Deck 2: Production Possibilities, Opportunity Cost, and Economic Growth

Question 1

Which fundamental economic question is most closely related to the issues of income distribution and poverty?

A) The What to Produce question.
B) The Why to Produce question.
C) The How to Produce question.
D) The For Whom to Produce question.

Answer 1

D

Question 2

A good or service that is forgone by choosing one alternative over another is called a(n):

A) explicit cost.
B) opportunity cost.
C) historical cost.
D) accounting cost.

Answer 2

B

Question 3

The highest valued alternative that must be given up in order to choose an option is called the:

A) opportunity cost.
B) utility cost.
C) scarcity expense.
D) disutility option.

Answer 3

A

Question 4

The opportunity cost of an economic decision is:

A) the best alternative that was sacrificed.
B) the amount of money needed to implement the decision.
C) any land, labor, and capital that are wasted.
D) all options that were lost due to scarcity.

Question 5

Which of the following sayings best reflects the concept of opportunity cost?

A) "You can't teach an old dog new tricks."
B) "There is no such thing as a free lunch."
C) "I have a baker's dozen."
D) "There's no business like show business."

Question 6

Which of the following does not illustrate opportunity cost?

A) If I study, I must give up going to the football game.
B) If I buy a computer, I must do without a 35" television.
C) If I spend more on clothes, I must spend less on food.
D) All of these illustrate opportunity cost.

Question 7

The opportunity cost to a city for using local tax revenues to construct a new park is the:

A) best alternative foregone by building the park.
B) dollar cost of constructing the new park.
C) dollar cost of the old park.
D) increased taxes necessary to pay for maintenance of the new park.

Question 8

The opportunity cost of watching television is:

A) all of the alternative programs that appear on other stations.
B) zero because there is no money expenditure involved.
C) the alternative use of the time foregone by watching the program.
D) zero if it benefits you.

Question 9

Which of the following correctly lists the three fundamental economic questions?

A) If to produce? Why to produce? When to produce?
B) If to produce? What to produce? How to produce?
C) Why to produce? What to produce? How to produce?
D) What to produce? How to produce? For whom to produce?

Question 10

Because of the problem of scarcity, each economic system must make which of the following choices?

A) How to produce?
B) What to produce?
C) For whom to produce?
D) All of these.

Question 11

Opportunity cost:

A) represents the best alternative sacrificed for a chosen alternative.
B) has no relationship to the various alternatives that must be given up when a choice is made in the context of scarcity.
C) represents the worst alternative sacrificed for a chosen alternative.
D) Represents all possible alternatives sacrificed for a chosen alternative.

Question 12

Which of the following does not illustrate opportunity cost?

A) If I study, I must give up going to the football game.
B) If I buy a computer, I must do without a 35" television.
C) More consumer spending now means more spending in the future.
D) If I spend more on clothes, I must spend less on food.

Question 13

Which of the following is not one of the three fundamental economic questions?

A) What happens when you add to or subtract from a current situation?
B) For whom to produce?
C) How to produce?
D) What to produce?

Question 14

​ Which of the following best describes the three fundamental economic questions?

A) What to produce, when to produce, and where to produce.
B) ​What time to produce, what place to produce, and how to produce.
C) ​What to produce, when to produce, and for whom to produce.​
D) ​What to produce, how to produce, and for whom to produce.

Question 15

The opportunity cost of a purchase is:

A) the selling price of the good or service.
B) zero if the good or service satisfies a need.
C) greater for persons who are rich.
D) the good or service given up for the good or service purchased.

Question 16

Three basic decisions must be made by all economies. What are they?

A) How much will be produced, when it will be produced, and how much it will cost.
B) What the price of each good will be, who will produce each good, and who will consume each good.
C) What will be produced, how goods will be produced, and for whom goods will be produced.
D) How the opportunity cost principle will be applied, if and how the law of comparative advantage will be utilized, and whether the production possibilities constraint will apply.

Question 17

Suppose that the alternative uses of an hour of your time in the evening, ranked from best to worst, are (1) study economics, (2i) watch two half-hour TV sitcoms, (3) play pool, and (4) jog around town. You can only choose one activity. What is the opportunity cost of studying economics for one hour, given this information?

A) ​ Jogging around town.
B) ​Watching two half-hour TV sitcoms.
C) ​Playing pool.
D) ​The sum of watching two half-hour TV sitcoms, playing pool, and doing your laundry.

