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Copyright © 2011 Pearson Education, Inc.
Foundations of Microeconomics, 5e (Bade/Parkin)
Chapter 3 The Economic Problem
3.1 Production Possibilities
1) The United States produced approximately ________ worth of goods and services in 2007.
A) $14 trillion
B) $14 billion
C) $140 trillion
D) $140 billion
E) $1,400 trillion
Skill: Level 1: Definition
Section: Checkpoint 3.1
Author: SB
AACSB: Reflective thinking
2) 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
Skill: Level 2: Using definitions
Section: Checkpoint 3.1
Author: TS
AACSB: Reflective thinking
2
Copyright © 2011 Pearson Education, Inc.
3) In the production possibilities model, the vertical axis measures ________ and the horizontal
axis measures ________.
A) the quantity of a good or service; the quantity of another good or service
B) the price of a good or service; the quantity of the good or service
C) the price of a good or service; the price of another good or service
D) the quantity of a good or service; time
E) people's wants; the quantity of a good or service
Skill: Level 2: Using definitions
Section: Checkpoint 3.1
Author: MR
AACSB: Reflective thinking
4) The production possibilities frontier illustrates the
A) maximum combinations of goods and services that can be produced.
B) resources the economy possess, but not its level of technology.
C) goods and services that people want.
D) limits to people's wants.
E) amount of each good that people want to buy.
Skill: Level 1: Definition
Section: Checkpoint 3.1
Author: PH
AACSB: Reflective thinking
5) When drawing a production possibilities frontier, which of the following is held constant?
A) the amount of money in the economy
B) the available factors of production and the state of technology
C) the prices of goods and services
D) the quantity of the goods and services that are produced
E) None of the above because nothing is held constant when drawing the production possibilities
frontier.
Skill: Level 1: Definition
Section: Checkpoint 3.1
Author: SA
AACSB: Reflective thinking
3
Copyright © 2011 Pearson Education, Inc.
6) A production possibilities frontier shows
A) the various combinations of output a nation can produce a certain time, given its available
resources and technology.
B) the limits to future growth of a nation.
C) how money can be allocated among two kinds of goods.
D) that if price of one good decreases, the price of the other has to increase.
E) that it is impossible to produce inefficiently.
Skill: Level 1: Definition
Section: Checkpoint 3.1
Author: SA
AACSB: Reflective thinking
7) The production possibilities frontier is the
A) maximum output that can be produced at an opportunity cost of zero.
B) minimum output that can be produced when resources are used inefficiently.
C) boundary between the combinations of goods and services that can be produced and the
combinations that cannot be produced, given the available factors of production and the state of
technology.
D) boundary between the combinations of goods and services that can be produced and the
combinations that cannot be produced when technology is changing.
E) maximum opportunity cost combinations of goods and services.
Skill: Level 1: Definition
Section: Checkpoint 3.1
Author: JC
AACSB: Reflective thinking
8) The production possibilities frontier is the boundary between the
A) goods and services that the economy can produce.
B) attainable and unattainable combinations of goods and services.
C) wanted and unwanted combinations of goods and services.
D) rational and irrational choices facing a society.
E) affordable and unaffordable combinations of production.
Skill: Level 3: Using models
Section: Checkpoint 3.1
Author: SB
AACSB: Reflective thinking
4
Copyright © 2011 Pearson Education, Inc.
9) While moving along a production possibilities frontier, the amount of labor ________, the
amount of capital ________, and the level of technology ________.
A) is fixed; is fixed; varies
B) varies; is fixed; varies
C) varies; is fixed; is fixed
D) is fixed; is fixed; is fixed
E) varies; varies; varies
Skill: Level 3: Using models
Section: Checkpoint 3.1
Author: CD
AACSB: Reflective thinking
10) The table above gives four production possibilities for airplanes and cruise ships. In
possibility A, how many resources are devoted to the production of airplanes?
A) 0
B) few
C) most
D) all
E) It is impossible to tell without more information about the prices of airplanes and cruise ships.
Skill: Level 3: Using models
Section: Checkpoint 3.1
Author: SB
AACSB: Analytical reasoning
5
Copyright © 2011 Pearson Education, Inc.
11) The table above gives four production possibilities for airplanes and cruise ships. In
possibility A, how many resources are devoted to the production of cruise ships?
A) 0
B) few
C) most
D) all
E) It is impossible to tell without more information about the prices of airplanes and cruise ships.
Skill: Level 3: Using models
Section: Checkpoint 3.1
Author: MR
AACSB: Analytical reasoning
12) Moving from one point to another on a production possibilities frontier implies
A) increasing the production of both goods.
B) decreasing the production of both goods.
C) increasing the production of one good and decreasing the production of another.
D) holding the production levels of both goods constant.
E) changing the amount of factors of production that are employed.
Skill: Level 3: Using models
Section: Checkpoint 3.1
Author: SB
AACSB: Reflective thinking
13) Assume that an association of young workers has lobbied Congress 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 nation would move to a new position on its production possibilities frontier but the
frontier itself would not shift.
D) The production possibilities frontier would shift inward.
E) The number of young workers would increase so the production possibilities frontier would
shift outward.
Skill: Level 4: Applying models
Section: Checkpoint 3.1
Author: TS
AACSB: Analytical reasoning
6
Copyright © 2011 Pearson Education, Inc.
14) A major earthquake occurs in the central part of the United States. What impact would this
have on the nation's production possibilities frontier and why?
A) It would shift outward because unemployment would be reduced.
B) Nothing would happen because the nation would still have the same capabilities.
