Deck 3: Scarcity, Trade-Offs, and Production Possibilities

Question 1

An improvement in technology will tend to cause a society's production possibilities curve to shift outward.

Answer 1

True

Question 2

A straight line production possibilities curve implies increasing opportunity costs.

Answer 2

False

Question 3

Capital-intensive production techniques tend to be utilized most commonly in countries where labor is relatively cheap.

Answer 3

False

Question 4

The production possibilities curve marks the boundary between attainable and unattainable combinations of output.

Question 5

The law of increasing opportunity costs implies that a society's production possibilities curve will be a straight line.

Question 6

An economy that has many unemployed workers and idle factories is not operating efficiently.

Question 7

The production possibilities curve for an economy that experiences a constant opportunity cost of production is linear (a straight line).

Question 8

The opportunity cost of a particular good tends to increase with its rate of output because some resources cannot be easily adapted from the production of one good or service to another.

Question 9

An increase in production of one good will have zero opportunity cost only if the economy initially existed at a point inside the production possibilities curve.

Question 10

In a market economy, prices help determine the distribution of goods and services but not the allocation of resources.

Question 11

A decrease in the unemployment rate will shift an economy's production possibilities curve outward.

Question 12

Other things being constant, an economy must give up some consumer goods and services today to produce more capital goods in order to grow.

Question 13

High wage countries like the United States tend to use less labor-intensive production methods than low wage countries like Mexico.

Question 14

In a market economy, government officials make most production decisions in a centralized manner.

Question 15

An increase in an economy's capital stock increases its future productive capacity.

Question 16

Capital accumulation causes the production possibilities curve to shift inward over time.

Question 17

Any output combination outside the production possibilities curve is attainable in the current period only if prices decrease.

Question 18

Movement from one point on the production possibilities curve to another leads to more of both goods being produced.

Question 19

An increase in available resources will tend to cause a society's production possibilities curve to shift inward.

Question 20

Consumer sovereignty means that consumers vote with their dollars in a market economy, which helps determine what is produced.

Question 21

Which of the following is not a question that scarcity forces all societies to answer?

A)​Which goods and services are to be produced?
B)​How are goods and services to be produced?
C)​Who will get the goods and services produced?
D)​How can scarcity be eliminated?

Question 22

A market economy answers the question "how" will goods be produced by focusing on

A)​dollar votes.
B)​consumer sovereignty.
C)​least-cost method of production.
D)​who can afford these goods.

Question 23

Which of the following best distinguishes a "command economy" from a "market economy?"

A)​A command economy is more efficient than a market economy because decision making is centralized.
B)​There is scarcity in command economies, but not in market economies.
C)​Command economies are less prone to inflation than are market economies.
D)​Production and distribution decisions are made by central planners in a command economy, but not in a market economy.

Question 24

A system of economic organization in which the ownership and control of productive capital assets rests with the state and resources are allocated through central planning and political decision making is called:

A)​a market economy.
B)​a command economy.
C)​a corporate economy.
D)​capitalism.

Question 25

Which of the following is considered to be the best method of production?

A)​Capital-intensive method
B)​Least-cost method
C)​Labor-intensive method
D)​Scarce resource method

Question 26

A market system:

A)​produces answers to a society's "what" and "who" questions, but not the "for whom" question.
B)​produces answers to a society's "what" and "for whom" questions, but not the "how" question.
C)​produces answers to a society's "how" and "for whom" questions, but not the "what" question.
D)​produces answers to a society's "what," "how," and "for whom" questions.

Question 27

Three economic questions must be determined in all societies. What are they?

A)​How much will be produced? When will it be produced? How much will it cost?
B)​What will the price of each good be? Who will produce each good? Who will consume each good?
C)​What is the opportunity cost of production? Does the society have a comparative advantage in production? Will consumers desire the goods being produced?
D)​What goods will be produced? How will goods be produced? Who will get the goods produced?

Question 28

Which of the following is an example of a pure market economy?

A)​United States
B)​Switzerland
C)​Singapore
D)​No nation has a pure market economy

Question 29

In a market economy, the goods produced go to those who(m):

A)​have sufficient income and are willing to pay the price asked for those goods.
B)​the government views as best suited for consumption.
C)​business firms choose to favor.
D)​desire the goods the least.

Question 30

A market economy depends on market mechanisms to:

A)​determine the most efficient way of using resources.
B)​determine how large the government's budget deficit should be.
C)​decide how much government regulation there should be.
D)​provide everyone with a minimum level of income.

