Deck 2: The Economic Problem

Question 1

Suppose that the government is trying to decide between allocating its resources to build more dams or to build more freeways. In terms of forgone dams, as more freeways are constructed, the marginal benefit of additional freeways _______ and the marginal cost of additional freeways _______.

A) increases; increases
B) increases; decreases
C) decreases; decreases
D) decreases; increases

Answer 1

decreases; increases

Question 2

A factor market is a market in which

A) firms sell goods and services.
B) households buy goods and services.
C) households sell the services of the factors of production they control.
D) firms sell the services of the factors of production.

Answer 2

households sell the services of the factors of production they control.

Question 3

When we choose a particular option, we must give up alternative options. The highest- valued alternative forgone is the _______ of the option chosen.

A) absolute advantage
B) comparative advantage
C) nonmonetary cost
D) opportunity cost

Answer 3

opportunity cost

Question 4

In the above figure, at point a, what is the opportunity cost of producing one more CD?

A) 2 DVDs.
B) 14 DVDs.
C) 1 DVD.
D) There is no opportunity cost.

Question 5

Which of the following is NOT illustrated by a production possibilities frontier?

A) Opportunity cost
B) Scarcity
C) The necessity for choice
D) Who gets the goods

Question 6

An expansion of the production possibilities frontier is

A) called economic growth.
B) something that has occurred only rarely in history.
C) proof that scarcity is not a binding constraint.
D) a free gift of nature.

Question 7

Betty and Ann live on a desert island. With a day's labour, Ann can produce 6 fish or 4 coconuts; Betty can produce 3 fish or 1 coconut. Betty's opportunity cost of producing 1 fish is _______, and she should specialise in the production of _______.

A) 4 coconuts per fish; fish
B) 1 coconut per fish; fish
C) 1/3 coconut per fish; fish
D) 2/3 coconut per fish; coconuts

Question 8

Economic growth comes from

A) producing more goods than people want to consume.
B) capital accumulation and the avoidance of opportunity cost.
C) people willing to increase their skills, in which case, economic growth is free.
D) capital accumulation and technological advance.

Question 9

Agnes can produce either 1 unit of X or 1 unit of Y in an hour, while Brenda can produce either 2 units of X or 4 units of Y in an hour.

A) Brenda has a comparative advantage in the production of X.
B) Brenda has an absolute advantage in the production of X and Y.
C) Agnes has a comparative advantage in the production of Y.
D) Brenda cannot gain from trade.

Question 10

In the figure above, the allocatively efficient output of computers is

A) 2 million per year.
B) 4 million per year.
C) 3 million per year.
D) the largest amount possible.

Question 11

Production possibilities

In the above table, the production of 3 pizzas and 80 cases of cola is

A) feasible but would involve unemployed or misallocated resources.
B) possible only if there is inflation.
C) possible only if the economy produces with maximum efficiency.
D) impossible unless more resources become available or technology improves.

Question 12

Refer to the production possibilities frontier in the figure above. Production point _______ represents an _______ production point.

A) b; unattainable.
B) e; inefficient.
C) c; inefficient.
D) c; unattainable.

Question 13

If the marginal benefit of a good exceeds its marginal cost,

A) we should produce more to achieve the allocatively efficient use of resources.
B) we've achieved efficient resource use.
C) we should produce less to achieve the allocatively efficient use of resources.
D) we cannot tell if more or less should be produced to achieve the allocatively efficient use of resources.

Question 14

The above table shows the number of pencils or pens that could be produced by Don and Bob in an hour. This schedule shows that

A) Bob has a comparative advantage in the production of pencils.
B) Bob has an absolute advantage in the production of pencils, and Don has an absolute advantage in the production of pens.
C) Don has an absolute advantage in the production of pencils, and Bob has an absolute advantage in the production of pens.
D) Don has a comparative advantage in the production of both pencils and pens.

Question 15

Markets

A) facilitate trade.
B) coordinate price information between buyers and sellers.
C) allow traders to enjoy gains from trade.
D) All of the above answers are correct.

Question 16

Which of the following statements regarding the production possibilities frontier is true?

A) Points inside the frontier are attainable.
B) Points outside the frontier are attainable.
C) Points on the frontier are less efficient than points inside the frontier.
D) None of the above because all of the above statements are false.