C) A tradeoff would occur to replace the resources and goods destroyed.
D) It would shift inward because some of the nation's resources, such as capital and labor, would
be destroyed.
E) It would not shift because people would get to work to replace any capital that was destroyed.
Skill: Level 4: Applying models
Section: Checkpoint 3.1
Author: TS
AACSB: Analytical reasoning
15) When all of the available factors of production are being efficiently employed, the
A) economy is producing at a point within its PPF.
B) economy is producing at a point on its PPF.
C) economy is producing at a point beyond its PPF.
D) PPF disappears.
E) opportunity cost of changing production is infinite.
Skill: Level 2: Using definitions
Section: Checkpoint 3.1
Author: JC
AACSB: Reflective thinking
16) In a production possibilities frontier diagram, the attainable production points are shown as
A) only the points on the production possibilities frontier.
B) only the points beyond the production possibilities frontier.
C) only the points inside the production possibilities frontier.
D) the points inside and the points on the production possibilities frontier.
E) any of the production points.
Skill: Level 1: Definition
Section: Checkpoint 3.1
Author: PH
AACSB: Reflective thinking
7
Copyright © 2011 Pearson Education, Inc.
17) In the production possibilities frontier model, an unattainable point lies
A) only on the production possibilities frontier itself.
B) only inside the production possibilities frontier.
C) only outside the production possibilities frontier.
D) both on and outside the production possibilities frontier.
E) There are no unattainable points in the production possibilities model.
Skill: Level 3: Using models
Section: Checkpoint 3.1
Author: SB
AACSB: Reflective thinking
18) Production efficiency is represented by ________ a production possibilities frontier.
A) all points on
B) all points inside
C) all points outside
D) a movement along
E) only one point on
Skill: Level 2: Using definitions
Section: Checkpoint 3.1
Author: SB
AACSB: Reflective thinking
19) If an economy cannot produce more of one good without producing less of another good, this
implies that which of the following has been achieved?
A) allocative efficiency
B) minimum marginal cost
C) PPF efficiency
D) production efficiency
E) maximum marginal benefit
Skill: Level 2: Using definitions
Section: Checkpoint 3.1
Author: TS
AACSB: Reflective thinking
8
Copyright © 2011 Pearson Education, Inc.
20) Production efficiency occurs
A) anywhere inside or on the production possibilities frontier.
B) when the total cost of production is minimized.
C) at all points on the production possibilities frontier.
D) at only one point on the production possibilities frontier.
E) at all points inside the production possibilities frontier.
Skill: Level 2: Using definitions
Section: Checkpoint 3.1
Author: MR
AACSB: Reflective thinking
21) 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 can not occur.
A) i only
B) i and ii
C) iii only
D) i and iii
E) i, ii, and iii
Skill: Level 3: Using models
Section: Checkpoint 3.1
Author: CD
AACSB: Reflective thinking
22) If there is unemployment in an economy, then the
A) production possibilities frontier will shift inwards.
B) economy is operating at an unattainable point.
C) production possibilities frontier will shift outwards.
D) economy is producing at a point inside the production possibilities frontier.
E) production possibilities frontier must be bowed inward.
Skill: Level 1: Definition
Section: Checkpoint 3.1
Author: SA
AACSB: Reflective thinking
9
Copyright © 2011 Pearson Education, Inc.
23) 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 inside 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 outside the
frontier.
Skill: Level 3: Using models
Section: Checkpoint 3.1
Author: PH
AACSB: Analytical reasoning
24) A point on the production possibilities frontier reflects an
A) attainable point with full employment of all resources.
B) attainable point without full employment of all resources.
C) unattainable point with full employment of all resources.
D) unattainable point without full employment of all resources.
E) None of the above answers are correct.
Skill: Level 2: Using definitions
Section: Checkpoint 3.1
Author: SA
AACSB: Reflective thinking
10
Copyright © 2011 Pearson Education, Inc.
25) The table above shows a production possibilities frontier for an economy. Which of the
following combinations is unattainable?
A) 0 loaves of bread and 800 books
B) 100 loaves of bread and 800 books
C) 200 loaves of bread and 800 books
D) 300 loaves of bread and 200 books
E) 0 loaves of bread and 0 books
Skill: Level 3: Using models
Section: Checkpoint 3.1
Author: CD
AACSB: Analytical reasoning
26) The table above shows a production possibilities frontier for an economy. If the economy
tried to produce a combination of 250 loaves of bread and 800 books,
A) there is some unemployment.
B) there is full employment.
C) the tradeoff between bread and books is inefficient.
D) it cannot produce this combination because it lacks enough resources or technology.
E) it is enjoying a free lunch.
Skill: Level 3: Using models
Section: Checkpoint 3.1
Author: CD
AACSB: Analytical reasoning
11
Copyright © 2011 Pearson Education, Inc.
27) The figure above shows the production possibilities frontier for a country. A combination of
4 million gallons of milk and 4 million gallons of ice cream is
A) unattainable.
B) attainable and production efficient.
C) attainable and production inefficient.
D) unattainable and production efficient.
E) More information is needed to determine if the point is attainable or not.
Skill: Level 3: Using models
Section: Checkpoint 3.1
Author: MR
AACSB: Analytical reasoning
28) The figure above shows the production possibilities frontier for a country. A combination of
3 million gallons of milk and 3 million gallons of ice cream is
A) unattainable.
B) attainable and production efficient.
C) attainable and production inefficient.
D) unattainable and production efficient.
E) More information is needed to determine if the point is attainable or not.
