Deck 2: Production, Economic Growth, and Trade

Question 1

Suppose that if the United States produced only oil, it could produce 25 million barrels; and if it produced only microchips, it could produce 20 million chips. Suppose that if Mexico produced only oil, it could produce 16 million barrels; and if it produced only microchips, it could produce 8 million chips. Which statement is then correct?

A) Mexico has a comparative advantage in producing both goods.
B) The United States has an absolute advantage over Mexico in producing both goods.
C) Mexico has an absolute advantage over the United States in producing both goods.
D) The United States has a comparative advantage in producing both goods.

Answer 1

The United States has an absolute advantage over Mexico in producing both goods.

Question 2

As used by economists, the term "capital" includes the human talent one is born with.

Answer 2

False

Question 3

Comparative advantage exists when one country can produce _____ another country.

A) more of a good than can
B) less of a good than can
C) a good at a higher opportunity cost than
D) a good at a lower opportunity cost than

Answer 3

a good at a lower opportunity cost than

Question 4

When two countries gain from trade

A) one country must have an absolute advantage over the other in producing all goods.
B) both countries can consume beyond their domestic production possibilities frontiers.
C) one country must have a comparative advantage over the other in producing all goods.
D) both countries must be equal in size.

Question 5

Which scenario is part of a planned economy?

A) Private individuals and firms own most resources.
B) Product prices are primarily determined by the interaction of supply and demand.
C) Most of the productive resources are owned by the state.
D) Consumers are free to decide what goods and services to purchase.

Question 6

(Table) Given the production possibilities schedule shown in the table, what is the opportunity cost of moving from E to F?

A) 2 bananas
B) 3 bananas
C) 2 apples
D) 4 apples

Question 7

_____ advantage exists when one country can produce more of a good than another country.

A) Comparative
B) Absolute
C) Unfair
D) Home country

Question 8

A nation that consumes most of what it produces will have a lower growth rate than another nation that focuses more on the production of capital goods.

Question 9

(Figure: Biscuit and Cookies PPFs) Greg and Melissa face the production possibilities frontiers shown for biscuits and cookies. Assume that Greg and Melissa trade 60 biscuits for 60 cookies after they have completely specialized in producing the good in which they have a comparative advantage. We know that Greg and Melissa are each made better off with specialization and trade than acting alone because _____ production possibilities frontier.

A) they are both producing outside of their
B) they are both consuming outside of their
C) Greg is producing outside of his
D) Melissa is producing outside of her

Question 10

(Figure: Pork and Corn PPF 2) If we want to produce 10 units of corn, then we can produce no more than _____ unit(s) of pork.

A) 1
B) 2
C) 3
D) 4

Question 11

Jason produces more jeans than Jasmine. Why would Jason and Jasmine want Jasmine to produce the jeans even when they both know that he can produce more than she can at a faster rate?

A) Jasmine has a lower opportunity cost of producing the jeans than Jason.
B) Jason has a lower opportunity cost of producing the jeans than Jasmine.
C) Jason has an absolute advantage in producing the jeans.
D) Jasmine has an absolute advantage of producing the jeans.

Question 12

(Figure: Bread and Honey) In the graph, a move from point f to point g

A) is a move from full employment to less than full employment.
B) is impossible with the resources that are available.
C) is a move from an inefficient point to one that fully utilizes all the available resources.
D) reflects a positive opportunity cost tradeoff.

Question 13

The conversion of resources to satisfy wants is described as

A) consumption.
B) distribution.
C) production.
D) conservation.

Question 14

If a pizza parlor uses an oven in its production process, the oven is an example of which factor of production?

A) capital
B) entrepreneurial ability
C) labor
D) land

Question 15

Which is NOT a basic economic question that societies must answer?

A) What goods and services are to be produced?
B) How are the goods and services to be produced?
C) Why are these goods and services being produced?
D) For whom are the goods and services being produced?

Question 16

The theory of comparative advantage says that countries

A) should restrict trade by cutting off all imports.
B) should import those goods they can produce at a lower opportunity cost than another country.
C) can never benefit from specialization in trade.
D) should export those goods they can produce at a lower opportunity cost than another country.

Question 17

Suppose that in Japan one worker can produce either four cars or 5 tons of grain per year. What is the opportunity cost of producing one car in Japan?

A) 0.4 ton of grain
B) 0.8 ton of grain
C) 1.25 tons of grain
D) 2.5 tons of grain

Question 18

A country can use its given resources to produce capital goods or consumer goods. This implies that

A) an economy can "have it all."
B) there is a conflict between capitalists and consumers.
C) more consumption in the present leads to higher economic growth for future generations.
D) there is a tradeoff between the current and the future standards of living.

