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 shows that as you produce more of one good, you have to give up some production of the other good. This represents the opportunity cost of producing one good in terms of the other.

Question 2

A large government faces a production possibilities frontier much like a business firm does.

Accepted Answer

A government, like a business firm, must make choices about how to allocate its resources and balance competing priorities. This results in a production possibilities frontier, which represents the maximum amount of goods and services the government can produce with its available resources.

Question 3

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

Accepted Answer

A bowed-outward PPF indicates increasing opportunity cost between the two goods, not constant.

Question 4

If the U.S.government decides to increase military spending, one opportunity cost will be lower spending on education.

Accepted Answer

If the government decides to spend more on military, it will have to allocate that money from other areas of spending such as education. This means that there will be less money available for education, resulting in a lower education budget.

Question 5

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

Accepted Answer

Society cannot produce at a point outside the production possibilities frontier unless it either acquires new resources or improves technology. Using all resources efficiently can only allow society to produce at its frontier, but not beyond it.

Question 6

Economists use the term capital to describe that factor of production that includes human-made resources such as factories, buildings, machinery and tools.

Accepted Answer

This statement is true. Capital is one of the four factors of production, which refers to human-made resources used in production such as machinery, tools, buildings, and factories.

Question 7

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

Accepted Answer

This statement reflects the concept of opportunity cost, which states that when resources are fully employed, producing more of one good or service necessarily involves giving up some of another good or service. In other words, resources are scarce and must be allocated efficiently, so any increase in the production of one good requires sacrificing some production of another good.

Question 8

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

Increasing opportunity cost means that the more you produce of one good, the more of another good you have to give up. This results in a non-linear production possibility frontier curve, where the opportunity cost of producing one unit of a good increases as you produce more of it.

Question 9

Since it spent over $3.6 trillion in 2010, opportunity cost was not an issue for the U.S.government.

Accepted Answer

Opportunity cost is always an issue, regardless of the amount of spending. Every choice made with resources has a potential cost in terms of what else could have been produced or accomplished with those resources. Therefore, even though the U.S. government spent over $3.6 trillion in 2010, there was still an opportunity cost associated with the choices made in allocating those resources.

Question 10

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 the economy's resources, technology, and efficiency rather than political parties in power.

Question 11

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 fully utilizing all of its resources and is, therefore, not characterized by full employment.

Question 12

Economic growth solves the problem of scarcity.

Accepted Answer

Economic growth may alleviate scarcity, but it does not completely solve it. Scarcity exists because of limited resources and unlimited wants, and even with economic growth, there will still be limitations on resources. Additionally, economic growth can also lead to its own set of challenges such as resource depletion and environmental degradation.

Question 13

A market economy allocates resources primarily in accordance with orders from government bureaucrats.

Accepted Answer

In a market economy, resources are allocated primarily based on the interactions of buyers and sellers in the marketplace, not orders from government bureaucrats.

Question 14

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 15

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 concept of the law of diminishing returns, which means that as more resources are used to produce a good, the additional units produced will eventually become smaller and smaller. This results in a higher opportunity cost as more resources are diverted away from producing other goods where they may be comparatively more efficient.

Question 16

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 production increases for one good, the opportunity cost of producing another unit of that good tends to increase. This is due to factors such as limited resources, specialized equipment or labor, and diminishing returns. Therefore, the statement is true.

Question 17

If a farmer's opportunity cost of producing 10,000 bushels of wheat is 5,000 fewer bushels of soybeans, then her opportunity cost of producing 5,000 bushels of soybeans must be 10,000 fewer bushels of wheat.

Accepted Answer

The opportunity cost of producing a good is the amount of another good that must be given up to produce it. In this case, the farmer's opportunity cost of producing 10,000 bushels of wheat is 5,000 bushels of soybeans. This means that if the farmer produces 10,000 bushels of wheat, she will have to give up 5,000 bushels of soybeans. Therefore, the opportunity cost of producing 5,000 bushels of soybeans must be 10,000 fewer bushels of wheat.

Question 18

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

Accepted Answer

Producing more tanks would require allocating resources and manpower towards tank production, which would mean that fewer resources and manpower would be available for car production, resulting in a trade-off between the two.

Question 19

The U.S.government spent over $3.6 trillion in budget year 2010.

Accepted Answer

According to the Congressional Budget Office, the U.S. government spent approximately $3.6 trillion in budget year 2010.

Question 20

If a farmer's opportunity cost of producing 50,000 bushels of wheat is 20,000 fewer bushels of soybeans, then her opportunity cost of producing 50,000 bushels of soybeans must also be 20,000 fewer bushels of wheat.

Accepted Answer

Opportunity cost is not necessarily symmetric. It depends on the relative productivity and resource allocation for each crop, which can differ.

Quiz 3: The Fundamental Economic Problem: Scarcity and Choice