Question 18

Which fundamental economic question requires society to choose the technological and resource mix used to produce goods?

A) The What to Produce question.
B) The Why to Produce question.
C) The How to Produce question.
D) The For Whom to Produce question.

Question 19

The opportunity cost of an action is:

A) the monetary payment the action required.
B) the total time spent by all parties in carrying out the action.
C) the value of the best opportunity that must be sacrificed in order to take the action.
D) the cost of all alternative actions that could have been taken, added together.

Question 20

Opportunity cost is the:

A) cost incurred when one fails to take advantage of an opportunity.
B) price paid for goods and services.
C) cost of the best option forgone as a result of choosing an alternative option.
D) undesirable aspects of an option.

Question 21

The law of increasing costs indicates that the opportunity cost of producing a good:

A) is proportional to the production of the good.
B) is constant to the production of the good.
C) increases as more of the good is produced.
D) decreases as more of the good is produced.
E) increases as less of the good is produced.

Question 22

Exhibit 2-2 Production possibilities curve
In Exhibit 2-2, the opportunity cost of coffee when moving from A to B is:

A) the same as moving from A to C.
B) the same as moving from A to D.
C) the same as moving from B to D.
D) the same as moving from B to C.
E) it is not possible to determine.

Question 23

Which word best completes the following sentence? A rational decision maker always chooses the option for which marginal benefit is __________ marginal cost.

A) less than
B) equal to
C) unrelated to
D) more than

Question 24

When the opportunity cost of producing carrots increases as more carrots are produced, then:

A) no more carrots will be produced.
B) resources are equally suited to the production of carrots and to other goods.
C) the production possibilities curve is a straight line.
D) the production possibilities curve becomes positively sloped.
E) the law of increasing costs is present.

Question 25

Which of the following statements is true?

A) An opportunity cost is what must be given up in order to get something else.
B) The three fundamental economic questions refer to What to produce? How to produce? and When to produce?
C) The term "investment" refers to the purchase of stocks and bonds and other financial securities.
D) The law of increasing opportunity cost implies that as production of one type of good is expanded then fewer and fewer of other goods must be given up.

Question 26

Exhibit 2-2 Production possibilities curve
The production possibilities in Exhibit 2-2 indicates that the opportunity cost of corn is:

A) increasing.
B) decreasing.
C) zero.
D) constant.
E) indeterminate.

Question 27

The amount of a good that must be given up to produce another good is the concept of:

A) scarcity.
B) specialization.
C) trade.
D) efficiency.
E) opportunity cost.

Question 28

Mikki decides to work five hours the night before her economics exam. She earns an extra $75, but her exam score is 10 points lower than it would have been had she stayed home and studied. Her opportunity cost is the:

A) five hours she worked.
B) $75 she earned.
C) 10 points she lost on her exam.
D) time she could have spent watching television.
E) guilt she feels about neglecting her economics studies.

Question 29

On a production possibilities curve, the opportunity cost of good X, in terms of good Y, is represented by the:

A) distance to the curve from the vertical axis.
B) distance to the curve from the horizontal axis.
C) movement along the curve.
D) all of these.

Question 30

Exhibit 2-2 Production possibilities curve
In Exhibit 2-2, the slope of the production possibilities curve indicates that the opportunity cost of:

A) coffee is constant.
B) coffee is increasing.
C) coffee is decreasing.
D) corn is increasing.
E) corn is decreasing,

Question 31

When deciding whether to buy a second car, marginal analysis indicates that the purchaser should compare the:

A) benefits expected from two cars with the cost of both.
B) additional benefits expected from a second car with the cost of the two cars.
C) dollar cost of the two cars with the potential income that the cars will generate.
D) additional benefits of the second car with the additional cost of the second car.

Question 32

A farmer is deciding whether or not to add fertilizer to his or her crops. If the farmer adds 1 pound of fertilizer per acre, the value of the resulting crops rises from $80 to $100 per acre. According to marginal analysis, the farmer should add fertilizer if it costs less than:

A) $12.50 per pound.
B) $20 per pound.
C) $80 per pound.
D) $100 per pound.

