Deck 2: Trade-Offs, comparative Advantage, and the Market System

Question 1

The unattainable points in a production possibilities diagram are

A) the points within the production possibilities frontier.
B) the points along the production possibilities frontier.
C) the points of the horizontal and vertical intercepts.
D) the points outside the production possibilities frontier.

Answer 1

the points outside the production possibilities frontier.

Question 2

The production possibilities frontier shows

A) the various products that can be produced now and in the future.
B) the maximum attainable combinations of two products that may be produced in a particular time period with available resources.
C) what an equitable distribution of products among citizens would be.
D) what people want firms to produce in a particular time period.

Answer 2

the maximum attainable combinations of two products that may be produced in a particular time period with available resources.

Question 3

The production possibilities frontier model assumes all of the following except

A) labor, capital, land and natural resources are fixed in quantity.
B) the economy produces only two products.
C) any level of the two products that the economy produces is currently possible.
D) the level of technology is fixed and unchanging.

Answer 3

any level of the two products that the economy produces is currently possible.

Question 4

In a production possibilities frontier model,a point inside the frontier is

A) allocatively efficient.
B) productively efficient
C) allocatively inefficient.
D) productively inefficient.

Question 5

Figure 2-1

Refer to Figure 2-1. ________ is (are)inefficient in that not all resources are being used.

A) Point A
B) Point B
C) Point C
D) Points A and C

Question 6

If the production possibilities frontier is linear,then

A) opportunity costs are decreasing as more of one good is produced.
B) it is easy to efficiently produce output.
C) opportunity costs are increasing as more of one good is produced.
D) opportunity costs are constant as more of one good is produced.

Question 7

Figure 2-2

Figure 2-2 above shows the production possibilities frontier for Vidalia, a nation that produces two goods, roses and orchids.
Refer to Figure 2-2. What is the opportunity cost of one dozen roses?

A) 0.4 dozen orchids
B) 2.5 dozen orchids
C) 7.25 dozen orchids
D) 16 dozen orchids

Question 8

The ________ production points on a production possibility curve are the points along and inside the production possibility frontier.

A) attainable
B) unattainable
C) productively efficient
D) allocatively efficient

Question 9

Figure 2-1

Refer to Figure 2-1. ________ is (are)technically efficient.

A) Point A
B) Point B
C) Point C
D) Points B and C

Question 10

Increasing opportunity cost along a bowed out production possibilities frontier occurs because

A) of inefficient production.
B) of ineffective management by entrepreneurs.
C) some factors of production are not equally suited to producing both goods or services.
D) of the scarcity of factors of production.

Question 11

Figure 2-1

Refer to Figure 2-1. ________ is (are)unattainable with current resources.

A) Point A
B) Point B
C) Point C
D) Points A and C

Question 12

Figure 2-2

Figure 2-2 above shows the production possibilities frontier for Vidalia, a nation that produces two goods, roses and orchids.
Refer to Figure 2-2. Suppose Vidalia is currently producing 20 dozen orchids per period.How many roses is it also producing,assuming that resources are fully utilized?

A) 30 dozen roses
B) 50 dozen roses
C) 100 dozen roses
D) 150 dozen roses

Question 13

The principle of ________ is that the economic cost of using a factor of production is the alternative use of that factor that is given up.

A) marginal cost
B) opportunity cost
C) normative economics
D) entrepreneurship

Question 14

________ shows that if all resources are fully and efficiently utilized,more of one good can be produced only by producing less of another good.

A) Comparative advantage
B) Absolute advantage
C) The mixed market system
D) The production possibilities frontier model

Question 15

Carmelita can perform either a combination of 35 manicures and 70 pedicures or a combination of 50 manicures and 45 pedicures.If she now performs 35 manicures and 70 pedicures,what is the opportunity cost of performing an additional 15 manicures?

A) 5 pedicures
B) 20 pedicures
C) 25 pedicures
D) 45 pedicures

Question 16

________ exists because unlimited wants exceed the limited resources available to fulfill those wants.

A) Scarcity
B) Productive efficiency
C) The command economy
D) Economic growth

Question 17

Figure 2-2

Figure 2-2 above shows the production possibilities frontier for Vidalia, a nation that produces two goods, roses and orchids.
Refer to Figure 2-2. What is the opportunity cost of one dozen orchids?