Skill: Level 3: Using models
Section: Checkpoint 3.1
Author: MR
AACSB: Analytical reasoning
12
Copyright © 2011 Pearson Education, Inc.
29) The figure above shows the production possibilities frontier for a country. A combination of
2 million gallons of milk and 2 million gallons of ice cream is
A) unattainable.
B) attainable and production efficient.
C) attainable and production inefficient.
D) attainable but more than production efficient.
E) More information is needed to determine if the point is attainable or not.
Skill: Level 3: Using models
Section: Checkpoint 3.1
Author: MR
AACSB: Analytical reasoning
30) Point D in the above PPF figure is
A) an attainable production combination with unemployed resources.
B) a tradeoff.
C) an unattainable production combination.
D) a production combination that can be attained once resources are fully employed.
E) More information is needed to determine which of the above answers is correct.
Skill: Level 3: Using models
Section: Checkpoint 3.1
Author: PH
AACSB: Analytical reasoning
13
Copyright © 2011 Pearson Education, Inc.
31) Which point in the figure above is an attainable combination that would have unemployed
resources?
A) point A
B) point B
C) point C
D) point D
E) point A and point B
Skill: Level 3: Using models
Section: Checkpoint 3.1
Author: PH
AACSB: Analytical reasoning
32) The figure above shows a nation's production possibilities frontier. In the figure, point A
shows
A) the maximum quantity of pizza that can be produced.
B) the minimum quantity of pizza that the society must produce.
C) an unattainable point.
D) an attainable point with unemployed resources.
E) More information is needed to determine which of the above answers is correct.
Skill: Level 3: Using models
Section: Checkpoint 3.1
Author: SA
AACSB: Analytical reasoning
14
Copyright © 2011 Pearson Education, Inc.
33) The figure above shows a nation's production possibilities frontier. In the figure, point B
shows
A) an unattainable point.
B) an attainable point.
C) a point with a free lunch.
D) a point with no trade off.
E) a point at which there are unemployed resources.
Skill: Level 3: Using models
Section: Checkpoint 3.1
Author: SA
AACSB: Analytical reasoning
15
Copyright © 2011 Pearson Education, Inc.
34) The figure above shows the production possibilities frontier for a country. In order for it to
produce at point E, the
A) country would need to acquire more resources and/or more advanced technology.
B) production of compact cars would need to decrease.
C) production of SUVs would need to decrease.
D) country would need to use its resources more efficiently.
E) country would need to determine that compact cars and SUVs are equally important to it.
Skill: Level 3: Using models
Section: Checkpoint 3.1
Author: JC
AACSB: Analytical reasoning
35) The figure above shows the production possibilities frontier for a country. If the country is
producing at point D, then the
A) resources are being used efficiently.
B) technology associated with producing SUVs and compact cars is advancing.
C) resources are not being used efficiently and/or are unemployed.
D) production of SUVs and compact cars is maximized.
E) None of the above answers are correct because it is not possible to produce at point D.
Skill: Level 3: Using models
Section: Checkpoint 3.1
Author: JC
AACSB: Analytical reasoning
16
Copyright © 2011 Pearson Education, Inc.
36) The above figure shows the production possibility frontier for an economy. The point or
points that are attainable and production efficient are
A) points B and C.
B) points A, B, and C.
C) point E.
D) points A, B, C, and D.
E) points A and D.
Skill: Level 2: Using definitions
Section: Checkpoint 3.1
Author: KG
AACSB: Analytical reasoning
37) The above figure shows the production possibility frontier for an economy. The point or
points that are attainable are
A) points B and C.
B) points A, B, and C.
C) point E.
D) points A, B, C, and D.
E) points A and D.
Skill: Level 2: Using definitions
Section: Checkpoint 3.1
Author: KG
AACSB: Analytical reasoning
17
Copyright © 2011 Pearson Education, Inc.
38) The above figure shows the production possibility frontier for an economy. The point or
points that are not attainable are
A) points B and C.
B) points A, B, and C.
C) point E.
D) points A, B, C, and D.
E) points A and D.
Skill: Level 2: Using definitions
Section: Checkpoint 3.1
Author: KG
AACSB: Analytical reasoning
39) In order for Ireland to grow more potatoes, wool production must decrease. This situation is
an example of
A) producing at a point that lies beyond the PPF.
B) zero opportunity cost.
C) opportunity benefit.
D) a free lunch.
E) a tradeoff.
Skill: Level 1: Definition
Section: Checkpoint 3.1
Author: JC
AACSB: Reflective thinking
40) As we move along the production possibilities frontier,
A) the production of one good increases as the production of the other good decreases.
B) the possibilities of tradeoffs diminish.
C) a tradeoff is not possible because nations need all goods.
D) more of both goods can be produced.
E) less of both goods can be produced.
Skill: Level 4: Applying models
Section: Checkpoint 3.1
Author: SA
AACSB: Reflective thinking
18
Copyright © 2011 Pearson Education, Inc.
41) Which of the following statements is correct?
A) If capital is idle, the economy is producing at its full potential.
B) The production possibilities frontier shows that there are no limits to production.
C) A tradeoff is a limit that forces an exchange or a substitution of one thing for something else.
D) Any point on or within the PPF is production efficient.
E) None of the above answers are correct.
Skill: Level 2: Using definitions
Section: Checkpoint 3.1
Author: SA
AACSB: Reflective thinking
42) 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 increase.
B) must decrease.
C) must remain the same.
D) must change but they might increase or decrease.
E) might increase if the nation can produce more efficiently.