Question 33

Exhibit 2-1 Production possibilities curve data $$\begin{array} { | c | c | } \hline \begin{array} { c } \text { Consumption } \\\text { Goods }\end{array} & \begin{array} { c } \text { Capital } \\\text { Goods }\end{array} \\\hline 10 & 0 \\9 & 1 \\7 & 2 \\4 & 3 \\0 & 4 \\\hline\end{array}$$

-In Exhibit 2-1, according to the information, the opportunity cost of producing 3 units of capital is:

A) 3 units of consumption goods.
B) 4 units of consumption goods.
C) 6 units of consumption goods.
D) 7 units of consumption goods.

Question 34

Exhibit 2-2 Production possibilities curve
In Exhibit 2-2, the opportunity cost of coffee when moving from A to B is:

A) 2 million bushels of corn.
B) 6 million bushels of corn.
C) 8 million bushels of corn.
D) 14 million bushels of corn.
E) it is not possible to determine.

Question 35

In economics, the term marginal refers to:

A) the change or difference from a current situation.
B) man-made resources as opposed to natural resources.
C) the satisfaction a consumer receives from a good.
D) holding everything else constant in the analysis.

Question 36

The opportunity cost of an activity means the:

A) amount of money the activity costs.
B) number of hours that is required to engage in this activity.
C) expected gains by engaging in the activity.
D) amount of other things that must be sacrificed in order to engage in the activity.
E) expected gains minus the expected costs of engaging in the activity.

Question 37

Bill has $10 to spend on a Superman, Batman, or an X-Men T-shirt. Bill buys the Superman T-shirt and the Batman shirt was a close second choice. What is the opportunity cost?

A) The amount he spent, $10.
B) Nothing, since he got his preferred choice.
C) The Batman T-shirt.
D) The X-Men T-shirt.

Question 38

The amount of a good that is given up to produce another good is:

A) its dollar cost.
B) its opportunity cost.
C) its relative cost.
D) its absolute cost.
E) all of these.

Question 39

In the context of the production possibilities curve, opportunity cost is measured in:

A) dollars paid for the goods.
B) the quantity of other goods given up.
C) the value of the resources used.
D) changing technology.
E) units of satisfaction.

Question 40

Exhibit 2-1 Production possibilities curve data $$\begin{array} { | c | c | } \hline \begin{array} { c } \text { Consumption } \\\text { Goods }\end{array} & \begin{array} { c } \text { Capital } \\\text { Goods }\end{array} \\\hline 10 & 0 \\9 & 1 \\7 & 2 \\4 & 3 \\0 & 4 \\\hline\end{array}$$

-In Exhibit 2-1, the opportunity cost of producing the fourth unit of capital is:

A) 0.
B) 1 unit of consumption goods.
C) 2 units of consumption goods.
D) 4 units of consumption goods.
E) there is not enough information to estimate the opportunity cost.

Question 41

Which of the following would be least likely to cause the production possibilities curve to shift outward?

A) a decreased desire for leisure by workers in the economy.
B) an invention that requires fewer resources to produce a good.
C) a shift in consumer preferences that causes expansion in the output of one product and a decline in output of other products.
D) an expansion in the man-made productive resources available to the economy as the result of a high rate of investment.

Question 42

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.

Question 43

Susan wishes to buy gasoline and have her car washed. She finds that if she buys 9 gallons of gasoline at $1.50 per gallon, the car wash costs $1, but if she buys 10 gallons of gasoline, the car wash is free. For Susan, the marginal cost of the tenth gallon of gasoline is:

A) zero.
B) 50 cents.
C) $1.
D) $1.50.

Question 44

Which word or phrase best completes the following sentence? Marginal analysis means evaluating _________ changes from a current situation. ​

A) ​positive or negative.
B) ​ infinite.
C) ​alternating.
D) ​ maximum.

Question 45

Just before class, Jim tells Stuart, "Stuart, you shouldn't skip class today because you have paid tuition to enroll in the class." Stuart ignores Jim's advice, and instead makes the decision of whether to attend based on the importance to his grade that he feels he'd be missing that day in class relative to his value of the extra time he could have to finish the video game he is playing. To an economist, Stuart is:

A) using marginal analysis.
B) ignoring the total value of attending class.
C) ignoring the concept of opportunity cost.
D) irresponsible.

Question 46

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

A) It assumes a fixed level of technology.
B) It assumes resources are fixed.
C) It assumes resources are fully employed.
D) All of these are correct.