Question 31

Which concept explains how individual consumers in market economies determine what is to be produced?

A)​competition
B)​consumer sovereignty
C)​decentralized decision-making
D)​free enterprise

Question 32

When collective decision making is utilized to resolve economic questions regarding the allocation of resources, then:

A)​everyone will receive an equal share of the output produced.
B)​the preferences of individuals are of no importance.
C)​economic efficiency will be assured.
D)​the role of markets will be replaced by political decision making.

Question 33

​Exhibit 3-1
Refer to Exhibit 3-1. In the graph of the circular flow model, area B represents

A)​product markets.
B)​firms.
C)​factor markets.
D)​households.

Question 34

The circular flow of economic activity is a model of the:

A)​flow of goods, services, and payments between households and firms.
B)​influence of government on business behavior.
C)​role of unions and government in the economy.
D)​interaction among taxes, prices, and profits.

Question 35

Countries with high labor costs tend to:

A)​rely on only one method for the production of goods.
B)​use more labor rather than capital in the production process.
C)​use more capital rather than labor in the production process.
D)​be relatively poor countries.

Question 36

The use of large amounts of labor relative to capital in an economy indicates:

A)​labor-intensive production.
B)​capital-intensive production.
C)​that wage rates will be relatively high.
D)​that hand-made goods are of better quality than machine-made goods.

Question 37

In a command economy, decisions about how to allocate resources are made:

A)​based upon tradition.
B)​by a central planning board.
C)​by individuals and firms interacting in markets coordinated by a price system.
D)​by a lottery system.

Question 38

In a market economy, resources are allocated:

A)​by central planners using a price system.
B)​by decentralized planners at the local level.
C)​by individual decision makers responding to market prices.
D)​by government bureaucracies because of the absence of a price system.

Question 39

A market economy answers the question "what" goods will be produced by focusing on

A)​dollar votes.
B)​least-cost method of production.
C)​who can afford these goods.
D)​none of the above

Question 40

The economic system of which of the following countries can be treated as an example of a command economy?

A)​United States
B)​Canada
C)​United Kingdom
D)​Cuba

Question 41

Which of the following is not a payment made to households in exchange for the use of factors of production?

A)​rent
B)​interest
C)​wages
D)​taxes

Question 42

​Exhibit 3-3
Refer to Exhibit 3-3. At Point A:

A)​only wine is produced.
B)​only bread is produced.
C)​both wine and bread are produced.
D)​the economy is operating inefficiently.

Question 43

Which of the following is not a resource exchanged in the factor markets?

A)​land
B)​capital
C)​labor
D)​All of the above are traded in the factor market.

Question 44

​Exhibit 3-2
Refer to Exhibit 3-2. In the circular flow diagram, goods and services:

A)​flow in a clockwise direction.
B)​flow in a counterclockwise direction.
C)​are sold by businesses in the factor market.
D)​none of the above

Question 45

​Exhibit 3-4
Refer to Exhibit 3-4. The movement from Point D to Point E:

A)​results in an increase in the production of capital goods but a decrease in the production of consumption goods this period.
B)​does not change the level of output produced since both points are on the production possibilities curve.
C)​results in an increase in the production of both capital and consumption goods this period.
D)​results in an increase in the production of consumption goods but a decrease in the production of capital goods this period.

Question 46

​Exhibit 3-4
Refer to Exhibit 3-4. Moving from Point ____ to Point ____ will result in an increase in the quantity of both capital and consumption goods produced this period.

A)​B; A
B)​F; A
C)​D; F
D)​F; D

Question 47

​Exhibit 3-4
Refer to Exhibit 3-4. Other things being equal, the economy will achieve the greatest economic growth over time if it currently operates at:

A)​Point A.
B)​Point D.
C)​Point E.
D)​none of the above

Question 48

​Exhibit 3-3
Refer to Exhibit 3-3. A movement from Point G to Point F:

A)​involves sacrificing bread in order to produce a greater quantity of wine.
B)​involves sacrificing wine in order to produce a greater quantity of bread.
C)​involves no sacrifice of output, as both more wine and bread can be produced if available resources are used more efficiently.
D)​will increase the level of unemployment in the economy.

Question 49

​Exhibit 3-3
Refer to Exhibit 3-3. A movement from Point B to Point C:

A)​involves sacrificing bread in order to produce a greater quantity of wine.
B)​involves sacrificing wine in order to produce a greater quantity of bread.
C)​involves no sacrifice, as the opportunity cost of production is zero everywhere along the production possibilities curve.
D)​will increase the level of unemployment in the economy.