Skill: Level 3: Using models
Section: Checkpoint 3.1
Author: SB
AACSB: Reflective thinking
43) The negative slope of the production possibilities frontier represents the idea
A) that free lunches are possible.
B) of tradeoffs, that in order to produce more of one good, the nation must produce less of
another.
C) of unemployment.
D) of inefficient production.
E) that prices rise as less is produced.
Skill: Level 4: Applying models
Section: Checkpoint 3.1
Author: SB
AACSB: Reflective thinking
19
Copyright © 2011 Pearson Education, Inc.
44) A movement from one point on a production possibilities frontier to another represents
A) a tradeoff.
B) a free lunch.
C) full employment of labor but not capital.
D) unemployment.
E) an advance in technology.
Skill: Level 3: Using models
Section: Checkpoint 3.1
Author: SB
AACSB: Reflective thinking
45) The saying "There's no such thing as a free lunch," applies
A) when there is some unemployment.
B) on the production possibilities frontier.
C) to unattainable combinations of goods and services.
D) when more of one good can be produced without decreasing production of another.
E) at all points inside the PPF.
Skill: Level 2: Using definitions
Section: Checkpoint 3.1
Author: SB
AACSB: Reflective thinking
46) A free lunch (the absence of a tradeoff) when the production of a good is increased is
possible for the entire economy only if
A) less of some product is produced.
B) prices are decreased.
C) prices are increased.
D) resources are used inefficiently.
E) there is a movement along the PPF.
Skill: Level 2: Using definitions
Section: Checkpoint 3.1
Author: TS
AACSB: Reflective thinking
20
Copyright © 2011 Pearson Education, Inc.
47) When a tradeoff does NOT exist between two goods, the situation is known as
A) opportunity cost.
B) scarcity.
C) a free lunch.
D) zero cost production.
E) efficient production.
Skill: Level 1: Definition
Section: Checkpoint 3.1
Author: JC
AACSB: Reflective thinking
48) A movement from a point inside the production possibilities frontier to a point on the
production possibilities frontier represents
A) a tradeoff.
B) a free lunch.
C) full employment of labor but not capital.
D) unemployment of labor but not capital.
E) an infinite opportunity cost.
Skill: Level 3: Using models
Section: Checkpoint 3.1
Author: SB
AACSB: Reflective thinking
49) A reason the production possibilities frontier exists is
A) unlimited resources and technology.
B) scarcity of resources.
C) scarcity of resources and unlimited technology.
D) unemployment.
E) that people's wants are unlimited.
Skill: Level 1: Definition
Section: Checkpoint 3.1
Author: STUDY GUIDE
AACSB: Reflective thinking
21
Copyright © 2011 Pearson Education, Inc.
50) The production possibilities frontier is a graph showing the
A) exact point of greatest efficiency for producing goods and services.
B) tradeoff between free lunches.
C) maximum combinations of goods and services that can be produced.
D) minimum combinations of goods and services that can be produced.
E) resources available for the economy's production use.
Skill: Level 1: Definition
Section: Checkpoint 3.1
Author: STUDY GUIDE
AACSB: Reflective thinking
51) The production possibilities frontier is a boundary that separates
A) the combinations of goods that can be produced from the combinations of services.
B) attainable combinations of goods and services that can be produced from unattainable ones.
C) equitable combinations of goods and services that can be produced from inequitable ones.
D) fair combinations of goods and services that can be consumed from unfair ones.
E) affordable production points from unaffordable points.
Skill: Level 1: Definition
Section: Checkpoint 3.1
Author: STUDY GUIDE
AACSB: Reflective thinking
52) Points inside the PPF are all
A) unattainable and have fully employed resources.
B) attainable and have fully employed resources.
C) unattainable and have some unemployed resources.
D) attainable and have some unemployed resources.
E) unaffordable.
Skill: Level 2: Using definitions
Section: Checkpoint 3.1
Author: STUDY GUIDE
AACSB: Reflective thinking
22
Copyright © 2011 Pearson Education, Inc.
53) 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) but must decrease the production of something else.
C) and must increase the production of something else.
D) by using resources in the production process twice.
E) but the opportunity cost is infinite.
Skill: Level 1: Definition
Section: Checkpoint 3.1
Author: STUDY GUIDE
AACSB: Reflective thinking
54) Moving along the production possibilities frontier itself illustrates
A) the existence of tradeoffs.
B) the existence of unemployment of some factors of production.
C) the benefits of free lunches.
D) how free lunches can be exploited through trade.
E) how tradeoffs need not occur if the economy is efficient.
Skill: Level 1: Definition
Section: Checkpoint 3.1
Author: STUDY GUIDE
AACSB: Reflective thinking
55) Points on the PPF are all
A) unattainable and have fully employed resources.
B) free lunches.
C) inefficient.
D) attainable and have some unemployed resources.
E) production efficient.
Skill: Level 1: Definition
Section: Checkpoint 3.1
Author: STUDY GUIDE
AACSB: Reflective thinking
23
Copyright © 2011 Pearson Education, Inc.
3.2 Opportunity Cost
1) In a production possibilities frontier graph, the cost of producing more units of a good is
measured by the
A) dollar value of the resources used to produce the good.
B) amount of the other good or service that must be forgone.
C) dollar value of the additional output.
D) area in the arc between the PPF and a straight line drawn between the starting point and the
ending point.
E) None of the above answers is correct.
Skill: Level 2: Using definitions
Section: Checkpoint 3.2
Author: TS
AACSB: Reflective thinking
2) The opportunity cost of producing one more unit of a good is calculated by dividing the
A) increase in the quantity of that good by the decrease in the quantity of other good.