Question 17

The bowed outward shape of the production possibilities frontier in the above figure indicates that

A) the opportunity cost of producing more computers decreases as more computers are produced.
B) some resources are better suited for producing computers.
C) computer technology is subject to the principle of decreasing costs.
D) All of the above answers are correct.

Question 18

When an economy produces at its allocatively efficient production point,

A) a society can increase the production of all goods.
B) scarcity is not a problem.
C) resources are not limited.
D) a society can increase the production of one good only by decreasing the production of some other good that is valued more highly.

Question 19

A production possibilities frontier does NOT illustrate

A) attainable and unattainable points.
B) the limits on production imposed by our limited resources and technology.
C) opportunity cost.
D) the exchange of one good or service for another.

Question 20

When economic growth occurs, the

A) production possibilities frontier shifts outward.
B) production possibilities frontier becomes steeper.
C) economy moves along its production possibilities frontier.
D) production possibilities frontier shifts outward but no longer limits the amount that can be produced.

Question 21

The opportunity cost of moving from point a to point b in the above figure is

A) zero.
B) 3/2 pairs of socks per sweater.
C) 2 sweaters.
D) 3 pairs of socks.

Question 22

The term "market" refers to

A) any arrangement that enables buyers and sellers to get information and trade with one another.
B) locations where buyers and sellers physically meet.
C) physical structures only.
D) trading arrangements that have been approved by the government.

Question 23

A person has a comparative advantage in producing a particular good if that person

A) has less desire to consume that good than anyone else has.
B) has more human capital related to that good than anyone else has.
C) can produce it at lower opportunity cost than anyone else can.
D) has higher productivity in producing it than anyone else has.

Question 24

Harry produces two balloon rides and four boat rides an hour. Harry could produce more balloon rides but to do so he must produce fewer boat rides. Harry is _______ his production possibilities frontier.

A) producing inside
B) producing outside
C) producing on
D) producing either inside or on

Question 25

The table above lists six points on the production possibilities frontier for grain and cars. What is the opportunity cost of producing the 5th tonne of grain?

A) 2 cars per tonnes of grain
B) 16 cars per tonnes of grain
C) 3 cars per tonnes of grain
D) 6 cars per tonnes of grain

Question 26

Consider a production possibilities frontier with corn on the vertical axis and cars on the horizontal. Unusually good weather for growing corn shifts

A) the vertical intercept upward but does not shift the horizontal intercept.
B) the horizontal intercept rightward but does not shift the vertical intercept.
C) the horizontal intercept rightward and the vertical intercept upward.
D) neither the horizontal intercept nor the vertical intercept.

Question 27

After cyclone Yasi devastated parts of Queensland in 2011, we can be sure that the production possibilities frontier for that area temporarily

A) shifted outward, away from the origin.
B) became steeper.
C) shifted inward, toward the origin.
D) became flatter.

Question 28

If property rights are not clearly defined and enforced, then

A) some potential gains from specialisation and trade are lost.
B) incentives for specialisation based on comparative advantage are weakened.
C) resources are devoted to protecting possessions rather than to production.
D) All of the above answers are correct.

Question 29

In one week Alice can produce 5 pairs of shoes or 4 bookshelves while Roger can produce 10 pairs of shoes or 6 bookshelves. Alice has _______ advantage in producing _______.

A) a comparative; shoes
B) an absolute; bookshelves
C) a comparative; bookshelves
D) an absolute; shoes

Question 30

In the above figure, curve b shows the

A) benefits of producing more bicycles is greater than the benefits of producing more cola.
B) benefits of producing more cola is greater than the benefits of producing more bicycles.
C) bottles of cola that people must forgo to get another bicycle.
D) bottles of cola that people are willing to forgo to get another bicycle.

Question 31

The production possibilities frontier itself illustrates

A) all goods that can be produced by an economy.
B) all possible production of capital goods.
C) all goods and services that are desired but cannot be produced due to scarce resources.
D) the combination of goods and services that can be produced efficiently.

Question 32

We measure the marginal _______ of a good by what a _______ for another unit of the good.

A) cost; person is willing to pay
B) benefit; person is willing to pay
C) cost; person's preferences are
D) benefit; person must pay

Question 33

The production possibilities frontier

A) shows how many goods and services are consumed by each person in a country.
B) is a model that assumes there is no scarcity and no opportunity cost.
C) is a graph with price on the vertical axis and income on the horizontal axis.
D) depicts the boundary between those combinations of goods and services that can be produced and those that cannot, given resources and the current state of technology.

