Deck 3: The Economic Problem

Question 1

The production possibilities frontier is a graph showing the

A) resources available for the economy's production use.
B) minimum combinations of goods and services that can be produced.
C) exact point of greatest efficiency for producing goods and services.
D) maximum combinations of goods and services that can be produced.
E) tradeoff between free lunches.

Answer 1

maximum combinations of goods and services that can be produced.

Question 2

Consider a production possibility frontier with jeans on the vertical axis and shoes on the horizontal axis. As the country moves along the frontier closer to the horizontal axis,

A) more jeans are produced.
B) more tradeoffs occur.
C) the country eventually chooses an unattainable point.
D) free lunches occur.
E) more shoes are produced.

Answer 2

free lunches occur.

Question 3

In the production possibilities frontier model, an unattainable point lies

A) only outside the production possibilities frontier.
B) both on and outside the production possibilities frontier.
C) only on the production possibilities frontier itself.
D) only inside the production possibilities frontier.
E) There are no unattainable points in the production possibilities model.

Answer 3

only outside the production possibilities frontier.

Question 4

When a nation is producing on its production possibilities frontier, if more resources are used to produce one good, then the production of other goods

A) must decrease.
B) must increase.
C) might increase if the nation can produce more efficiently.
D) must remain the same.
E) must change, but it might increase or decrease.

Question 5

Which of the following is an assumption used when drawing a production possibilities frontier? i. Human wants and desires are limited to what is available.
Ii) Only two goods are considered.
Iii) The level of technology is fixed and unchanging.

A) i only
B) ii only
C) i and iii
D) ii and iii
E) i, ii, and iii

Question 6

The negative slope of the production possibilities frontier represents the idea

A) of tradeoffs, that, in order to produce more of one good, the nation must produce less of another.
B) that prices rise as less is produced.
C) of unemployment.
D) of inefficient production.
E) that free lunches are possible.

Question 7

Assume that an association of young workers has lobbied the federal government to require that all workers retire once they reach the age of fifty. What impact would this law have on the nation's production possibilities frontier?

A) No impact at all.
B) The level of unemployment would decrease so the production possibilities frontier would shift outward.
C) The number of young workers would increase so the production possibilities frontier would shift outward.
D) The nation would move to a new position on its production possibilities frontier but the frontier itself would not shift.
E) The production possibilities frontier would shift inward.

Question 8

If a society moves from a period of time with significant unemployment to a time with full employment, its production possibilities frontier will

A) shift leftward.
B) shift rightward.
C) not shift because the society moves from one point on the frontier to a point outside the frontier.
D) not shift because the society moves from a point inside the frontier to a point on the frontier.
E) not shift because the society moves from one point on the frontier to a point inside the frontier.

Question 9

As we move along the production possibilities frontier,

A) the possibility of tradeoffs diminishes.
B) a tradeoff is not possible because nations need all goods.
C) the production of one good increases as the production of the other good decreases.
D) less of both goods can be produced.
E) more of both goods can be produced.

Question 10

Suppose a country operates on its production possibility frontier when it produces 1,000 books and 1,000 tables. The combination of ________ reflects ________.

A) 500 books and 500 tables; an attainable and efficient point.
B) 1,000 books and 1,000 tables; a free lunch.
C) 1,000 books and 1,500 tables; a free lunch.
D) 1,000 books and 500 tables; an efficient point.
E) 500 books and 1,000 tables; an inefficient but attainable point.

Question 11

When production efficiency does NOT occur, i. an economy is producing at a point within its PPF.
Ii) there are unemployed resources.
Iii) allocative efficiency cannot occur.

A) i only
B) i and ii
C) iii only
D) i and iii
E) i, ii and iii

Question 12

Australia produced approximately ________ worth of goods and services in 20171.

A) $100 trillion
B) $100 billion
C) $10 billion
D) $10 trillion
E) $1.5 trillion

Question 13

During a time of high unemployment, a country can increase the production of one good or service

A) without decreasing the production of something else.
B) by using resources in the production process twice.
C) and must increase the production of something else.
D) but must decrease the production of something else.
E) but the opportunity cost is infinite.

Question 14

The production possibilities frontier illustrates the

A) resources the economy possesses, but not its level of technology.
B) limits to people's wants.
C) amount of each good that people want to buy.
D) maximum combinations of goods and services that can be produced.
E) goods and services people want.

Question 15

A movement from a point inside the production possibilities frontier to a point on the production possibilities frontier represents

A) full employment of labour but not capital.
B) an infinite opportunity cost.
C) a free lunch.
D) a tradeoff.
E) unemployment of labour but not capital.