B) total quantity of that good by the total quantity of other good.
C) decrease in the quantity of the other good by the increase in the quantity of the good whose
opportunity cost we're calculating.
D) total quantity of the other good by the total quantity of the good whose opportunity cost we're
calculating.
E) price of the good whose opportunity cost we are calculating by the number of units of the
other good that are forgone.
Skill: Level 3: Using models
Section: Checkpoint 3.2
Author: SB
AACSB: Analytical reasoning
24
Copyright © 2011 Pearson Education, Inc.
3) To find the opportunity cost of producing one more unit of any product while on the
production possibilities frontier requires
A) setting the amounts of the two products equal to each other.
B) setting the change in one product equal to the change in the other product.
C) dividing the amount of the product forgone by the amount of the product gained.
D) subtracting the change in the product whose production increased from the change in the
product whose production decreased.
E) None of these describe how to find opportunity cost.
Skill: Level 3: Using models
Section: Checkpoint 3.2
Author: TS
AACSB: Analytical reasoning
4) To calculate the opportunity cost per unit, you divide the decrease in the quantity of the
forgone item by the
A) decrease in the quantity of the other item.
B) increase in the quantity of the other item obtained.
C) price of the item obtained.
D) price of the item forgone.
E) price of the item obtained and then multiply by the price of the item forgone.
Skill: Level 2: Using definitions
Section: Checkpoint 3.2
Author: CT
AACSB: Analytical reasoning
5) On a production possibilities frontier, 500 pounds of apples and 1,200 pounds of bananas can
be produced while at another point on the same frontier, 300 pounds of apples and 1,300 pounds
of bananas can be produced. Between these points, what is the opportunity cost of producing a
pound of bananas?
A) 2 pounds of bananas
B) 200 pounds of apples
C) 2 pounds of apples
D) 0.5 a pound of apples
E) 12/5 = 2.4 pounds of apples
Skill: Level 3: Using models
Section: Checkpoint 3.2
Author: TS
AACSB: Analytical reasoning
25
Copyright © 2011 Pearson Education, Inc.
6) On a production possibilities frontier, 500 pounds of apples and 1,200 pounds of bananas can
be produced while at another point on the same frontier, 300 pounds of apples and 1,300 pounds
of bananas can be produced. Between these points, what is the opportunity cost of producing a
pound of apples?
A) 2 pounds of bananas
B) 100 pounds of bananas
C) 2 pounds of apples
D) 0.5 a pound of bananas
E) 5/12 of a banana
Skill: Level 3: Using models
Section: Checkpoint 3.2
Author: TS
AACSB: Analytical reasoning
7) 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) 4 apples
B) 5/4 of an apple
C) 4/5 of an apple
D) 1 banana
E) None of the above answers is correct
Skill: Level 3: Using models
Section: Checkpoint 3.2
Author: TS
AACSB: Analytical reasoning
8) 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) 5/4 of a bananas
C) 4/5 of a banana
D) 1 apple
E) None of the above answers is correct
Skill: Level 3: Using models
Section: Checkpoint 3.2
Author: TS
AACSB: Analytical reasoning
26
Copyright © 2011 Pearson Education, Inc.
9) Robinson Crusoe divides his time between catching fish and gathering fruit. Part of his
production possibilities frontier is given in the above table. If Mr. Crusoe is on his PPF and he
increases the amount of fruit he gathers from 56 to 90 pounds, the opportunity cost is
A) 37 pounds of fish.
B) 31 pounds of fish.
C) 17 pounds of fish.
D) 34 pounds of fruit.
E) 90 pounds of fruit.
Skill: Level 2: Using definitions
Section: Checkpoint 3.2
Author: CT
AACSB: Analytical reasoning
10) Robinson Crusoe divides his time between catching fish and gathering fruit. Part of his
production possibilities frontier is given in the above table. Mr. Crusoe, while lonesome, is
efficient and always stays on his PPF. Mr. Crusoe is consuming 20 pounds of fish. Then he
decides to slowly become a vegetarian and decrease his consumption of fish to 9 pounds. This
decision means that Mr. Crusoe will
A) incur an opportunity cost of 9 pounds of fruit.
B) incur an opportunity cost of 20 pounds of fish.
C) be able to enjoy a gain of 9 pounds of fruit.
D) incur an opportunity cost of 99 pounds of fruit.
E) incur an opportunity cost of 9 pounds of fish.
Skill: Level 2: Using definitions
Section: Checkpoint 3.2
Author: CT
AACSB: Analytical reasoning
27
Copyright © 2011 Pearson Education, Inc.
11) The table above shows a nation's production possibilities frontier. If the nation wants to
produce 4 robots and 34 pizzas
A) it will shift the production possibilities frontier.
B) the opportunity cost is 9 pizzas.
C) the nation will be producing inefficiently.
D) it will be unable to do so because the production point is unattainable.
E) the nation will then be producing at a production efficient point.
Skill: Level 3: Using models
Section: Checkpoint 3.2
Author: SA
AACSB: Analytical reasoning
12) The table above shows a nation's production possibilities frontier. If the nation chooses to
increase the production of robots from 2 to 3 and it is on its PPF, it will have to forgo ________
pizzas.
A) 37
B) 34
C) 3
D) 35.5
E) None of the above answers is correct.
Skill: Level 3: Using models
Section: Checkpoint 3.2
Author: SA
AACSB: Analytical reasoning
28
Copyright © 2011 Pearson Education, Inc.
13) The table above shows a nation's production possibilities frontier. The opportunity cost of a
robot between combination D and E is
A) 4 pizzas.