Question 34

When producing goods and services along a PPF, tradeoffs exist because

A) society has only a limited amount of productive resources.
B) buyers and sellers often must negotiate prices.
C) not all production is efficient.
D) human wants and needs are limited at a particular point in time.

Question 35

The above table shows production points on Sweet- Tooth Land's production possibilities frontier. Which of the following statements is true?

A) Producing 20 chocolate bars and 80 cans of cola is attainable, but inefficient.
B) Producing 30 chocolate bars and 38 cans of cola is only attainable with an increase in technology.
C) Producing 40 chocolate bars and 0 cans of cola is unattainable and inefficient.
D) Producing 0 chocolate bars and 100 cans of cola is both attainable and efficient.

Question 36

The production possibilities frontier is the boundary between

A) those combinations of goods and services that can be produced and those that can be consumed.
B) those combinations of goods and services that can be produced and those that cannot.
C) those resources that are limited and those that are unlimited.
D) those wants that are limited and those that are unlimited.

Question 37

Production possibilities

Based on the above table, as the production of pizza increases, the opportunity cost of pizza in terms of forgone cases of cola

A) decreases.
B) does not change.
C) initially increases then decreases.
D) increases.

Question 38

Marginal benefit curves slope _______ and marginal cost curves slope _______.

A) downward; upward
B) upward; downward
C) upward; upward
D) downward; downward

Question 39

Suppose a scientific breakthrough made free solar power available in unlimited quantities in Australia. The effect of this invention would be to move

A) the Australian production possibilities frontier outward.
B) Australia beyond its production possibilities frontier.
C) the Australian production possibilities frontier inward.
D) Australia inside its production possibilities frontier.

Question 40

The above table shows production combinations on a country's production possibilities frontier. Which of the following is an example of a point that is unattainable?

A) 10 units of good X and 16 units of good Y.
B) 6 units of good X and 28 units of good Y.
C) 0 units of good X and 40 units of good Y.
D) 3 units of good X and 35 units of good Y.

Question 41

The table above lists six points on the production possibilities frontier for grain and cars. Given this information, which of the following combinations is unattainable?

A) 2 tonnes of grain and 27 cars
B) 6 tonnes of grain and 18 cars
C) 7 tonnes of grain and 10 cars
D) 4 tonnes of grain and 26 cars

Question 42

In the table above, country B is producing 4 units of X and 6 units of Y. For country B, the opportunity cost of producing an additional unit of X is

A) 2 units of Y per unit of X.
B) 1 unit of Y per unit of X.
C) 3/2 units of Y per unit of X.
D) 4 units of Y per unit of X.

Question 43

When resources are assigned to inappropriate tasks, the result will be producing at a point

A) outside the PPF.
B) inside the PPF.
C) where the slope of the PPF is positive.
D) where the slope of the PPF is zero.

Question 44

Production efficiency occurs when production

A) is on the production possibilities frontier or inside it.
B) is on the production possibilities frontier.
C) is at a point beyond the production possibilities frontier.
D) is at any attainable point.

Question 45

In the table above, country A is producing 4 units of X and 8 units of Y and country B is producing 4 units of X and 6 units of Y. Regarding the production of good X

A) country A has an absolute advantage.
B) country A has a comparative advantage.
C) country B has a comparative advantage.
D) country B has an absolute advantage.

Question 46

Jane produces only corn and cloth. Taking account of her preferences for corn and cloth

A) makes her production possibilities frontier flatter.
B) makes her production possibilities frontier straighter.
C) makes her production possibilities frontier steeper.
D) does not affect her production possibilities frontier.

Question 47

The principle of decreasing marginal benefit implies that the

A) total benefit from obtaining more of a good or service decreases as more is consumed.
B) total benefit from obtaining more of a good or service remains the same as more is consumed.
C) additional benefit from obtaining one more of a good or service decreases as more is consumed.
D) additional benefit from obtaining one more of a good or service increases as more is consumed.

Question 48

The table above shows the marginal benefit from pizza and the marginal cost of pizza in cans of cola forgone. If _______ pizzas are produced, the quantity of cola that people are willing to give up to get an additional pizza is more than the quantity of cola that they must give up to get that additional pizza.