Question 16

The saying "There's no such thing as a free lunch" applies

A) to unattainable combinations of goods and services.
B) at all points inside the PPF.
C) on the production possibilities frontier.
D) when there is some unemployment.
E) when more of one good can be produced without decreasing production of another.

Question 17

Suppose that an economy is currently producing at a point that lies inside of its production possibilities set. Which of the following would best explain this circumstance?

A) The prevailing level of technology prevents the economy from producing at a point closer to the frontier of the production possibilities set.
B) The economy is experiencing a high level of unemployment.
C) The economy does not have enough resources to produce at a point closer to the frontier of the production possibilities set.
D) Any of the above statements could explain this situation.
E) None of the above statements could explain this situation.

Question 18

In order for Ireland to grow more potatoes, wool production must decrease. This situation is an example of

A) a tradeoff.
B) zero opportunity cost.
C) a free lunch.
D) producing at a point that lies beyond the PPF.
E) opportunity benefit.

Question 19

A production possibilities frontier shows

A) that if price of one good decreases, the price of the other has to increase.
B) how money can be allocated among two kinds of goods.
C) the limits to future growth of a nation.
D) that it is impossible to produce inefficiently.
E) the various combinations of output a nation can produce at a certain time, given its available resources and technology.

Question 20

When all of the available factors of production are being efficiently employed, the

A) economy is producing at a point beyond its PPF.
B) economy is producing at a point on its PPF.
C) PPF disappears.
D) economy is producing at a point within its PPF.
E) opportunity cost of changing production is infinite.

Question 21

Suppose that, in a PPF graph, wheat is on the vertical axis and jets are on the horizontal axis. Moving down along the PPF, the

A) number of jets increases and the opportunity cost of jets increases.
B) amount of wheat increases and the opportunity cost of wheat decreases.
C) number of jets increases and the opportunity cost of jets decreases.
D) amount of wheat increases and the opportunity cost of wheat increases.
E) opportunity cost of jets and wheat both increase.

Question 22

If there is increasing opportunity cost, then, when moving downward on a production possibilities frontier, the opportunity cost of the good on the horizontal axis ________ as more of the good is produced.

A) decreases and the PPF gets flatter
B) increases and the PPF gets flatter
C) increases and the PPF gets steeper
D) does not change and the PPF gets steeper
E) decreases and the PPF gets steeper

Question 23

On a production possibilities frontier, 500 kilograms of apples and 1200 kilograms of bananas can be produced while, at another point on the same frontier, 300 kilograms of apples and 1300 kilograms of bananas can be produced. Between these points, what is the opportunity cost of producing a kilogram of bananas?

A) 2 kilograms of bananas
B) 200 kilograms of apples
C) 0.5 a kilogram of apples
D) 2 kilograms of apples
E) 12/5 = 2.4 kilograms of apples

Question 24

On a production possibilities frontier, 500 kilograms of apples and 1200 kilograms of bananas can be produced while, at another point on the same frontier, 300 kilograms of apples and 1300 kilograms of bananas can be produced. Between these points, what is the opportunity cost of producing a kilogram of apples?

A) 0.5 of a kilogram of bananas
B) 5/12 of a kilogram of bananas
C) 2 kilograms of bananas
D) 2 kilograms of apples
E) 100 kilograms of bananas

Question 25

The table above shows the production possibilities for an economy. The opportunity cost of a loaf of bread is ________ when moving from possibility B to possibility C.

A) 1/2 of a book
B) 1 loaf of bread
C) 200 books
D) 100 loaves of bread
E) 2 books

Question 26

The production possibilities frontier illustrates which of the following economic ideas?

A) Opportunity cost
B) Tradeoffs
C) Efficiency
D) All of the above
E) None of the above

Question 27

If the production possibilities frontier between two goods were a straight line, then the opportunity cost of one good in terms of another would be

A) constant.
B) zero.
C) increasing.
D) decreasing.
E) either constant, increasing or decreasing, but more information is needed to determine which.

Question 28

As an economy increasingly specialises in producing one good, the opportunity cost of that good increases. The opportunity cost increases because

A) as more of a good is produced the profit from its production must rise.
B) not all goods are equally valuable.
C) resources are not equally productive in all activities.
D) what must be paid to resources increases.
E) human wants are virtually unlimited.

Question 29

The above figure shows the production possibility frontier for a country. What is the opportunity cost per tonne of rice to move from point D to E?

A) 333 bottles of wine
B) 3,000 bottles of wine
C) 3 bottles of wine
D) 1/3 of a bottle of wine
E) None of the above answers is correct.