B) 34 pizzas.
C) 30 pizzas.
D) 1/4 of a pizza.
E) undefined because neither point is production efficient.
Skill: Level 3: Using models
Section: Checkpoint 3.2
Author: SA
AACSB: Analytical reasoning
14) The figure above shows the production possibilities frontier for a country. The opportunity
cost of a gallon of milk between combination point A and B is
A) 4 gallons of ice cream for a gallon of milk.
B) 3 gallons of ice cream for a gallon of milk.
C) 1 gallon of ice cream for a gallon of milk.
D) 1/3 of a gallon of ice cream for a gallon of milk.
E) zero because at point A zero milk is being produced.
Skill: Level 3: Using models
Section: Checkpoint 3.2
Author: SA
AACSB: Analytical reasoning
29
Copyright © 2011 Pearson Education, Inc.
15) The figure above shows the production possibilities frontier for a country. If the economy is
operating at point B, then the opportunity cost of another million gallons of milk is
A) 4 gallons of ice cream for a gallon of milk.
B) 3 gallons of ice cream for a gallon of milk.
C) 1 gallon of ice cream for a gallon of milk.
D) 1/3 of a gallon of ice cream for a gallon of milk.
E) zero because after producing another million gallons of milk then zero gallons of ice cream
are produced.
Skill: Level 3: Using models
Section: Checkpoint 3.2
Author: SA
AACSB: Analytical reasoning
16) The above figure shows the production possibility frontier for a country. Suppose the
country is producing at point A. What is the opportunity cost of increasing the production of rice
to 12 tons?
A) 15 thousand bottles of wine
B) 6 thousand bottles of wine
C) 9 thousand bottles of wine
D) 12 tons of rice
E) Nothing, it is a free lunch
Skill: Level 3: Using models
Section: Checkpoint 3.2
Author: KG
AACSB: Analytical reasoning
30
Copyright © 2011 Pearson Education, Inc.
17) The above figure shows the production possibility frontier for a country. Suppose the
country is producing at point D. What is the opportunity cost of increasing the production of rice
to 15 tons?
A) 9 thousand bottles of wine
B) 6 thousand bottles of wine
C) 15 thousand bottles of wine
D) 12 tons of rice
E) Nothing, it is a free lunch
Skill: Level 3: Using models
Section: Checkpoint 3.2
Author: KG
AACSB: Analytical reasoning
18) The above figure shows the production possibility frontier for a country. Suppose the
country is producing at point E. What would be the opportunity cost to increase the production
of wine to 9 thousand bottles?
A) Nothing, it is a free lunch
B) 12 tons of rice
C) 15 thousand bottles of wine
D) 9 thousand bottles of wine
E) 3 tons of rice
Skill: Level 3: Using models
Section: Checkpoint 3.2
Author: KG
AACSB: Analytical reasoning
19) The above figure shows the production possibility frontier for a country. Suppose the
country is producing at point D. What would be the opportunity cost to move to point C?
A) 6 thousand bottles of wine
B) 15 thousand bottles of wine
C) Nothing, it is a free lunch
D) This movement is not possible without economic growth.
E) 12 tons of rice
Skill: Level 3: Using models
Section: Checkpoint 3.2
Author: KG
AACSB: Analytical reasoning
31
Copyright © 2011 Pearson Education, Inc.
20) The above figure shows the production possibility frontier for a country. Suppose the
country is producing at point A. What would be the opportunity cost to increase the production
of rice to 12 tons?
A) 6 thousand bottles of wine
B) 15 thousand bottles of wine
C) Nothing, it is a free lunch
D) 9 thousand bottles of wine
E) 6 tons of rice
Skill: Level 3: Using models
Section: Checkpoint 3.2
Author: KG
AACSB: Analytical reasoning
21) The above figure shows the production possibility frontier for a country. What is the
opportunity cost per ton of rice to move from point B to point D?
A) 1000 bottles of wine
B) 500 bottles of wine
C) 2 bottles of wine
D) ½ of a bottle of wine
E) None of the above answers are correct.
Skill: Level 3: Using models
Section: Checkpoint 3.2
Author: KG
AACSB: Analytical reasoning
22) The above figure shows the production possibility frontier for a country. What is the
opportunity cost per ton of rice to move from point D to E?
A) 3000 bottles of wine
B) 333 bottles of wine
C) 3 bottles of wine
D) 1/3 of a bottle of wine
E) None of the above answers are correct.
Skill: Level 3: Using models
Section: Checkpoint 3.2
Author: KG
AACSB: Analytical reasoning
32
Copyright © 2011 Pearson Education, Inc.
23) The above figure shows the production possibility frontier for a country. What is the
opportunity cost to move from point D to point E?
A) Nothing, it is a free lunch
B) 6 thousand bottles of wine
C) 15 thousand bottles of wine
D) 6 tons of rice
E) 9 thousand bottles of wine
Skill: Level 3: Using models
Section: Checkpoint 3.2
Author: KG
AACSB: Analytical reasoning
24) The above figure shows the production possibility frontier for a country. What is the
opportunity cost to move from point D to point B?
A) 12 tons of rice
B) 15 thousand bottles of wine
C) Nothing, it is a free lunch
D) 6 thousand bottles of wine
E) 9 thousand bottles of wine
Skill: Level 3: Using models
Section: Checkpoint 3.2
Author: KG
AACSB: Analytical reasoning
25) Moving from a point inside the production possibilities frontier to a point on the production
possibilities frontier, the opportunity cost of producing more of the good on the horizontal axis
A) increases.
B) decreases.