A) 0.4 dozen roses
B) 2.5 dozen roses
C) 7.25 dozen roses
D) 16 dozen roses

Question 18

To compete in the automobile market,BMW must make many strategic decisions such as whether to introduce a new car model,whether to produce alternative-fuel vehicles,and where to advertise.At BMW's Spartanburg,South Carolina plant,managers must decide on the monthly production quantities of their X3,X5 ,and X6 models.In making this decision,the managers

A) face no trade-off because the Spartanburg plant only produces these three models of the many BMW models produced worldwide.
B) face a trade-off, because producing more of one model means producing less of the others.
C) will choose to only produce the quantity of X3, X5, and X6 models where marginal cost equals zero.
D) will always decide on production quantities in which revenues are maximized.

Question 19

Figure 2-2

Figure 2-2 above shows the production possibilities frontier for Vidalia, a nation that produces two goods, roses and orchids.
Refer to Figure 2-2. The linear production possibilities frontier in the figure indicates that

A) Vidalia has a comparative advantage in the production of orchids.
B) Vidalia has a comparative disadvantage in the production of roses.
C) the tradeoff between roses and orchids is constant.
D) it is progressively more expensive to produce orchids.

Question 20

A production possibilities frontier with a ________ shape indicates increasing opportunity costs as more and more of one good is produced.

A) linear
B) bowed inward
C) bowed outward
D) perfectly horizontal

Question 21

Figure 2-4

Figure 2-4 shows various points on three different production possibilities frontiers for a nation.
Refer to Figure 2-4. Consider the following events:
a.an increase in the unemployment rate
b.a decrease in a nation's money supply
c.a war that kills a significant portion of a nation's population
Which of the events listed above could cause a movement from Z to X ?

A) a, b and c
B) a and b only
C) a and c only
D) a only
E) c only

Question 22

Increasing marginal opportunity cost implies that

A) the more resources already devoted to any activity, the payoff from allocating yet more resources to that activity increases by progressively smaller amounts.
B) the more resources already devoted to any activity, the benefits from allocating yet more resources to that activity decreases by progressively larger amounts.
C) that rising opportunity costs makes it inefficient to produce beyond a certain quantity.
D) the law of scarcity.

Question 23

Without technological advancement,how can a nation achieve economic growth?

A) by producing more high-value goods and fewer low-value goods
B) through an increase in supplies of factors of production
C) by producing more low-value goods and fewer high-value goods
D) by decreasing the size of the labor force

Question 24

If opportunity costs are ________,the production possibilities frontier would be graphed as a negatively sloped straight line.

A) decreasing
B) increasing
C) negative
D) constant

Question 25

Economic growth is represented on a production possibilities frontier model by the production possibility frontier

A) shifting outward.
B) shifting inward.
C) becoming steeper.
D) becoming flatter.

Question 26

Figure 2-4

Figure 2-4 shows various points on three different production possibilities frontiers for a nation.
Refer to Figure 2-4. A movement from ________ is the result of advancements in plastic production technology.

A) V to X
B) W to X
C) Z to W
D) Y to Z

Question 27

Figure 2-4

Figure 2-4 shows various points on three different production possibilities frontiers for a nation.
Refer to Figure 2-4. A movement from ________ could occur because of an influx of immigrant labor.

A) X to W
B) X to Y
C) W to V
D) W to X

Question 28

________ a nation's production possibilities frontier represents economic growth.

A) An outward shift of
B) An inward shift of
C) Moving up along
D) Moving down along

Question 29

Table 2-1
Production Choices for Dina's Diner

Refer to Table 2-1.Assume Dina's Diner only produces sliders and hot wings.A combination of 60 sliders and 50 hot wings would appear

A) along Dina's production possibilities frontier.
B) inside Dina's production possibilities frontier.
C) outside Dina's production possibilities frontier.
D) at the vertical intercept of Dina's production possibilities frontier.

Question 30

Figure 2-4

Figure 2-4 shows various points on three different production possibilities frontiers for a nation.
Refer to Figure 2-4. Consider the following events:
a.a reduction in the patent protection period to no more than 2 years
b.a war that destroys a substantial portion of a nation's capital stock
c.the lack of secure and enforceable property rights system
Which of the events listed above could cause a movement from W to V?