Question 30

While moving on the production possibilities frontier, if the opportunity cost of producing one good is 1/2, the opportunity cost of producing the other good (in the same range) is

A) 1/2.
B) 2.
C) 4.
D) 1/4.
E) An amount that cannot be calculated without more information.

Question 31

A country produces only apples and bananas. Moving from point A to point B along its production possibilities frontier, 5 apples are forgone and 4 bananas are gained. What is the opportunity cost of a banana?

A) 1 banana
B) 4 apples
C) 4/5 of an apple
D) 5/4 of an apple
E) None of the above answers is correct.

Question 32

A bowed out production possibilities frontier shows

A) that resources are equally productive in all uses.
B) increasing opportunity cost.
C) that resources are not equally productive in all uses.
D) Both answers B and C are correct.
E) Both answers A and B are correct.

Question 33

If the production possibilities frontier between bottled water and water in a jug is a straight line, which of the following statements would be correct?

A) A large amount of unemployment must exist.
B) Producing more of one good gives the economy a free lunch.
C) There is no tradeoff between the two goods.
D) Resources are equally productive at producing either product.
E) There is no decrease in the production of one good when the production of the other is increased.

Question 34

Moving along the production possibilities frontier itself illustrates

A) the existence of unemployment of some factors of production.
B) the existence of tradeoffs.
C) the benefits of free lunches.
D) how tradeoffs need not occur if the economy is efficient.
E) how free lunches can be exploited through trade.

Question 35

The opportunity cost of producing one more unit of a good is calculated by dividing the

A) total quantity of that good by the total quantity of other good.
B) total quantity of the other good by the total quantity of the good whose opportunity cost we're calculating.
C) price of the good whose opportunity cost we are calculating by the number of units of the other good that are forgone.
D) increase in the quantity of that good by the decrease in the quantity of other good.
E) decrease in the quantity of the other good by the increase in the quantity of the good whose opportunity cost we're calculating.

Question 36

When a production possibilities frontier is bowed outward, as more of one good is produced, its opportunity cost

A) decreases.
B) increases.
C) remains constant.
D) might increase, decrease or remain constant depending on how much people value the additional units of the good.
E) cannot be predicted.

Question 37

The table above shows the production possibilities for an economy. Drawing a PPF with books on the vertical axis and bread on the horizontal axis, a movement from possibility B to possibility C to possibility D shows the opportunity cost of ________ moving down along the PPF.

A) books decreases
B) books and bread are both increasing
C) bread decreases
D) books is constant
E) bread increases

Question 38

The bowed out (concave) shape of the production possibilities curve implies that, as production of one good

A) decreases, production of other goods decreases as well.
B) increases, society must forgo decreasing amounts of another good.
C) increases, society must forgo increasing amounts of another good.
D) increases, society can obtain a free lunch.
E) increases, production of other goods increases as well.

Question 39

Why does a nation experience increasing opportunity cost?

A) As the nation moves from a production point within the PPF to another point also within the PPF, opportunity costs increase.
B) Because the nation cannot produce at the unattainable production points that lie beyond the PPF.
C) As the nation moves from a production point within the PPF to one on the PPF, opportunity costs increase.
D) Resources are not equally productive in producing different kinds of goods and services.
E) When the amount of resources increases, the opportunity cost of all goods and services increases.

Question 40

A country produces only apples and bananas. Moving from point A to point B along its production possibilities frontier, 5 apples are gained and 4 bananas are forgone. What is the opportunity cost of an apple?

A) 4 bananas
B) 4/5 of a banana
C) 1 apple
D) 5/4 of a banana
E) None of the above answers is correct.

Question 41

When one person's opportunity cost of producing a good is lower than another person's opportunity cost of producing the same good, it is called

A) a comparative advantage.
B) a tradeoff.
C) specialisation.
D) an absolute advantage.
E) production possibilities.

Question 42

Rika's opportunity cost of producing 100 t-shirts is 50 jackets. Jeff's opportunity cost of producing 75 t-shirts is 25 jackets. Who should specialise in jackets?

A) Rika
B) Jeff
C) Neither
D) Both
E) More information is needed about their production possibilities frontiers to determine who should specialise in jackets.

Question 43

To increase its economic growth, a nation should

A) increase current consumption.
B) encourage spending on goods and services.
C) encourage education because that increases the quality of labour.
D) limit the number of people in college because they produce nothing.
E) eliminate expenditure on capital goods.