C) is constant.
D) is 0.
E) is infinite.
Skill: Level 3: Using models
Section: Checkpoint 3.2
Author: SB
AACSB: Analytical reasoning
33
Copyright © 2011 Pearson Education, Inc.
26) 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 increases.
C) number of jets increases and the opportunity cost of jets decreases.
D) amount of wheat increases and opportunity cost of wheat decreases.
E) opportunity cost of jets and wheat both increase.
Skill: Level 4: Applying models
Section: Checkpoint 3.2
Author: CD
AACSB: Reflective thinking
27) Why is a production possibilities frontier bowed out (concave)?
A) The bowed shape reflects constant opportunity cost.
B) The bowed shape reflects decreasing opportunity cost.
C) The bowed shape indicates that opportunity cost at first decreases at a decreasing rate, and
then begins to decrease at an increasing rate.
D) The bowed shape indicates that opportunity cost at first increases at a decreasing rate, and
then begins to increase at an increasing rate.
E) The bowed shape reflects increasing opportunity cost.
Skill: Level 2: Using definitions
Section: Checkpoint 3.2
Author: PH
AACSB: Reflective thinking
28) The bowed out (concave) shape of the production possibilities curve implies that as
production of one good
A) increases, society must forgo increasing amounts of another good.
B) increases, society must forgo decreasing amounts of another good.
C) decreases, production of other goods decreases as well.
D) increases, production of other goods increases as well.
E) increases, society can obtain a free lunch.
Skill: Level 2: Using definitions
Section: Checkpoint 3.2
Author: PH
AACSB: Reflective thinking
34
Copyright © 2011 Pearson Education, Inc.
29) The idea of increasing opportunity cost is reflected in the
A) bowed out shape of the production possibilities frontier.
B) bowed in shape of the production possibilities frontier.
C) linear shape of the production possibilities frontier.
D) positive slope of the production possibilities frontier.
E) fact that the PPF shows there are unattainable production points.
Skill: Level 2: Using definitions
Section: Checkpoint 3.2
Author: PH
AACSB: Reflective thinking
30) 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.
Skill: Level 2: Using definitions
Section: Checkpoint 3.2
Author: SA
AACSB: Reflective thinking
31) The opportunity cost of a good increases as more of it is produced because
A) there is no such thing as a free lunch.
B) resources are not equally productive in all activities.
C) producing more of a good requires additional resources.
D) the number of forgone alternatives also increases.
E) people want the good less as more is produced.
Skill: Level 2: Using definitions
Section: Checkpoint 3.2
Author: SB
AACSB: Reflective thinking
35
Copyright © 2011 Pearson Education, Inc.
32) As an economy increasingly specializes in producing one good, the opportunity cost of that
good increases. The opportunity cost increases because
A) resources are not equally productive in all activities.
B) what must be paid to resources increases.
C) human wants are virtually unlimited.
D) not all goods are equally valuable.
E) as more of a good is produced, the profit from its production must rise.
Skill: Level 2: Using definitions
Section: Checkpoint 3.2
Author: TS
AACSB: Reflective thinking
33) As an economy produces more of one of the goods on a bowed out production possibilities
frontier, what happens to the opportunity cost of producing the good?
A) It remains constant.
B) It decreases.
C) It increases.
D) It might increase, decrease, or remain constant depending on how much people value the
additional units of the good.
E) None of these depict what happens to opportunity cost.
Skill: Level 3: Using models
Section: Checkpoint 3.2
Author: TS
AACSB: Reflective thinking
34) When a production possibilities frontier is bowed outward, as more of one good is produced,
its opportunity cost
A) increases.
B) decreases.
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.
Skill: Level 3: Using models
Section: Checkpoint 3.2
Author: SB
AACSB: Reflective thinking
36
Copyright © 2011 Pearson Education, Inc.
35) A bowed out PPF reflects which of the following ideas?
i. increasing opportunity cost
ii. resources are not equally productive in all activities
iii. prices of goods increase over time
A) i only
B) i and ii
C) i and iii
D) ii and iii
E) i, ii, and iii
Skill: Level 3: Using models
Section: Checkpoint 3.2
Author: CD
AACSB: Reflective thinking
36) 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) increases and the PPF gets steeper
B) increases and the PPF gets flatter
C) decreases and the PPF gets steeper
D) decreases and the PPF gets flatter
E) does not change and the PPF gets steeper
Skill: Level 3: Using models
Section: Checkpoint 3.2
Author: CD
AACSB: Analytical reasoning
37) A bowed out production possibility frontier shows that the
A) opportunity cost of a good is constant as more of the good is produced.
B) opportunity cost of a good decreases as more of the good is produced.
C) opportunity cost of a good increases as more of the good is produced.
D) opportunity cost relationship is linear.
E) opportunity cost of producing another good is negative.
Skill: Level 2: Using definitions
Section: Checkpoint 3.2
Author: SA
AACSB: Reflective thinking
37
Copyright © 2011 Pearson Education, Inc.
38) Why does a nation experience increasing opportunity cost?
A) As the nation moves from a production point within the PPF to one on the PPF, opportunity
costs increase.
B) As the nation moves from a production point within the PPF to another point also within the
PPF, opportunity costs increase.
C) When the amount of resources increases, the opportunity cost of all goods and services
increases.
D) Resources are not equally productive in producing different kinds of goods and services.
E) Because the nation cannot produce at the unattainable production points that lie beyond the
PPF.
Skill: Level 2: Using definitions
Section: Checkpoint 3.2
Author: PH
AACSB: Reflective thinking
39) The fact of increasing opportunity cost when moving on the PPF means that
A) to increase the production of one product requires larger and larger sacrifices of the other
good.