Question 19

A laissez-faire approach to the question "How to produce?" would be found in a _____ economy.

A) socialist
B) communist
C) market
D) planned

Question 20

If one country has an absolute advantage over another country in producing all goods, the countries will not gain from trading.

Question 21

In a pure market economy, the government's primary role does NOT include

A) protecting property rights.
B) enforcing contracts between private parties.
C) providing public goods, such as national defense.
D) reallocating resources across the economy.

Question 22

An increase in the unemployment rate will shift the production possibilities frontier to the right.

Question 23

Which statement is TRUE regarding production efficiency?

A) Efficiency and cost are unrelated concepts.
B) Production efficiency is independent of the type of technology used.
C) Producing at the lowest possible resource cost is equivalent to getting as much output as possible from a given set of resources.
D) The most economically efficient production technology is not always the cheapest.

Question 24

Which of these does NOT impose a limit on the amount of international trade?

A) transportation costs
B) some industries losing their domestic markets
C) the danger of overreliance on a small number of products for exports
D) high level of comparative advantage

Question 25

Which of these would be MOST likely to cause the production possibilities frontier to shift to the left?

A) increase in population
B) advancement in technology
C) decrease in the size of the labor force
D) decrease in taxes

Question 26

(Table: Production Possibilities Schedule) In the table, if society wants to increase production of HDTVs from 1,000 to 2,000 units, the opportunity cost of doing so will be _____ iPads.

A) 500
B) 4,500
C) 3,500
D) 1,000

Question 27

Full employment on a production possibilities frontier (PPF) is shown by

A) points inside the PPF.
B) points on the PPF.
C) points outside the PPF.
D) an inefficient use of resources.

Question 28

Only capitalist economies must answer the three basic economic questions.

Question 29

(Table) Germany has a comparative advantage in producing

A) sweaters and skirts.
B) sweaters only.
C) skirts only.
D) neither good.

Question 30

(Figure: Ships and Autos in Countries A and B) Two countries manufacture autos and ships. Based on the graphs, which statement is correct?

A) The opportunity cost in country A of producing 1 ship is 2 cars.
B) The opportunity cost in country B of producing 1 ship is 10 cars.
C) Country B is more efficient in the production of ships.
D) Both countries are equally efficient in the production of ships because the PPFs are linear.

Question 31

When society produces the mix of goods and services that are most desired and produces them at the lowest cost possible

A) production efficiency is achieved.
B) allocative efficiency is achieved.
C) production and allocative efficiency are achieved.
D) inefficiency occurs.

Question 32

The "what" question of the three basic questions is "What price should be charged for a good?"

Question 33

The choice to attend a free college lecture involves no opportunity cost.

Question 34

Which statement defines absolute advantage?

A) Goods and services that are produced at their lowest resource (opportunity) cost.
B) The mix of goods and services produced is just what the society desires.
C) One country has a lower opportunity cost of producing a good than another country.
D) One country can produce more of a good than another country if both work with identical resources.

Question 35

Employing resources that are not as well suited to making a particular product decreases the opportunity cost of producing that product as opposed to other products.

Question 36

If a country wants to maximize its GDP, it should always

A) export goods in which it has an absolute advantage.
B) import goods in which it has an absolute advantage.
C) export goods in which it has a comparative advantage.
D) import goods in which it has a comparative advantage.

Question 37

(Figure: Interpreting PPF Shifts 3) Which statement would NOT be a possible explanation for the shift depicted in the graph?

A) Workers receive more education.
B) New technology is developed.
C) Unemployment rises.
D) New energy resources are found.

Question 38

Free trade and the law of comparative advantage increase the standard of living for each person in a country.

Question 39

For a country to experience economic growth, the country must

A) reduce output.
B) increase inputs.
C) be productively efficient.
D) be more allocatively efficient.

Question 40

Suppose the country of Alphaland can produce more cars than Omegaland can produce, given the same resources. An economist would conclude that Alphaland has a(n) _____ in producing cars.

A) absolute advantage
B) comparative advantage
C) higher opportunity cost
D) higher resource cost

Question 41

Labor and entrepreneurial ability are the principal resources that can be changed through government action.

Question 42

If the government of Spain decides to spend less on the military and more on health care, the forgone spending on military items represents the _____ of the extra health care.