Question 50

​Exhibit 3-4
Refer to Exhibit 3-4. For this economy, the most preferred point at which to produce is:

A)​Point C.
B)​Point D.
C)​Point E.
D)​It cannot be determined without information about society's preferences.

Question 51

​Exhibit 3-3
Refer to Exhibit 3-3. A movement from Point C to Point B:

A)​involves sacrificing bread in order to produce a greater quantity of wine.
B)​involves sacrificing wine in order to produce a greater quantity of bread.
C)​involves no sacrifice of output, as the opportunity cost of production is zero everywhere along the production possibilities curve.
D)​will increase the level of unemployment in the economy.

Question 52

​Exhibit 3-3
Refer to Exhibit 3-3. Along the production possibilities curve, the most efficient point of production depicted is:

A)​Point B.
B)​Point C.
C)​Point D.
D)​All points on the production possibilities curve are equally efficient.

Question 53

​Exhibit 3-2
Refer to Exhibit 3-2. In the circular flow diagram, payments for goods and services:

A)​flow in a clockwise direction.
B)​flow in a counterclockwise direction.
C)​are received by firms in the factor market.
D)​none of the above

Question 54

​Exhibit 3-3
Refer to Exhibit 3-3. Currently, it is not possible to produce at:

A)​Point A.
B)​Point B.
C)​Point E.
D)​Point G.

Question 55

In the graph of the circular flow model below, area C represents

A)​product markets.
B)​firms.
C)​factor markets.
D)​households.

Question 56

​Exhibit 3-3
Refer to Exhibit 3-3. The most inefficient point depicted is:

A)​Point A.
B)​Point C.
C)​Point D.
D)​Point G.

Question 57

​Exhibit 3-4
Refer to Exhibit 3-4. Currently, Point ____ is impossible to achieve.

A)​A
B)​C
C)​E
D)​G

Question 58

​Exhibit 3-4
Refer to Exhibit 3-4. Which point corresponds to an economy experiencing significant unemployment and/or producing inefficiently?

A)​Point A
B)​Point C
C)​Point E
D)​Point F

Question 59

​Exhibit 3-3
Refer to Exhibit 3-3. An economy is operating at full employment, and then workers in the bread industry are laid off. This change is portrayed in the movement from:

A)​A to B.
B)​B to E.
C)​C to F.
D)​G to F.

Question 60

​Exhibit 3-4
Refer to Exhibit 3-4. Considering only points on the frontier, the economy will experience the least amount of economic growth over time (ceteris paribus) if it chooses to produce at:

A)​Point A.
B)​Point C.
C)​Point F.
D)​none of the above

Question 61

The main reason economists are concerned about the problem of idle or unemployed resources is that:

A)​high rates of crime are related to high rates of unemployment.
B)​high rates of inflation are caused by idle land, labor, and capital resources.
C)​government benefits paid to unemployed workers put stress on the federal budget.
D)​unemployed resources mean less production and a lower standard of living for the nation.

Question 62

​Exhibit 3-4
Refer to Exhibit 3-4. Based on the production possibilities curve above, which of the following points are inefficient?

A)​A only
B)​B only
C)​A and B only
D)​A, B, and G only

Question 63

Consider a production possibilities curve for an economy producing bicycles and video game players. It is possible to increase the production of bicycles without sacrificing video game players if:

A)​the production possibilities curve shifts outward due to technological progress.
B)​the production possibilities curve shifts outward due to increased immigration (which enlarges the labor force).
C)​the economy moves from a point inside the production possibilities curve to a point on the curve.
D)​any of the above occur.

Question 64

​Exhibit 3-4
Refer to Exhibit 3-4. The opportunity cost of one more unit of a capital good is greater at Point ____ than at Point ____.

A)​D; E
B)​E; D
C)​B; A
D)​None of the above.The opportunity cost of a good is constant everywhere along the production possibilities curve.

Question 65

The production possibilities curve illustrates:

A)​the minimum quantity of two resources necessary to produce a given level of output.
B)​that when resources are currently being used inefficiently, it is possible to increase production of one good only by sacrificing some of another good.
C)​that when resources are currently being used efficiently, it is possible to increase production of one good only by sacrificing some of another good.
D)​the minimum quantities of output that can be produced using available resources.