Question 47

According to marginal analysis, you should spend more time studying economics if the extra benefit from an additional hour of study:

A) is positive.
B) outweighs the extra cost.
C) exceeds the benefits of the previous hour of study.
D) will raise your exam score.

Question 48

If an economy is operating at a point inside the production possibilities curve,

A) its resources are not being used efficiently.
B) the curve will begin to shift inward.
C) the curve will begin to shift outward.
D) This is a trick question because an economy cannot produce at a point inside the curve.

Question 49

Ralph wants to buy some milk and a box of cereal. If Ralph buys 2 quarts of milk at $1 per quart, the box of cereal costs 75 cents. If he buys 3 quarts of milk at $1 per quart, the box of cereal is free. For Ralph, the marginal cost of the third quart of milk is:

A) zero.
B) 25 cents.
C) 75 cents.
D) $1.

Question 50

Which of the following is an example of an organization using marginal analysis?

A) ​A hotel manager calculating the average cost per guest for the past year.
B) ​ A farmer hoping for rain.
C) ​A government official considering what effect an increase in military goods production will have on the production of consumer goods.
D) ​A business calculating economic profits. ​

Question 51

After the terrorist attacks on September 11, 2001, the United States began devoting substantial resources toward the War on Terrorism, homeland security, and relief efforts. As long as our resources were being used efficiently, the production possibilities curve would suggest that:

A) we will have to give up the production of other goods that could have been produced with these resources.
B) we will be able to produce the same amount of other goods as before.
C) the military spending will result in an outward shift in the production possibilities curve but that the relief effort will result in an offsetting inward shift.
D) we will be unable to devote the resources necessary toward these efforts unless there is an improvement in technology.

Question 52

While waiting in line to buy one cheeseburger for $1.50 and a medium drink for $1.00, Sally notices that she could get a value meal that contains both the cheeseburger and medium drink and also a medium order of fries for $2.75. She thinks to herself, "Is it worth the extra 25 cents to get the medium fries?" To an economist, Sally's decision is an example of:

A) marginal analysis.
B) basing decisions on total, rather than marginal, value.
C) an unintended consequence.
D) the fallacy of composition.

Question 53

Which of the following most accurately indicates the implications of an economy's production possibilities curve?

A) If all the resources of an economy are being used efficiently, more of one good can be produced only if less of another good is produced.
B) If all the resources of an economy are being used efficiently, it is generally possible to produce more of one good without having to sacrifice the production of other goods.
C) Over time, it is generally impossible for a country to expand its production of goods.
D) An economy will automatically move toward a point that lies outside of the production possibilities constraint unless proper government policy constrains production.

Question 54

A production possibilities curve shows the various combinations of two outputs that:

A) ​ consumers would like to consume.
B) ​producers would like to produce.
C) ​ an economy can produce.
D) ​an economy should produce.

Question 55

The principle that the opportunity cost increases as the production of one output expands along the production possibilities curve is the:

A) law of increasing opportunity costs.
B) law of supply.
C) law of demand.
D) law of diminishing returns.

Question 56

A local restaurant offers an "all you can eat" Sunday brunch for $12. Susan eats four servings, but leaves half of a fifth helping uneaten. Why?

A) Her marginal value of a serving of brunch has fallen below $12.
B) Her marginal value of a serving has fallen below $2.36 ($12 divided by 5 servings).
C) Her marginal value of food has fallen to zero.
D) The total value she places on brunch today exactly equals $12.

Question 57

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

Question 58

While waiting in line to buy a cheeseburger for $2 and a drink for 75 cents, Aaron notices that the restaurant has a value meal containing a cheeseburger, drink, and French fries for $3. For Aaron, the marginal cost of purchasing the French fries:

A) would be zero.
B) would be 25 cents.
C) would be 50 cents.
D) cannot be determined because the information about the price of the French fries is not provided.

Question 59

While waiting in line to buy two tacos at 80 cents each and a medium drink for 90 cents, Jordan notices that the restaurant has a value meal containing three tacos and a medium drink all for $3. For Jordan, the marginal cost of the third taco would be:

A) zero.
B) 50 cents.
C) 80 cents.
D) $1.

Question 60

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

A) inefficient.
B) efficient.
C) unattainable.
D) attainable.

Question 61

A production possibility graph slopes down because of:

A) the law of increasing costs.
B) nonhomogeneous resources.
C) inefficiency.
D) improper output mix.
E) unemployment.

