Question 1

Suppose there are two economies, Alpha and Beta, which have the same production possibilities curves. If Beta devotes more resources to produce capital goods than consumer goods as compared to Alpha, then in the future:
A) Alpha will experience greater economic growth than Beta
B) Beta will experience greater economic growth than Alpha
C) Alpha will not be able to achieve full employment or productive efficiency
D) Beta will not be able to achieve full employment or productive efficiency

Accepted Answer

By dedicating more resources to produce capital goods, Beta is investing in its future production. This means that in the long term, Beta will experience greater economic growth than Alpha, as it will have more capital stock, which can lead to increased productivity and output.

Question 2

Refer to the above production possibilities curves. Curve (a) is the initial curve for the economy, and the nation is initially producing combination P. A shift from curve (a) to curve (b) suggests that the economy can then increase its production of capital goods:
A) Only if it reduces its production of consumer goods
B) So as to produce the combination L
C) And consumer goods simultaneously
D) But will have to hold constant its production of consumer goods

Accepted Answer

The shift from curve (a) to curve (b) suggests that the economy is able to produce more capital goods and consumer goods simultaneously. This means that the nation can increase its production of capital goods without having to reduce production of consumer goods or hold its production of consumer goods constant. Therefore, option C is the correct choice.

Question 3

Specialization and international trade allows a nation to:
A) Produce a combination of goods that is beyond (or outside) its production possibilities
B) Consume a combination of goods that is beyond (or outside) its production possibilities
C) Have an upward-sloping production possibilities curve
D) Consume a lot of goods without having to produce any output

Accepted Answer

Specialization and international trade enable a nation to consume beyond its production possibilities by allowing it to trade for goods it does not produce, thus accessing a greater variety and quantity of goods than it could produce on its own.

Question 4

Refer to the above graph. All of the following development would allow a movement from point C to a point outside the production possibilities curve, except:
A) An increase in the supply of resource
B) An improvement in the quality of resources
C) A reduction in unemployment of resources
D) A technological advance

Accepted Answer

The answer of  Refer to the above graph. All...

Question 5

A society can consume a combination of goods outside its production possibilities if there is:
A) Lower unemployment
B) International specialization and trade
C) A change in consumers' tastes
D) A change in prices

Accepted Answer

International specialization and trade allow a society to consume a combination of goods outside its production possibilities because it enables the society to trade goods it produces relatively efficiently for goods it produces less efficiently. This trade leads to a higher overall level of consumption and a wider variety of goods being available in the society without requiring an increase in its production capabilities.

Question 6

Refer to the above graph. Which point in the graph would allow a simultaneous increase in the production of both investment and consumer goods?
A) A
B) B
C) C
D) D

Accepted Answer

The answer of  Refer to the above graph. Which...

Question 7

Which pitfall to sound economic reasoning is reflected in a person's view that "pharmaceutical and oil companies are price-gouging the consumers"?
A) Faulty definition
B) Post hoc fallacy
C) Loaded terminology
D) Confusing correlation and causation

Accepted Answer

The use of the term "price-gouging" is a loaded term that implies that the companies are intentionally charging excessive prices for their products. This is an example of a pitfall in sound economic reasoning known as loaded terminology, where emotionally charged language can distort an objective economic analysis.

Question 8

Which pitfall to sound economic reasoning is illustrated when a person comments that "capitalists focus only on profits and don't care about their workers"?
A) Abstraction
B) Biases
C) The fallacy of composition
D) Confusing correlation and causation

Accepted Answer

The comment reflects a bias against capitalists and assumes that all capitalists prioritize profit over the well-being of their workers. This overlooks the fact that many capitalists recognize the importance of treating their workers well in order to maintain their productivity and retain them for the long-term.

Question 9

Which of the following statements is not correct?
A) An increase in a nation's labor supply will cause its potential output to increase
B) Economic growth can be illustrated by an expansion of a nation's production possibilities curve
C) An increase in the quantity of a nation's resources will cause economic growth, but an increase in the quality of resources will not
D) New technologies or new ways of producing output can cause a nation's production possibilities curve to shift outwards

Accepted Answer

An increase in the quality of a nation's resources, such as improvements in education or health, can also contribute to economic growth by increasing human capital and productivity. Therefore, statement C is not correct.

