Exam 3: The Fundamental Economic Problem: Scarcity and Choice

Only a market economy must answer the questions of what goods to produce, how to produce them, and for whom to produce them.

What determines the position and shape of a society's production possibilities frontier?

Suppose a presidential candidate campaigns on the need to improve U.S. infrastructure, a term for capital goods like bridges, highways, and technology (much of it publicly owned). Which would lead to faster growth: government expenditure on capital goods or expenditure on consumption goods such as sports stadiums? Illustrate your answer, drawing appropriate production possibilities frontiers accompanied by an explanation.

What mechanism assures that firms produce outputs that consumers actually desire?

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

Specialization and division of labor are made easier by the existence of money.

The production possibilities curve illustrates the basic principle that

If it is not possible to increase the output of one good without decreasing the output of the other, when there are only two goods, then

If you discover that the opportunity cost of raising your economics grade is zero, you

Which of the following is a good example of efficient specialization and voluntary exchange?

An economy that is producing inside its production possibilities frontier can be efficient.

Scarcity is only a temporary problem that a society can solve by promoting economic growth.

For a given production possibilities frontier, which points are attainable?

A production possibilities curve always slopes downward to the right because resources

In a properly functioning economy, money costs approximate opportunity costs.

Opportunity cost is best defined as the value of

If the production possibilities frontier for two goods is shown as a straight line, this implies that

Economists define "efficiency" as the absence of waste.

Ted got a ticket to this year's Super Bowl and paid the face value of $1,000. His cousin offered him $3,000 for the ticket. Ted chose to attend the game. From this, we can infer that Ted's value for this ticket was

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