A) cost factor
B) production efficiency
C) opportunity cost
D) allocative cost

Question 43

Comparative advantage arises because

A) all resources are equally effective in the production of goods.
B) the division of labor increases efficiency.
C) the division of labor helps markets function effectively.
D) not all resources are equally effective in the production of goods.

Question 44

(Table) Looking at the data for Tom and Joe, what specialization pattern will exist if trade is based on comparative advantage?

A) Tom will specialize in shirts, and Joe will specialize in cakes.
B) Tom will specialize in cakes, and Joe will specialize in shirts.
C) Tom will specialize in both cakes and shirts.
D) Joe will specialize in both cakes and shirts.

Question 45

Free trade is known as a positive-sum game because both parties to a transaction can receive positive gains.

Question 46

(Table) The table shows the number of hours Paul spends either reading books or watching movies. Paul has only 10 hours he can use on the activities. If Paul decides to go from spending 2 hours reading books to 4 hours reading books, what is his opportunity cost for spending 2 more hours reading books?

A) 2 hours of movie watching
B) 4 hours of movie watching
C) 6 hours of movie watching
D) 8 hours of movie watching

Question 47

Suppose that the government could stimulate spending in one expenditure categories. In which category would the spending increase contribute MOST to an expansion of the country's production possibilities frontier?

A) consumption goods
B) government purchases
C) net exports
D) capital goods

Question 48

When the mix of goods and services produced is the mix most desired by society, the result is called allocative efficiency.

Question 49

The production possibilities frontier graphically represents the combinations of two goods that are possible for a society to produce at full employment.

Question 50

Which of these results in a higher standard of living?

A) higher inflation rate
B) greater tax burden
C) free trade
D) smaller level of international trade

Question 51

(Table) According to the data in the table, which statement explains who has a comparative advantage in the production of shirts?

A) Tom, because he can produce a shirt in fewer hours than Joe can
B) Joe, because he uses more hours than Tom to produce a shirt
C) Tom, because he gives up production of 1.67 cakes for every shirt he produces
D) Joe, because he gives up production of 1.5 cakes for every shirt he produces

Question 52

If one country has a(n) _____ advantage in the production of one item, it can always produce more of the same item than another nation, given the same resources.

A) comparative
B) absolute
C) special
D) trade

Question 53

What are the three basic economic questions each society must answer?

A) What to produce? How to produce? For whom to produce?
B) How much to produce? What quality to produce? What price to sell at?
C) What to produce? How much to produce? How to consume?
D) How much goes to the government? How much goes to consumers? How much is exported?

Question 54

The effects of past trade agreements between the United States, Mexico, and Canada have proven that opening up to free trade will hurt domestic workers in every industry in the United States.

Question 55

(Table) Suppose an economy can produce the combinations of bread and cookies shown in the table. The opportunity cost of increasing bread production from 25 to 50 loaves is _____, and the opportunity cost of increasing bread production from 50 to 75 loaves is _____.

A) 25 loaves of bread; 30 dozen cookies
B) 15 dozen cookies; 30 dozen cookies
C) 90 dozen cookies; 45 dozen cookies
D) 75 loaves of bread; 50 loaves of bread

Question 56

A curve of which shape reflects the reality that most goods are better suited for specific sorts of production?

A) straight-line production possibilities frontier
B) concave production possibilities frontier
C) downward-sloping production possibilities frontier
D) convex possibilities frontier

Question 57

Natural resources, such as water, are included in capital resources.

Question 58

(Table) Based on the table

A) Canada faces increasing opportunity costs.
B) Mexico faces increasing opportunity costs.
C) both Canada and Mexico face constant opportunity costs.
D) both Canada and Mexico face increasing opportunity costs.

Question 59

(Table) Allow the United States to produce at point C and Chile to produce at point K on the production possibilities schedules. Now, let the United States trade away 6 loaves of bread in return for 20 bushels of avocados. Which statement is TRUE?

A) Both countries are better off from this trade because they both consume outside their production possibilities frontier (PPF).
B) Both countries are better off from this trade because they both produce outside their PPF.
C) Only the United States is better off from this trade.
D) Only Chile is better off from this trade.

Question 60

(Table) According to the data in the table, who has an absolute advantage in the production of shirts?

A) Tom, because he can produce more shirts in a week than Joe can
B) Joe, because he can produce more shirts in a week than Tom can
C) Tom, because he cannot produce as many shirts as Joe can
D) Joe, because he cannot produce as many shirts as Tom can

Question 61

The derivation of a production possibilities frontier assumes that

A) some resources are not being used.
B) there is a fixed quantity of resources and technology available.
C) some resources are not being produced efficiently.
D) technology is free.

