population. How would this affect the production possibilities curves for the countries of Europe at that time?

An improvement in a country's legal system that enhanced the ability of citizens to protect their property rights and enforce contracts would result in which of the following changes to the country's production possibilities curve?

If an economy operates at a point within its production possibilities curve,

If the resources of an economy are being used inefficiently, it would be

Which of the following will be most likely to cause the production possibilities curve for a country to shift inward?

Suppose an economy produces only two goods, computers and TVs. If the economy operates at a point on its production possibilities curve, it can produce more computers only if