A) a only
B) a and b only
C) a and c only
D) b and c only
E) a, b, and c

Question 31

Figure 2-4

Figure 2-4 shows various points on three different production possibilities frontiers for a nation.
Refer to Figure 2-4. Consider the following events:
a.a decrease in the unemployment rate
b.general technological advancement
c.an increase in consumer wealth
Which of the events listed above could cause a movement from V to X ?

A) a only
B) a and b only
C) b and c only
D) a, b, and c

Question 32

Which of the following would shift a nation's production possibilities frontier inward?

A) discovering a cheap way to convert sunshine into electricity
B) producing more capital equipment
C) an increase in the unemployment rate
D) a law requiring workers to retire at age 50

Question 33

Figure 2-3

Refer to Figure 2-3. Carlos Vanya grows tomatoes and strawberries on his land.A portion of his land is more suitable for growing tomatoes and the other portion is better suited for strawberry cultivation.Which of the graphs in Figure 2-3 represent his production possibilities frontier?

A) Graph A
B) Graph B
C) Graph C
D) either Graph A or Graph B
E) either Graph B or Graph C

Question 34

Table 2-1
Production Choices for Dina's Diner

Refer to Table 2-1.Dina faces ________ opportunity costs in the production of sliders and hot wings.

A) increasing
B) decreasing
C) constant
D) negative

Question 35

Table 2-1
Production Choices for Dina's Diner

Refer to Table 2-1.Assume Dina's Diner only produces sliders and hot wings.A combination of 40 sliders and 50 hot wings would appear

A) along Dina's production possibilities frontier.
B) inside Dina's production possibilities frontier.
C) outside Dina's production possibilities frontier.
D) at the vertical intercept of Dina's production possibilities frontier.

Question 36

Figure 2-3

Refer to Figure 2-3.Carlos Vanya grows tomatoes and strawberries on his land.His land is equally suited for growing either fruit.Which of the graphs in Figure 2-3 represents his production possibilities frontier?

A) Graph A
B) Graph B
C) Graph C
D) either Graph A or Graph B
E) either Graph B or Graph C

Question 37

An outward shift of a nation's production possibilities frontier can occur due to

A) a reduction in unemployment.
B) a natural disaster like a hurricane or bad earthquake.
C) a change in the amounts of one good desired.
D) an increase in the labor force.

Question 38

Figure 2-4

Figure 2-4 shows various points on three different production possibilities frontiers for a nation.
Refer to Figure 2-4. Consider the following movements:
a.from point V to point W
b.from point W to point Y
c.from point Y to point Z
Which of the movements listed above represents advancements in technology with respect to both plastic production and food production?

A) a, b, and c
B) b and c only
C) b only
D) c only

Question 39

Table 2-1
Production Choices for Dina's Diner

Refer to Table 2-1.Assume Dina's Diner only produces sliders and hot wings.A combination of 40 sliders and 25 hot wings would appear

A) along Dina's production possibilities frontier.
B) inside Dina's production possibilities frontier.
C) outside Dina's production possibilities frontier.
D) at the vertical intercept of Dina's production possibilities frontier.

Question 40

The slope of a production possibilities frontier measures the ________ of producing one more unit of a good.

A) marginal revenue
B) total revenue
C) marginal cost
D) opportunity cost

Question 41

Figure 2-5

Refer to Figure 2-5. If the economy is currently producing at point Y,what is the opportunity cost of moving to point X?

A) 5 million tons of steel
B) 9 million tons of paper
C) 5 million tons of paper
D) 19 million tons of steel

Question 42

Figure 2-5

Refer to Figure 2-5. If the economy is currently producing at point X,what is the opportunity cost of moving to point W?