Question 66

​Exhibit 3-6
Refer to Exhibit 3-6. In the diagram, Point A is:

A)​unattainable.
B)​efficient.
C)​preferable to Point D.
D)​inefficient.

Question 67

A production possibilities curve is negatively sloped because:

A)​the price of a good falls as you move down along the curve.
B)​resources are wasted as you move along the curve.
C)​it is not possible to adjust production decisions at all once an economy operates on the curve.
D)​once on the frontier, it is only possible to increase production of one good by reducing production of the other.

Question 68

Which of the following is an incorrect statement?

A)​An economy with many unemployed workers and idle factories is not operating efficiently.
B)​Idle factories represent unemployed capital resources.
C)​A large amount of unemployed resources will shift the production possibilities curve outward.
D)​Idle farms represent unemployed land resources.

Question 69

​Exhibit 3-5
Refer to Exhibit 3-5. If the economy depicted in the diagram above chooses to shift more of its resources into clothing, it will have to give up:

A)​smaller and smaller amounts of food per unit of added clothing, as the quantity of clothing produced increases.
B)​nothing, since food and clothing are not substitutes.
C)​relatively equal amounts of food per unit of added clothing, as the quantity of clothing produced increases.
D)​larger and larger amounts of food per unit of added clothing, as the quantity of clothing produced increases.

Question 70

The concept of opportunity cost is illustrated by:

A)​a movement from the interior of the production possibilities curve to the frontier.
B)​a movement from the production possibilities curve to its interior.
C)​a movement from a point on the production possibilities curve to the northeast.
D)​a movement along the production possibilities curve, as production of one good falls in order to increase production of another.

Question 71

​Exhibit 3-4
Refer to Exhibit 3-4. The opportunity cost of one more unit of a consumption good is greater at Point ____ than at Point ____.

A)​D; E
B)​E; D
C)​B; A
D)​None of the above.The opportunity cost of a good is constant everywhere along the production possibilities curve.

Question 72

​Exhibit 3-4
Refer to Exhibit 3-4. Moving from Point ____ to Point ____ will result in an increase in the quantity of both capital and consumption goods produced this period.

A)​B; A
B)​D; G
C)​A; B
D)​E; D

Question 73

An economy is producing two goods, ice cream and cookies, and is currently operating efficiently. This economy can produce more cookies if:

A)​it increases the price of ice cream.
B)​it increases the price of cookies.
C)​more of the economy's resources become idle.
D)​it produces less ice cream.

Question 74

Which of the following is the most accurate statement about a production possibilities curve?

A)​An economy can produce at any point inside or outside its production possibilities curve.
B)​An economy can produce only on its production possibilities curve.
C)​An economy can produce at any point on or inside its production possibilities curve, but not outside the curve.
D)​An economy can produce at any point inside its production possibilities curve, but not on or outside the curve.

Question 75

​Exhibit 3-5
Refer to Exhibit 3-5. If an economy operates at Point A on the production possibilities curve shown above, then:

A)​it cannot increase its output of food.
B)​it cannot increase its output of clothing.
C)​it cannot simultaneously increase its output of both food and clothing.
D)​it is utilizing its resources inefficiently.

Question 76

The production possibilities curve is:

A)​a graph that shows the combinations of output which are most profitable to produce.
B)​a graph that shows the various combinations of output it is possible for an economy to produce given its available resources and technology.
C)​a graph that shows the various combinations of resources that can be used to produce a given level of output.
D)​a curve that shows the quantity of output that will be offered for sale at various prices.

Question 77

When resources are used efficiently, you can produce more of one good, ceteris paribus, only by:

A)​printing more money.
B)​charging a lower price for output.
C)​charging a higher price for output.
D)​producing less of another good.

Question 78

​Exhibit 3-7
Refer to Exhibit 3-7. The diagram represents a tradeoff in an economy between prison cells and classrooms. Which position represents the choice to allocate the greatest amount of resources to producing classrooms?

A)​Point A
B)​Point B
C)​Point C
D)​None of the above are correct.Points on the frontier show the efficient combinations of resources that produce equal quantities of both outputs.

Question 79

​Exhibit 3-6
Refer to Exhibit 3-6. In the diagram, Point D is:

A)​unattainable.
B)​beyond the society's productive capability.
C)​efficient.
D)​inefficient.

Question 80

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

A)​the physical resources of that society
B)​the level of technology of the society
C)​the number of factories available to the society
D)​all of the above