Question 44

Hank requires 1 hour to cut the grass and 3 hours to clean the house. His sister Holly requires 1 hour to cut the grass and 4 hours to clean the house. Which of the following statements is true?

A) Hank has a lower opportunity cost of cutting the grass.
B) Holly has a comparative advantage in cutting the grass.
C) Hank has a comparative advantage in both cutting the grass and cleaning the house.
D) Hank has an absolute advantage in both cutting the grass and cleaning the house.
E) Hank and Holly both have a comparative advantage in cutting the grass.

Question 45

Which of the following is the best definition of economic growth?

A) The sustained expansion of production possibilities
B) The opportunity cost of consumption
C) Increased development of land and entrepreneurship
D) The opportunity cost of capital
E) The investment in capital and consumption goods by an economy

Question 46

John can make pizza at a lower opportunity cost than Allen, but Allen can make more pizzas per day than John. Therefore,

A) John has a comparative advantage in pizza.
B) John has an absolute advantage in pizza.
C) John cannot benefit from trade with Allen.
D) Allen has a comparative advantage in pizza.
E) Allen cannot benefit from trade with John.

Question 47

If a nation devotes a larger share of its current production to consumption goods, then

A) it must produce at a point within its PPF.
B) its PPF will shift inward.
C) its PPF will shift outward.
D) some productive factors will become unemployed.
E) its economic growth will slow down.

Question 48

The opportunity cost of economic growth is

A) a slower accumulation of human capital.
B) zero, because it means an expansion of production possibilities.
C) the decrease in the current production of productive factors.
D) the increase in the nation's capital stock and/or its technology.
E) the decrease in the current production of consumption goods.

Question 49

Increasing opportunity cost exists

A) in the real world.
B) for a country but not for an individual.
C) inside the PPF but not on the PPF.
D) only in theory but not in real life.
E) as long as there is high unemployment.

Question 50

If Country A can produce an extra plane by giving up two boats, and Country B can produce an extra plane by giving up three boats, then

A) Country A would like to trade with B, but B cannot gain by trading with A.
B) Country A has an absolute advantage in producing planes and a comparative advantage in producing boats.
C) Country A has a comparative advantage over Country B in the production of planes.
D) the two countries have no incentive to trade with one another.
E) Country B has a comparative advantage over Country A in the production of planes.

Question 51

As an economy grows,

A) the opportunity cost of production will increase.
B) it can eliminate scarcity.
C) the opportunity cost of production will approach 0.
D) its PPF shifts outward.
E) its PPF does not shift; instead, the production point moves from inside the PPF to be closer to the PPF.

Question 52

If John can produce 10 chairs or 20 lamps during a week, while Mary can produce 12 chairs or 22 lamps in the same time, who has the absolute advantage in producing each good?

A) John in producing both goods
B) John in producing chairs, Mary in producing lamps
C) Mary in producing both goods
D) Mary in producing chairs, John in producing lamps
E) Both Mary and John in both goods

Question 53

When Mike has an absolute advantage in the production of two goods over Tommy, Mike

A) is better off if he does not engage in specialisation and trade with Tommy.
B) is more productive in producing both goods than Tommy.
C) is less productive than Tommy.
D) cannot gain from trade with Tommy.
E) always has a comparative advantage over Tommy in the production of both goods.

Question 54

When a person has a comparative advantage in producing a good or service, the person has

A) a higher opportunity cost in producing that product than someone else.
B) an increasing marginal benefit in producing the good.
C) a decreasing opportunity cost in producing that product.
D) a constant opportunity cost in producing that product.
E) a lower opportunity cost in producing that product than someone else.

Question 55

If Wendy can produce more of all goods than Tommy in an hour, then

A) Wendy has a comparative advantage in all goods.
B) Tommy has an absolute advantage in all goods.
C) Only Tommy but not Wendy can benefit from trade between the two of them.
D) Wendy does not need to trade with Tommy in order to achieve the gains from trade.
E) Wendy has an absolute advantage in all goods.

Question 56

Having a comparative advantage means a nation can

A) produce the good at a point beyond its PPF.
B) benefit from trade.
C) produce at a higher opportunity cost.
D) produce more of the good.
E) produce without incurring an opportunity cost.

Question 57

Economic growth depends upon which of the following?
i) Increasing the quantity of labour
Ii) Lowering the prices of goods and services
Iii) Advancing technology

A) i only
B) ii only
C) iii only
D) i and iii
E) i, ii and iii

Question 58

Moving between two points on a PPF, a country gains 6 cars and forgoes 3 trucks. The opportunity cost of 1 car is

A) 1/2 of a truck.
B) 2 trucks.
C) 3 trucks.
D) 6 cars - 3 trucks.
E) 1 car.