A) fewer than 40
B) more than 40
C) any quantity other than 40
D) 40

Question 49

Opportunity cost is BEST defined as

A) the amount of money that an individual is willing to pay to purchase a good that means a great deal to that person.
B) a situation in which one individual cannot have an absolute advantage over another individual in the production of all goods.
C) the amount of money lost by one individual in an exchange process so that another individual might gain.
D) the highest- valued alternative that is forgone when choosing among various alternatives.

Question 50

Which of the following describes comparative advantage?

A) Company A can produce 4 boxes of cereal in a day, whereas Company B can produce 5 boxes of cereal in a day.
B) Firm A can produce a good at a cost of $3 and Firm B can produce the same good at a cost of $4.
C) Jane can type 50 words per minute and Joe can type 60 words per minute.
D) To produce a tonne of wheat Farmer John must give up 2 tonnes of corn, whereas Farmer Ben must give up 3 tonnes of corn.

Question 51

In the figure above, Joe is producing at point A. Joe's opportunity cost of producing one shirt is

A) 3/5 of a pair of pants per shirt.
B) 5 pairs of pants per shirt.
C) 5/3 of a pair of pants per shirt.
D) 2 pairs of pants per shirt.

Question 52

Two countries, Blue Violet and Orange Rose, produce only two goods: teapots and coffeepots. The table above gives their production possibilities. _______ has a comparative advantage in teapots and _______ has a comparative advantage in coffeepots.

A) Blue Violet; Orange Rose
B) Blue Violet; Blue Violet
C) Orange Rose; Blue Violet
D) Orange Rose; Orange Rose

Question 53

Allocative efficiency occurs when

A) marginal benefit exceeds marginal cost.
B) opportunity costs are decreasing.
C) we cannot produce more of any one good without giving up some other good.
D) we cannot produce more of any good without giving up some other good that we value more highly.

Question 54

Increasing opportunity cost occurs along a production possibilities frontier because

A) increasing wants need to be satisfied.
B) in order to produce more of one good decreasing amounts of another good must be sacrificed.
C) production takes time.
D) resources are not equally productive in all activities.

Question 55

The above table shows production points on Sweet- Tooth Land's production possibilities frontier. What is the opportunity cost of one chocolate bar if Sweet- tooth Land moves from point C to point D?

A) 10 cans of cola per chocolate bar
B) 3 cans of cola per chocolate bar
C) 30 cans of cola per chocolate bar
D) 1/3 can of cola per chocolate bar

Question 56

Based on the above diagram, which figure shows the impact of a decrease in the population available to work?

A) Figure D
B) Figure B
C) Figure C
D) Figure A

Question 57

Marginal cost is the _______ one more unit of a good and _______ of the good increases.

A) price that must be paid to consume; decreases as consumption
B) price that must be paid to consume; increases as consumption
C) opportunity cost of producing; decreases as production
D) opportunity cost of producing; increases as production

Question 58

In the above figure, when 2000 bicycles are produced each month, we can see that

A) the marginal benefit from another bicycle is greater than the marginal cost of another bicycle.
B) more bicycles should be produced to reach the allocatively efficient level of output.
C) the economy is very efficient at the production of bicycles because the marginal benefit exceeds the marginal cost.
D) Both answers A and B are correct.

Question 59

A nation's production possibilities frontier is bowed outward. Suppose that the government decides to increase the production of armaments by $20 billion, and that as a result the output of consumer goods falls by $20 billion. If a further $20 billion increase beyond the initial $20 billion increase in armaments output is sought, we can expect that the output of consumer goods and services will fall further by

A) more than $20 billion.
B) less than $20 billion.
C) $20 billion.
D) There is not enough information to determine the answer.

Question 60

Economic growth can be represented by

A) an outward shift of the production possibilities frontier (PPF).
B) an inward shift of the production possibilities frontier (PPF).
C) a movement down the production possibilities frontier (PPF).
D) a movement up the production possibilities frontier (PPF).

Question 61

In the figure above, at the allocatively efficient level of computer production consumers are willing to give up

A) more than 3 televisions per computer.
B) between 0 and 3 televisions per computer.
C) 3 televisions per computer.
D) 0 televisions per computer.

Question 62

In the above figure, the curve labelled a is the _______ curve and the curve labelled b is the _______ Curve.

A) marginal cost; trade line
B) marginal benefit; trade line
C) production possibilities frontier; trade line
D) marginal cost; marginal benefit

Question 63

The above table shows production combinations on a country's production possibilities frontier. The opportunity cost of increasing the production of Y from 16 to 28 units is _______ units of good X.