Question 10

Which situation would most likely cause a nation's production possibilities curve to shift inward?
A) An increase in unemployment
B) An increase in the amount of imports
C) An increase in the number of skilled immigrant workers
D) The destruction caused by bombing and warfare in a losing military conflict

Accepted Answer

The destruction caused by bombing and warfare in a losing military conflict can result in a significant decrease in a nation's productive capacity, leading to a shift inward of the production possibilities curve. This can be because of the loss of resources, capital, and infrastructure, which will require significant time and resources to rebuild.

Question 11

Economic growth is a result of:
A) A reduction in the unemployment rate
B) An increase in the opportunity costs of production
C) A decrease in the demand for resources
D) An increase in the supply of resources

Accepted Answer

Economic growth is typically associated with an increase in the supply of resources, such as labor, capital, and natural resources. This allows for increased production and output, which can result in higher GDP and income levels. A reduction in unemployment (choice A) may be a consequence of economic growth but is not a cause of it. An increase in opportunity costs (choice B) would generally lead to a decrease in production and slower economic growth. A decrease in demand for resources (choice C) would also lead to a slowdown in economic growth, as it would result in decreased production and output.

Question 12

You observe that when stock prices rise, interest rates soon fall, and therefore conclude that higher stock prices lead to lower interest rates. This would be an example of:
A) The fallacy of composition
B) Tradeoff among economic goals
C) The post hoc fallacy
D) The use of loaded terminology

Accepted Answer

This would be an example of the post hoc fallacy because it assumes that one event, in this case higher stock prices, causes another event, lower interest rates, without any evidence of a causal relationship. Just because two events are correlated does not mean that one caused the other.

Question 13

Increasing the share of your income that you save is good for you. Therefore it would be good for the whole economy if everyone saved more. This exemplifies the:
A) Post hoc fallacy
B) Fallacy of composition
C) Use of loaded terminology
D) Confusion between correlation and causation

Accepted Answer

The statement is committing the fallacy of composition by assuming that what is true for an individual is true for the whole economy. While it may be good for an individual to save more, if everyone in the economy did the same, it could lead to a decrease in consumer spending and potentially harm the economy as a whole.

Question 14

Refer to the above production possibilities curves. Curve (a) is the initial curve for the economy. If the economy's production possibilities then shift to curve (b), then:
A) Point N would still indicate a case of full production and full employment of resources
B) Point P would still indicate a case of full production and full employment of resources
C) Point N would indicate some unemployment or underemployment of resources
D) Point L would indicate some unemployment or underemployment of resources

Accepted Answer

When the economy's production possibilities shift from curve (a) to curve (b), there is an increase in the production of one good without a decrease in the production of the other. This means that the economy can produce more of both goods or choose to produce the same amount of goods with fewer resources. Therefore, point N, which was previously indicating a case of full production and full employment of resources on curve (a), may now indicate some unemployment or underemployment of resources. However, point P, which was also indicating full production and full employment of resources on curve (a), still indicates the same on curve (b). Point L is not relevant to the question as it is not labeled on the graph.

Question 15

Refer to the above production possibilities curves. Curve (a) is the current curve for the economy. Focusing on curve (a), point N suggests that the economy currently produces:
A) More goods for the future than at point P
B) Less goods for the future than at point P
C) Less goods for the present than at point P
D) A combination of output that is less than its potential

Accepted Answer

The answer of  Refer to the above production possibilities...

Question 16

A nation that devotes more of its resources to the production of capital goods is likely to:
A) Cause its production possibilities curve to shift outward
B) Cause its production possibilities curve to shift inward
C) Increase the slope of its production possibilities curve
D) Decrease the slope of its production possibilities curve

Accepted Answer

Devoting more resources to the production of capital goods means that the economy is investing in the production of machinery, equipment, and infrastructure which can increase the economy's capacity to produce goods and services. This, in turn, can shift the production possibilities curve outward as the economy becomes more efficient in producing both capital goods and consumer goods.