Question 59

A country produces only cans of soup and ballpoint pens. If the country produces on its bowed outward PPF and increases the production of cans of soup, the opportunity cost of additional

A) cans of soup is decreasing.
B) cans of soup remains unchanged.
C) cans of soup is increasing.
D) ballpoint pens is increasing.
E) More information is needed to determine what happens to the opportunity cost.

Question 60

For country Gamma, the opportunity cost for producing 1 computer is 10 tonnes of steel. For country Beta, the opportunity cost for producing 1 computer is 6 tonnes of steel. Which country has the comparative advantage in the production of steel?

A) Gamma
B) Beta
C) Both have the comparative advantage in the production of steel.
D) Neither country has the comparative advantage in the production of steel.
E) More information is needed to determine which of the two nations has the comparative advantage.

Question 61

In one hour John can produce 20 loaves of bread or 8 cakes. In one hour Phyllis can produce 30 loaves of bread or 15 cakes. Which of the following statements is true?

A) Phyllis has an absolute advantage in both goods.
B) Phyllis has a comparative advantage in producing both cakes and bread.
C) John has an absolute advantage in both goods.
D) John has a comparative advantage in producing cakes.
E) Phyllis has a comparative advantage in producing bread.

Question 62

Comparative advantage is directly related to which of the following concepts?

A) Opportunity cost
B) Efficiency
C) Fairness
D) Competition
E) Productivity

Question 63

To achieve gains from trade, a country

A) specialises in producing a good in which it has a lower opportunity cost.
B) must produce at a point beyond its PPF.
C) needs to have an absolute advantage in the production of at least one good.
D) should produce at the midpoint of its PPF.
E) needs to have an absolute advantage in the production of all goods.

Question 64

Scott and Cindy both produce only pizza and tacos. In one hour, Scott can produce 20 pizzas or 40 tacos. In one hour, Cindy can produce 30 pizzas or 40 tacos. Based on these data,

A) Cindy has a comparative advantage in producing tacos.
B) Scott has a comparative advantage in producing tacos.
C) neither Cindy nor Scott has a comparative advantage in producing tacos.
D) Cindy and Scott have the same comparative advantage in producing tacos.
E) Cindy and Scott have the same comparative advantage in producing pizzas.

Question 65

In terms of a nation's production possibilities frontier, what impact does international trade have?

A) International trade shifts the production possibilities frontier outward for the goods that are exported and inward for the goods that are imported.
B) International trade shifts the nation's production possibilities frontier outward.
C) International trade shifts the nation's production possibilities frontier inward.
D) International trade shifts the production possibilities frontier outward for the goods that are imported and inward for the goods that are exported.
E) International trade allows the nation to consume at a point outside its production possibilities frontier.

Question 66

The gains from trade include
i) lower prices from competition.
Ii) greater output from specialisation.
Iii) greater variety of goods and services available.

A) i, ii and iii
B) i and ii only
C) ii only
D) i and iii only
E) ii and iii only

Question 67

If workers in Mexico produce fewer goods and services per hour than workers in the United States in all areas of production, then

A) the United States will benefit from trade with Mexico but Mexico will not.
B) both the United States and Mexico will benefit from trade with the other.
C) neither Mexico nor the United States will benefit from trade with the other.
D) Mexico will benefit from trade with the United States but the United States will not.
E) it is unknown whether either country can benefit from trade with the other.

Question 68

What is gained when people engage in specialisation and trade?

A) There are no gains from specialisation and trade.
B) Specialisation and trade allow people to consume outside their individual production possibilities frontiers.
C) Specialisation and trade allow people to consume at a point on their production possibilities frontiers.
D) Specialisation and trade allow people to consume inside their production possibilities frontiers.
E) Specialisation and trade allow people to produce outside their individual production possibilities frontiers.

Question 69

Specialisation and trade make a country better off because, with trade, the country can consume at a point

A) outside its production possibilities frontier.
B) inside its trading partner's production possibilities frontier.
C) inside its production possibilities frontier.
D) on its trading partner's production possibilities frontier.
E) on its production possibilities frontier.

Question 70

Scott and Cindy both produce only pizza and tacos. In one hour, Scott can produce 20 pizzas or 40 tacos. In one hour, Cindy can produce 30 pizzas or 40 tacos. Scott's opportunity cost of producing 1 taco is

A) 20 pizzas.
B) 1/2 of a pizza.
C) 2 tacos.
D) 1 pizza.
E) 2 pizzas.