Question 62

Every industry in all countries benefit from increased international trade.

Question 63

Trade can be beneficial to society as a whole because it allows

A) for a more efficient use of resources.
B) for goods to be obtained at a lower opportunity cost.
C) people to specialize in activities in which they have a comparative advantage.
D) All of these make trade beneficial to society as a whole.

Question 64

The government increases taxes on high-income workers to provide welfare to people with physical disabilities who are unable to work. This relates to which basic economic question?

A) What prices should the government pay?
B) What mix of goods and services should be produced?
C) How should goods and services be produced?
D) Who will receive the goods and services?

Question 65

The resource known as labor includes

A) physical labor only.
B) physical and mental skills and talents.
C) people willing to do physical and difficult work.
D) the work of legal workers.

Question 66

Adam Smith is credited with being the first to define the concept of comparative advantage.

Question 67

Which statement about entrepreneurs is NOT correct?

A) Entrepreneurs combine other resources to produce goods and services.
B) Entrepreneurs manage day-to-day marketing, finance, and production decisions.
C) The payment that entrepreneurs earn is called profit.
D) Entrepreneurs do not take on any business risks.

Question 68

If two countries can benefit by trading with each other, no industries in either country may suffer.

Question 69

All of these are considered human capital EXCEPT

A) working in a clothing factory.
B) obtaining a college education.
C) receiving training for another area in a current job.
D) completing a professional development course.

Question 70

(Table: Production Possibilities Schedule) In the table, if society wants to increase production of HDTVs from 2,000 to 3,000 units, the opportunity cost of doing so will be _____ iPads.

A) 500
B) 1,500
C) 1,000
D) 2,000

Question 71

Land as a productive resource does NOT include

A) mineral deposits.
B) oil.
C) water.
D) computers.

Question 72

The practical constraints on trade include all of these EXCEPT

A) every international transaction involves costs.
B) production possibilities frontiers for nations are linear.
C) production possibilities frontiers exhibit increasing costs and diminishing returns.
D) some industries and individuals in a country may be hurt by an expansion of trade.

Question 73

The production possibilities frontier is bowed outward as a result of increasing costs.

Question 74

_____ occurs when the mix of goods society decides to produce is produced at the lowest resource or opportunity cost.

A) Allocative efficiency
B) Production efficiency
C) Opportunity cost
D) Cost allocation

Question 75

The key benefit of countries engaging in trade based on comparative advantage is that

A) both countries will be able to consume more than they would with no trade.
B) it allows countries to produce efficiently inside of their individual production possibilities frontiers.
C) it allows both countries to maximize their opportunity cost.
D) None of these is a key benefit.

Question 76

Capital, as a factor of production, includes all manufactured products that are used to produce other goods.

Question 77

Which statement BEST illustrates increasing opportunity costs?

A) As new technology evolves, it becomes more difficult to obtain the energy to run the technology.
B) Immigration increases the productivity of the labor force even if it costs existing workers their jobs.
C) The costs of closing factories exceed the profit opportunities of keeping them operating.
D) As more rice is produced, rice farmers plant in land that is good for growing other crops but poor for growing rice.

Question 78

_____ combine land, labor, and capital to produce goods and services and assume the risks associated with running a business.

A) Economists
B) Capital marketers
C) Entrepreneurs
D) Financiers

Question 79

David Ricardo

A) suggested that increasing wages for workers would increase their consumption and lead to economic growth.
B) wanted to protect textile markets in England.
C) suggested that countries would benefit from trade.
D) suggested that goods were exchanged based on the value of those in use.

Question 80

(Figure: Biscuits and Cookies PPFs) Looking at Greg and Melissa's production possibilities frontiers (PPFs), what production and trade situation would allow both Greg and Melissa to consume a combination of biscuits and cookies outside their PPF?

A) Greg produces 200 cookies, Melissa produces 160 biscuits, and Greg trades 100 cookies in exchange for 30 biscuits.
B) Greg produces 200 cookies, Melissa produces 160 biscuits, and Greg trades 100 cookies in exchange for 60 biscuits.
C) Greg produces 100 biscuits, Melissa produces 80 cookies, and Greg trades 50 biscuits in exchange for 40 cookies.
D) Greg produces 100 biscuits, Melissa produces 80 cookies, and Greg trades 50 biscuits in exchange for 70 cookies.