Question 62

The various combinations of goods and services that can be produced, when an economy uses its available resources and technology efficiently, is called:

A) scarcity.
B) opportunity cost.
C) unlimited production.
D) capital accumulation.
E) production possibilities.

Question 63

The production possibilities curve demonstrates the basic economic principle that:

A) market-based economies are more efficient.
B) supply will determine demand in the economy.
C) the production of more capital goods this year will cause the economy to produce less consumption goods next year.
D) to produce more of any one thing, assuming full employment, the economy must produce less of something else.
E) to produce more consumption goods this year requires the production of more capital goods this year.

Question 64

A production possibilities curve has "good X" on the horizontal axis and "good Y" on the vertical axis. On this diagram, the opportunity cost of good X, in terms of good Y, is represented by the:

A) distance to the curve from the horizontal axis.
B) distance to the curve from the vertical axis.
C) distance from the origin to the curve.
D) change in Y for each change in X along the curve.

Question 65

The production possibilities curve illustrates all of the following concepts except:

A) the law of increasing costs.
B) unlimited wants.
C) scarcity.
D) opportunity cost.
E) availability of resources.

Question 66

Production possibilities curve analysis includes the idea of:

A) opportunity cost.
B) scarcity.
C) maximum production choices.
D) all of these.

Question 67

A production possibilities curve shows the various:

A) prices that can be charged for capital and consumption goods.
B) combinations of prices and outputs that can be produced.
C) combinations of goods the economy has the capacity to produce.
D) combinations of resources and prices that the economy can produce.

Question 68

The production possibilities curve shows different combinations of goods that:

A) can be consumed by households.
B) can be consumed by firms.
C) can be produced with the available technology.
D) are produced and consumed by firms.
E) are bought and sold in the market.

Question 69

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(n):

A) flattening of the curve.
B) movement from one point to another point along the curve.
C) outward shift of the curve.
D) movement from a point on the curve to a point inside the curve.

Question 70

The production possibilities curve shows that:

A) some of one good must be given up to get more of another good in an economy that is operating efficiently.
B) no output combination is impossible.
C) an economy that is operating efficiently can have more of one good without giving up some of another good.
D) scarcity can be eliminated.

Question 71

The production possibilities curve depicts the various combinations of two goods that can be:

A) interchanged among two countries.
B) produced with a given technology.
C) consumed with a given quantity of resources.
D) produced with increments in resources and changes in technology.
E) consumed as the resources increase.

Question 72

Efficient production means producing:

A) less than feasible output for a given amount of resources.
B) more than feasible output for a given amount of resources.
C) the maximum feasible output for a given amount of resources.
D) no more than what is needed.
E) in excess of what is needed.

Question 73

What shape is the production possibilities curve usually expected to exhibit?

A) Upward-sloping.
B) Bowed out.
C) Bowed in.
D) Straight line.
E) U-shaped.

Question 74

A production possibilities curve shows the:

A) dollar costs of producing two different goods.
B) amounts of labor and capital needed to produce one good.
C) various combinations of goods that can be produced.
D) prices of different goods that are produced in an economy.
E) inefficient use of available resources and technology.

Question 75

Of factors which affect any economy's production potential, the best two listed below are:

A) resources and technology.
B) prices and outputs.
C) wages and prices.
D) taxes and prices.
E) resources and prices.

Question 76

Any point on the production possibilities curve illustrates:

A) minimum production combinations.
B) maximum production combinations.
C) economic growth.
D) a nonfeasible production combination.

Question 77

When an economy's resources are not fully employed, then it must be true that the:

A) production point is located outside and to the right of the production possibilities curve.
B) production point is located along the production possibilities curve.
C) production point is located inside and to the left of the production possibilities curve.
D) production possibilities curve shifts to the right.
E) production possibilities curve shifts to the left.

Question 78

An efficient economy:

A) uses available resources fully.
B) uses the best division of labor.
C) produces an output combination at some point along the production possibility curve.
D) all of these.

Question 79

When the production possibilities curve is bowed out, resources are:

A) equally well-suited to production of both goods.
B) not being used efficiently.
C) not equally suited to the production of both types of goods.
D) increasing as more of one good is produced.
E) of an inferior quality.

Question 80

The production possibility curve is bowed outward from the origin because of:

A) the law of increasing opportunity costs.
B) the finite nature of the resource base.
C) inefficiency.
D) improper output mix.
E) unemployment.