Question 17

A person observes that consumer prices often fall when a nation experiences economic growth. The person then concludes that falling consumer prices leads to economic growth. This would be an example of:
A) The fallacy of composition
B) Biases
C) Confusing correlation and causation
D) The use of loaded terminology

Accepted Answer

The person is confusing correlation (the observation that falling consumer prices often occur during economic growth) with causation (assuming that falling consumer prices lead to economic growth). This is a common logical fallacy known as "post hoc, ergo propter hoc" or "after this, therefore because of this."

Question 18

A nation can increase its production possibilities by:
A) Shifting resources to produce more consumer goods and less investment goods
B) Shifting resources from private goods to public goods
C) Improving labor productivity
D) Eliminating unemployment

Accepted Answer

Improving labor productivity can lead to an increase in the production possibilities of a nation since workers can produce more output in the same amount of time, allowing for more goods and services to be produced. Shifting resources between different types of goods can also lead to a change in production possibilities, but this choice does not specify which type of goods should be shifted. Eliminating unemployment can also increase production possibilities, but it may not be feasible in all situations. Shifting resources from private goods to public goods may improve overall societal welfare but may not necessarily increase production possibilities.

Question 19

Cuba is a command economy that suffered a decline in economic growth because of a cut in the aid provided by the former Soviet Union when the latter collapsed. As a consequence, Cuba:
A) Experienced an outward shift of its production possibilities curve
B) Experienced an inward shift of its production possibilities curve
C) Moved from one point to another along its existing production possibilities curve
D) Went to a point inside its production possibilities curve

Accepted Answer

A cut in aid from the former Soviet Union would mean a reduction in resources and technology available to Cuba, leading to a decrease in the country's economic capacity. This would result in an inward shift of the production possibilities curve, indicating a reduction in the maximum amount of goods and services that can be produced.

Question 20

Refer to the above graph. The selection of which point on the production possibilities curve is most like to result in the largest increase in economic growth over time?
A) A
B) B
C) C
D) D

Accepted Answer

The answer of  Refer to the above graph. The...

Quiz 1: Limits, Alternatives, and Choices

Suppose there are two economies, Alpha and Beta, which have the same production possibilities curves. If Beta devotes more resources to produce capital goods than consumer goods as compared to Alpha, then in the future:

Refer to the above production possibilities curves. Curve (a) is the initial curve for the economy, and the nation is initially producing combination P. A shift from curve (a) to curve (b) suggests that the economy can then increase its production of capital goods:

Specialization and international trade allows a nation to:

Refer to the above graph. All of the following development would allow a movement from point C to a point outside the production possibilities curve, except:

A society can consume a combination of goods outside its production possibilities if there is:

Refer to the above graph. Which point in the graph would allow a simultaneous increase in the production of both investment and consumer goods?

Which pitfall to sound economic reasoning is reflected in a person's view that "pharmaceutical and oil companies are price-gouging the consumers"?

Which pitfall to sound economic reasoning is illustrated when a person comments that "capitalists focus only on profits and don't care about their workers"?

Which of the following statements is not correct?

Which situation would most likely cause a nation's production possibilities curve to shift inward?

Economic growth is a result of:

You observe that when stock prices rise, interest rates soon fall, and therefore conclude that higher stock prices lead to lower interest rates. This would be an example of:

Increasing the share of your income that you save is good for you. Therefore it would be good for the whole economy if everyone saved more. This exemplifies the:

Refer to the above production possibilities curves. Curve (a) is the initial curve for the economy. If the economy's production possibilities then shift to curve (b) , then:

Refer to the above production possibilities curves. Curve (a) is the current curve for the economy. Focusing on curve (a) , point N suggests that the economy currently produces:

A nation that devotes more of its resources to the production of capital goods is likely to:

A person observes that consumer prices often fall when a nation experiences economic growth. The person then concludes that falling consumer prices leads to economic growth. This would be an example of:

A nation can increase its production possibilities by:

Cuba is a command economy that suffered a decline in economic growth because of a cut in the aid provided by the former Soviet Union when the latter collapsed. As a consequence, Cuba:

Refer to the above graph. The selection of which point on the production possibilities curve is most like to result in the largest increase in economic growth over time?