A) 3 million tons of steel
B) 19 million tons of steel
C) 5 million tons of paper
D) 9 million tons of paper

Question 43

Figure 2-6

General Motors recently approved for production the Cadillac Converj, an electric car based on its Chevy Volt. The Converj will feature a "Generation 1.5 Voltec" powertrain, with a hybrid engine that runs on a combination of electricity and gasoline. Suppose GM chooses to produce both a coupe version and an SUV version of this hybrid-engine vehicle for its Cadillac brand. Figure 2-6 shows changes to its production possibilities frontier in response to new developments and different strategic production decisions.
Refer to Figure 2-6. Suppose Cadillac has to shut down a portion of its facility as it works on remodeling the facility to merge two of its separate assembly lines in preparation for the production of the new,hybrid models.The production decision to shut down temporarily will result in a

A) movement from E to F in Graph A.
B) movement from G to H in Graph B.
C) movement from K to L in Graph C.
D) movement from J to H in Graph B.

Question 44

If additional units of a good could be produced at a constant opportunity cost,the production possibility frontier would be linear.

Question 45

On a diagram of a production possibility frontier,opportunity cost is represented by the slope of the production possibility frontier

Question 46

The recession of 2007-2009 would most likely be represented in a production possibilities frontier graph by

A) a point inside the frontier.
B) a point outside the frontier.
C) a point on the frontier.
D) an intercept on either the vertical or the horizontal axis.

Question 47

Figure 2-6

General Motors recently approved for production the Cadillac Converj, an electric car based on its Chevy Volt. The Converj will feature a "Generation 1.5 Voltec" powertrain, with a hybrid engine that runs on a combination of electricity and gasoline. Suppose GM chooses to produce both a coupe version and an SUV version of this hybrid-engine vehicle for its Cadillac brand. Figure 2-6 shows changes to its production possibilities frontier in response to new developments and different strategic production decisions.
Refer to Figure 2-6.Suppose worker productivity increases so that the total number of vehicles produced increases as the company adds more machinery,workers and changes the layout of the factory.This is best represented by the

A) movement from E to F in Graph A.
B) movement from G to H in Graph B.
C) movement from K to L in Graph C.
D) movement from J to H in Graph B.

Question 48

An increase in the unemployment rate may be represented as a movement from a point on the production possibilities frontier to a point inside the frontier.

Question 49

A student comments to his roommate that the only way he will be able to pass his final exams is to not sleep for the next three days.This statement suggests that

A) students are more concerned about good grades than good health.
B) society should value sleep more highly than good grades.
C) there is a trade-off between studying and sleep.
D) society should value good grades more highly than sleep because students can catch up on their sleep once final exams are over.

Question 50

Suppose there is some unemployment in the economy and society decides that it wants more of one good.Which of the following statements is true?

A) It is not possible to achieve this unless technology advances.
B) It can increase output without giving up another good by employing more resources.
C) It will have to increase resource supplies.
D) It will have to give up production and consumption of some other good.

Question 51

If society decides it wants more of one good and ________,then it has to give up some of another good and incur some opportunity costs.

A) technology advances
B) resources are underutilized
C) all resources are fully utilized
D) new resources are discovered

Question 52

Suppose your expenses for this term are as follows: tuition: $5,000,room and board: $3,000,books and other educational supplies: $500.Further,during the term,you can only work part-time and earn $4,000 instead of your full-time salary of $10,000.What is the opportunity cost of going to college this term,assuming that your room and board expenses would be the same even if you did not go to college?

A) $5,500
B) $8,500
C) $11,500
D) $14,500

Question 53

According to the production possibility model,if more resources are allocated to the production of physical and human capital,then all of the following are likely to happen except

A) fewer goods will be produced for consumption today.
B) the production possibilities frontier will be shift outward in the future
C) future economic growth is enhanced.
D) the country's total production will fall.

Question 54

Consider a country that produces only two goods: pineapples and tractors.Suppose it is possible for this country to increase its production of pineapples without producing fewer tractors.In this case,its current output combination is inefficient.

Question 55

If the price of a good or service rises,households have to choose whether to buy less of that good or service or spend less on other goods and services.Studies have shown that when the price of health care rises,

A) people cut back on their spending of medical services.
B) people continue to consume the same amount of medical services and reduce spending on other goods and services, because medical services are viewed as a necessity.
C) people consume more medical services because these services are viewed as being more valuable, and they significantly reduce spending on other goods and services.
D) there is no correlation between the rising prices of medical services and the quantity of these services consumed.

Question 56

The opportunity cost of taking an on-line history class is

A) the knowledge and enjoyment you receive from taking the class.
B) the value of the time spent on line.
C) equal to the highest value of an alternative use of the time and money spent on the class.
D) zero because there is no classroom time involved if you are enrolled in the course.
E) the cost of tuition and fees only.