A) 3
B) 6
C) 12
D) There is no opportunity cost when moving from one point to another along a production possibilities frontier so none of the above answers is correct.

Question 64

Two social institutions that are essential for trade to be organised are .

A) markets and property rights
B) businesses and banks
C) property rights and laws
D) markets and banks

Question 65

Technological progress makes the production possibilities frontier

A) shift inward toward the origin.
B) shift outward from the origin.
C) become less linear and more bowed.
D) become more linear and less bowed.

Question 66

Economic growth is the result of all of the following EXCEPT

A) opportunity cost.
B) capital accumulation.
C) technological change.
D) investment in human capital.

Question 67

Leisure Land produces only sunscreen and camel rides. The table shows the marginal benefit and marginal cost schedules for sunscreen and camel rides. The allocatively efficient number of camel rides is

A) 4 rides per day.
B) 2 rides per day.
C) 6 rides per day because that is the maximum number of rides.
D) 1 ride per day because the marginal benefit exceeds the marginal cost by as much as possible.

Question 68

As an economy's capital stock increases, the economy

A) experiences economic growth.
B) generally experiences increased unemployment of other resources, such as labour.
C) generally decides to engage in international trade.
D) gains an absolute advantage in the production of capital goods.

Question 69

A country possesses a comparative advantage in the production of a good if

A) it possesses an absolute advantage in the production of this good.
B) the opportunity cost in terms of forgone output of alternative goods is lower for this country than it is for its trading partners.
C) it is able to produce more of this good per hour than any other country.
D) All of the above.

Question 70

In the figure above, suppose that Mac and Izzie trade and reach point c. Then

A) Mac should produce at point b and Izzie should produce at point d.
B) Mac should produce at point d and Izzie should produce at point b.
C) Mac and Izzie should both produce at point a.
D) Mac and Izzie should both produce at point c.

Question 71

Victor currently produces nuts and bolts at point a in the figure. Victor's marginal cost of producing an additional nut is _______.

A) 8/6 bolts per nut
B) 1/2 bolt per nut
C) 1 bolt per nut
D) 8 bolts per nut

Question 72

Betty and Ann live on a desert island. With a day's labour, Ann can produce 8 fish or 4 coconuts; Betty can produce 6 fish or 2 coconuts. Ann's opportunity cost of producing 1 coconut is _______ and she should specialise in the production of _______.

A) 0 fish per coconut; coconuts
B) 6 fish per coconut; coconuts
C) 8 fish per coconut; fish
D) 2 fish per coconut; coconuts

Question 73

The social arrangements that govern the ownership, use and disposal of property are referred to as

A) property rights.
B) private enterprise.
C) capitalism.
D) the double coincidence of wants.

Question 74

Susan likes to drink colas. The _______ cola Susan drinks, the _______ of the last cola.

A) more; higher the marginal benefit
B) more; lower the marginal benefit
C) less; higher the opportunity cost
D) less; lower the marginal benefit

Question 75

In the above table, the opportunity cost of the 2nd pizza is

A) 80 cases of cola.
B) 95 cases of cola.
C) 0 cases of cola.
D) 15 cases of cola.

Question 76

When producing at a production efficient point,

A) the opportunity cost of another good is zero.
B) our choice of the goods can be either on or within the production possibilities frontier.
C) we can satisfy our all wants.
D) we face a tradeoff and incur an opportunity cost.

Question 77

Suppose Joe can prepare 20 sandwiches or 10 pizzas in an hour and Beth can produce 36 sandwiches or 27 pizzas. The concept of comparative advantage concludes that

A) Beth should produce sandwiches and Joe should produce pizza.
B) Beth should produce both goods because she can produce more of both goods in an hour than can Joe.
C) Beth should produce pizza and Joe should produce sandwiches.
D) Beth should produce both goods and Joe should produce sandwiches.

Question 78

Molly just graduated from high school. The figure shows her possibilities frontier. If Molly goes to university, she will move from point M to point K. In terms of consumption goods, Molly's opportunity cost of going to university is

A) LM.
B) KL.
C) OL.
D) MK.

Question 79

The opportunity cost of more capital goods today is

A) fewer capital goods in the future.
B) fewer consumer goods in the future.
C) more unemployed resources in the future.
D) fewer consumer goods today.

Question 80

In the above figure, once on PPF2, a country would grow slowest by producing at point

A) C.
B) D.
C) B.
D) A.