Question 1

All points outside the production possibility frontier are:

Accepted Answer

Points outside the production possibility frontier are not attainable with current resources and technology, hence they are considered infeasible.

Question 2

Use the following to answer questions 
Figure: Production Possibility Frontier Curve for Tealand 
-(Figure: Production Possibility Frontier for Tealand) Look at the figure Production Possibility Frontier for Tealand. Tealand can produce at point E only if the government:

Accepted Answer

Point E lies outside of the production possibility frontier (PPF), meaning that it is currently unattainable for Tealand to produce at this level. The only way this could become attainable is if Tealand were to permit more immigration, allowing for an increase in labor resources and thus an increase in production capacity. Eliminating unemployment and decreasing the use of technology would both result in a shift inward on the PPF, while raising taxes would not directly impact Tealand's production capacity.

Question 3

The effect of an increase in productive inputs such as labor and capital can be shown by:

Accepted Answer

An increase in productive inputs such as labor and capital leads to an increase in production capacity. This results in an outward shift of the production possibility frontier, indicating that more goods and services can be produced than before. Option A is incorrect because an increase in productive inputs will result in an outward shift of the production possibility frontier, rather than a point inside. Option C is incorrect because a movement from one point to another along the production possibility frontier can happen due to a change in the allocation of resources rather than an increase in productive inputs. Option D is incorrect because an increase in productive inputs will never result in an inward shift of the production possibility frontier.

Question 4

Economists usually assume that production is subject to increasing opportunity costs because:

Accepted Answer

Increasing opportunity costs means that as more of a good is produced, resources that are less suited to producing that good must be used, resulting in lower efficiency and increasing costs. This is because not all resources are equally suited to producing every good, and some may be better used in producing other goods. The other choices are not directly related to why economists assume production is subject to increasing opportunity costs.

Question 5

Suppose Oklahoma decides to produce only two goods, oil and football helmets. If Oklahoma is producing on its production possibility frontier, as oil production increases, the production of football helmets will:

Accepted Answer

As Oklahoma produces more oil, it will have to sacrifice some production of football helmets, moving it away from its production possibility frontier. This is because the resources used to produce the football helmets will have to be redirected towards oil production, leading to a decrease in the production of football helmets.

Question 6

A production possibility frontier illustrates the _____ facing an economy that _____ only two goods.

Accepted Answer

A production possibility frontier (PPF) shows the maximum possible combinations of two goods that can be produced with the given resources and technology. The PPF illustrates the trade-offs facing the economy when it produces these goods. For example, if an economy can produce either guns or butter, producing more guns means producing less butter and vice versa. Therefore, the PPF shows the trade-offs in production between the two goods.

Question 7

The production possibility frontier is bowed out because:

Accepted Answer

The production possibility frontier is bowed out (curved) because resources are not equally suited for the production of both goods. This means that different factors of production (e.g. labor, capital, land) are better suited for one good than the other, leading to a trade-off between the production of the two goods.

Question 8

All points on the production possibility frontier are:

Accepted Answer

All points on the production possibility frontier represent maximum efficiency in the allocation of resources, meaning that it is not possible to produce more of one good without sacrificing the production of another. Any points inside the boundary would represent inefficient use of resources, while points outside the boundary would be unattainable with current resources and technology, making them infeasible. Economic growth would shift the production possibility frontier outward, allowing for the production of more goods with the same resources.

Question 9

The production possibility frontier will shift outward because of:

Accepted Answer

The answer of The production possibility frontier will shift outward...

Question 10

Use the following to answer questions 
Figure: Production Possibility Frontier Curve for Tealand 
-(Figure: Production Possibility Frontier for Tealand) Look at the figure Production Possibility Frontier for Tealand. If Tealand is producing 10 million scones and 10 million cups of tea (point A), we know that the economy:

Accepted Answer

The answer of Use the following to answer questions 
Figure:...

Question 11

Consider a production possibility frontier for Iraq. If in 2014 Iraq's resources are not being fully utilized, Iraq will be somewhere _____ of its production possibility frontier.

Accepted Answer

If Iraq's resources are not being fully utilized, it means that they are producing less than they are capable of. This implies that they are operating inside their production possibility frontier.

Question 12

The opportunity cost of production:

Accepted Answer

Opportunity cost is what you give up to produce a good. It is the value of the next best alternative that is foregone in order to produce that good. It includes both explicit costs (actual payment for resources) and implicit costs (opportunity cost of resources that the producer already owns and therefore does not have to pay for). Therefore, option B is the correct answer.

Question 13

If an economy is producing at a point on its production possibilities frontier, it is:

Accepted Answer

Producing on the production possibilities frontier indicates that an economy is using all its resources efficiently, meaning it is efficient in production. However, this does not guarantee that the resources are being allocated in the most beneficial way for society, hence not necessarily efficient in allocation.

Question 14

The production possibility frontier will shift outward for all of the following reasons EXCEPT:

Accepted Answer

An increase in unemployment rate will lead to a decrease in the available workforce, which will result in a shift inward of the production possibility frontier. The other options, such as an increase in the labor force, an improvement in technology, and an increase in worker productivity, will all lead to an outward shift of the production possibility frontier by allowing for an increase in the potential output of goods and services.

Question 15

Suppose Poland is producing on its production possibilities frontier, and it decides to increase the production of steel and decrease the production of vodka. The bowed-out production possibility frontier suggests that there will be a(n) _____ opportunity cost of producing more steel.

Accepted Answer

The bowed-out shape of the production possibility frontier indicates that there is increasing opportunity cost between the two goods. As Poland produces more steel, it needs to give up more and more vodka, resulting in a rising opportunity cost of producing steel.

Question 16

Use the following to answer questions 
Figure: Production Possibility Frontier Curve for Tealand 
-(Figure: Production Possibility Frontier for Tealand) Look at the figure Production Possibility Frontier for Tealand. Tealand is producing at point C on its production possibility frontier. What is the opportunity cost of increasing the production of tea from 20 million cups to 30 million cups?

Accepted Answer

The answer of Use the following to answer questions 
Figure:...

Question 17

One of the controversies surrounding the United States' energy markets is the trade-off between energy production and clean air. Assuming clean air has value, the United States will be on its production possibility frontier if and only if:

Accepted Answer

The production possibility frontier (PPF) represents the maximum combination of goods or services that can be produced with full and efficient use of resources. In this context, being on the PPF means that the resources used to produce clean air and energy are being fully and efficiently utilized, indicating an optimal trade-off between the two. Choices A, B, and C do not necessarily imply efficient resource use or an optimal trade-off.

Question 18

All points inside the production possibility frontier represent:

Accepted Answer

The answer of All points inside the production possibility frontier...

Question 19

In terms of the production possibility frontier, inefficient use of available resources is shown by:

Accepted Answer

Production at a point inside the production possibility frontier represents an inefficient use of available resources. This is because producing at such a point means that resources are not being fully utilized, and there is potential to produce more output without increasing inputs.

Question 20

Technological improvements will:

Accepted Answer

Technological improvements increase the efficiency of production, allowing more output to be produced with the same amount of inputs. This allows the economy to produce more goods and services, shifting the production possibility frontier (PPF) outward. Therefore, the correct choice is C.

Quiz 2: Economic Models- Trade-Offs and Trade