Question 57

If a country is producing efficiently and is on the production possibilities frontier,the only way to produce more of one good is with an advance in technology.

Question 58

Any output combination inside a production possibility frontier is associated with unused or underutilized resources.

Question 59

Figure 2-6

General Motors recently approved for production the Cadillac Converj, an electric car based on its Chevy Volt. The Converj will feature a "Generation 1.5 Voltec" powertrain, with a hybrid engine that runs on a combination of electricity and gasoline. Suppose GM chooses to produce both a coupe version and an SUV version of this hybrid-engine vehicle for its Cadillac brand. Figure 2-6 shows changes to its production possibilities frontier in response to new developments and different strategic production decisions.
Refer to Figure 2-6. In response to changing consumer demands,Cadillac cuts back on the production of SUVs and increases its production of coupes.This strategy is best represented by

A) movement from E to F in Graph A.
B) movement from G to H in Graph B.
C) movement from K to L in Graph C.
D) movement from H to J in Graph B.

Question 60

An increase in population shifts the production possibility frontier inwards over time.

Question 61

Specializing in the production of a good or service in which one has a comparative advantage enables a country to do which of the following?

A) never have to engage in trade with other nations
B) increase the variety of products that it can produce with a decrease in resources
C) consume a combination of goods that lies outside its own production possibilities frontier
D) produce a combination of goods that lies outside its own production possibilities frontier

Question 62

Table 2-3

Table 2-3 shows the output per day of two gardeners, George and Jack. They can either devote their time to mowing lawns or cultivating gardens.
Refer to Table 2-3.What is George's opportunity cost of mowing a lawn?

A) half a garden cultivated
B) two lawns mowed
C) two-thirds of a garden cultivated.
D) one and a half lawns mowed

Question 63

What does the term "increasing marginal opportunity cost" mean? How are increasing marginal opportunity costs represented on a bowed out production possibilities frontier?

Question 64

Figure 2-7

Figure 2-7 shows the production possibilities frontiers for Costa Rica and Guatemala. Each country produces two goods, pineapples and coconuts.
Refer to Figure 2-7.Which country has a comparative advantage in the production of coconuts?

A) Guatemala
B) They have equal productive abilities.
C) Costa Rica
D) neither country

Question 65

Table 2-3

Table 2-3 shows the output per day of two gardeners, George and Jack. They can either devote their time to mowing lawns or cultivating gardens.
Refer to Table 2-3.What is George's opportunity cost of cultivating a garden?

A) half a garden cultivated
B) two lawns mowed
C) two-thirds of a garden cultivated
D) one and a half lawns mowed

Question 66

For each watch that Switzerland produces,it gives up the opportunity to make 50 pounds of chocolate.Germany can produce 1 watch for every 100 pounds of chocolate it produces. Which of the following is true about the comparative advantage between the two countries?

A) Switzerland has the comparative advantage in chocolate.
B) Switzerland has the comparative advantage in watches.
C) Germany has the comparative advantage in watches and chocolate.
D) Germany has the comparative advantage in watches.

Question 67

Figure 2-7

Figure 2-7 shows the production possibilities frontiers for Costa Rica and Guatemala. Each country produces two goods, pineapples and coconuts.
Refer to Figure 2-7.What is the opportunity cost of producing 1 ton of coconuts in Guatemala?

A) 1/2 of a ton of pineapples
B) 1 1/3 tons of pineapples
C) 2 tons of pineapples
D) 90 tons of pineapples

Question 68

Table 2-3

Table 2-3 shows the output per day of two gardeners, George and Jack. They can either devote their time to mowing lawns or cultivating gardens.
Refer to Table 2-3.What is Jack's opportunity cost of cultivating a garden?

A) half a garden cultivated
B) two lawns mowed
C) two-thirds of a garden cultivated.
D) one and a half lawns mowed

Question 69

Figure 2-7

Figure 2-7 shows the production possibilities frontiers for Costa Rica and Guatemala. Each country produces two goods, pineapples and coconuts.
Refer to Figure 2-7.What is the opportunity cost of producing 1 ton of pineapples in Costa Rica?

A) 3/8 of a ton of coconuts
B) 2/3 of a ton of coconuts
C) 1 1/2 tons of coconuts
D) 100 tons of coconuts

Question 70

To increase gas mileage,automobile manufacturers make cars small and light.Large cars absorb more of the impact of an accident than small cars but yield lower gas mileage.These facts suggest that a positive relationship exists between safety and gas mileage.

Question 71

If you can produce more of something than others with the same resources,you have

A) a comparative advantage.
B) an absolute advantage.
C) an efficient production system.
D) a free-market economy.

Question 72

a.Draw a production possibilities frontier for a country that produces two goods,wine and cheese.Assume that resources are not equally suited to both tasks.
b.Define opportunity costs.
c.Use your production possibilities frontier graph to demonstrate the principle of opportunity costs.

Question 73

Figure 2-7

Figure 2-7 shows the production possibilities frontiers for Costa Rica and Guatemala. Each country produces two goods, pineapples and coconuts.
Refer to Figure 2-7.What is the opportunity cost of producing 1 ton of coconuts in Costa Rica?

A) 3/8 of a ton of pineapples
B) 2/3 of a ton of pineapples
C) 1 1/2 tons of pineapples
D) 100 tons of pineapples

Question 74

Table 2-3

Table 2-3 shows the output per day of two gardeners, George and Jack. They can either devote their time to mowing lawns or cultivating gardens.
Refer to Table 2-3.Which of the following statements is true?

A) Jack has an absolute advantage in both tasks.
B) George has an absolute advantage in both tasks.
C) Jack has an absolute advantage in lawn mowing and George in garden cultivating.
D) Jack has an absolute advantage in garden cultivating and George in lawn mowing.

Question 75

Table 2-2

Refer to Table 2-2. The Nut House produces only cashews and almonds. The table above shows the maximum possible output combinations of the two nuts using all resources and currently available technology.
a.Graph The Nut House's production possibilities frontier. Put almonds on the horizontal axis and cashews on the vertical axis.Be sure to identify the output combination points on your diagram.
b.Suppose The Nut House is currently producing at point C.What is the opportunity cost of producing an additional 12,000 pounds of almonds?
c.Suppose The Nut House is currently producing at point C.What happens to the opportunity cost of producing more and more almonds? Does it increase,decrease or remain constant? Explain your answer.
d.Suppose The Nut House is currently producing at point F.What happens to the opportunity cost of producing more and more cashews? Does it increase,decrease or remain constant? Explain your answer.
e.Suppose The Nut House is plagued by a variety of white root-rot disease,which destroys cashew trees but not almond trees. Show in a graph what happens to its PPF.

Question 76

Comparative advantage means

A) the ability to produce more of a product with the same amount of resources than any other producer.
B) the ability to produce a good or service at a lower opportunity cost than any other producer.
C) the ability to produce a good or service at a higher opportunity cost than any other producer.
D) compared to others you are better at producing a product.

Question 77

Table 2-3

Table 2-3 shows the output per day of two gardeners, George and Jack. They can either devote their time to mowing lawns or cultivating gardens.
Refer to Table 2-3.What is Jack's opportunity cost of mowing a lawn?

A) half a garden cultivated
B) two lawns mowed
C) two-thirds of a garden cultivated
D) one and a half lawns mowed

Question 78

Table 2-3

Table 2-3 shows the output per day of two gardeners, George and Jack. They can either devote their time to mowing lawns or cultivating gardens.
Refer to Table 2-3.Which of the following statements is true?

A) Jack has a comparative advantage in both tasks.
B) George has a comparative advantage in both tasks.
C) Jack has a comparative advantage in lawn mowing and George in garden cultivating.
D) Jack has a comparative advantage in garden cultivating and George in lawn mowing.

Question 79

Figure 2-7

Figure 2-7 shows the production possibilities frontiers for Costa Rica and Guatemala. Each country produces two goods, pineapples and coconuts.
Refer to Figure 2-7.What is the opportunity cost of producing 1 ton of pineapples in Guatemala?

A) 1/2 of a ton of coconuts
B) 1 1/3 tons of coconuts
C) 2 tons of coconuts
D) 180 tons of coconuts

Question 80

How are efficiency and inefficiency represented on a production possibilities frontier?