B) to decrease the production of one product requires smaller and smaller sacrifices of the other
good.
C) to increase the production of one product requires smaller and smaller sacrifices of the other
good.
D) when the government forces a movement from one point on the PPF to another point, no
production is lost.
E) the PPF will be a negatively sloped straight line.
Skill: Level 3: Using models
Section: Checkpoint 3.2
Author: PH
AACSB: Reflective thinking
38
Copyright © 2011 Pearson Education, Inc.
40) 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) increasing.
C) decreasing.
D) zero.
E) either constant, increasing, or decreasing but more information is needed to determine which.
Skill: Level 4: Applying models
Section: Checkpoint 3.2
Author: SA
AACSB: Reflective thinking
41) If the production possibilities frontier between two goods is a straight line, then the
A) opportunity cost is not a ratio.
B) resources are equally productive in both goods.
C) line does not qualify as a production possibilities frontier because the unattainable production
points are too close to the inefficient production points.
D) Both answers A and C are correct.
E) Both answers A and B are correct.
Skill: Level 4: Applying models
Section: Checkpoint 3.2
Author: SA
AACSB: Reflective thinking
42) As an economy moves down along a straight line production possibilities frontier, what
happens to the opportunity cost of producing the good on the horizontal axis?
A) It remains constant.
B) It decreases.
C) It increases.
D) Above the midpoint it decreases until it equals 1 at the midpoint and then it increases.
E) None of these depict what happens to opportunity cost.
Skill: Level 4: Applying models
Section: Checkpoint 3.2
Author: TS
AACSB: Analytical reasoning
39
Copyright © 2011 Pearson Education, Inc.
43) 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) Resources are equally productive at producing either product.
C) There is no tradeoff between the two goods.
D) There is no decrease in the production of one good when the production of the other is
increased.
E) Producing more of one good gives the economy a free lunch.
Skill: Level 4: Applying models
Section: Checkpoint 3.2
Author: TS
AACSB: Reflective thinking
44) 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 decreasing
B) bread decreasing
C) bread increases
D) books is constant
E) books and bread are both increasing
Skill: Level 4: Applying models
Section: Checkpoint 3.2
Author: CD
AACSB: Analytical reasoning
40
Copyright © 2011 Pearson Education, Inc.
45) 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) 2 books
C) 200 books
D) 100 loaves of bread
E) 1 loaf of bread
Skill: Level 4: Applying models
Section: Checkpoint 3.2
Author: CD
AACSB: Analytical reasoning
46) The table above presents the production possibilities frontier for a nation. Using the
information in the table, moving from possibility C to B means that
A) 4 units of capital goods are given up to get 55 units of consumption goods.
B) 2 units of capital goods are given up to get 55 additional units of consumption goods.
C) 4 units of capital goods are given up to get 10 additional units of consumption goods.
D) 4 units of capital goods are given up to get 45 units of consumption goods.
E) 2 units of capital goods are given up to get 10 additional units of consumption goods.
Skill: Level 3: Using models
Section: Checkpoint 3.2
Author: PH
AACSB: Analytical reasoning
41
Copyright © 2011 Pearson Education, Inc.
47) The table above presents the production possibilities frontier for a nation. Using the
information in the table, when moving from possibility C to D, the cost of 1 unit of a capital
good in terms of the consumption goods forgone is ________ consumption goods per capital
good.
A) 25
B) 15
C) 20
D) 10
E) an undefined amount of
Skill: Level 3: Using models
Section: Checkpoint 3.2
Author: PH
AACSB: Analytical reasoning
48) The table above presents the production possibilities frontier for a nation. Using the
information in the table, when moving from possibility A to B to C to ultimately E, the cost of a
unit of capital goods in terms of consumption goods
A) increases.
B) decreases.
C) remains the same.
D) decreases from possibility A to C, and then increases from possibility C to D.
E) cannot be calculated.
Skill: Level 3: Using models
Section: Checkpoint 3.2
Author: PH
AACSB: Analytical reasoning
42
Copyright © 2011 Pearson Education, Inc.
49) The figure above illustrates a small country's production possibilities frontier. Based on the
figure, we can tell that the nation's resources are
A) equally productive in all tasks because the slope is negative.
B) equally productive in all tasks because the production possibilities frontier is bowed out.
C) not equally productive in all tasks because the slope is negative.
D) not equally productive in all tasks because the production possibilities frontier is bowed out.
E) unlimited because the slope is negative and the PPF is bowed out.
Skill: Level 4: Applying models
Section: Checkpoint 3.2
Author: SB
AACSB: Analytical reasoning
50) The figure above illustrates a small country's production possibilities frontier. Moving from
point A to point B, the per unit opportunity cost of a VCR is ________ per VCR.
A) 2 computers
B) 4/3 of a computer
C) 100 computers
D) 1/2 of a computer
E) 1 VCR
Skill: Level 3: Using models
Section: Checkpoint 3.2
Author: SB
AACSB: Analytical reasoning
43
Copyright © 2011 Pearson Education, Inc.
51) The figure above illustrates a small country's production possibilities frontier. Moving from
point C to point B, the per unit opportunity cost of computers is ________ per computer.
A) 4 VCRs
B) 5/4 of a VCR
C) 4/5 of a VCR
D) 1/4 of a VCR
E) 1 computer
Skill: Level 3: Using models
Section: Checkpoint 3.2
Author: SB
AACSB: Analytical reasoning
52) The figure above shows the production possibilities frontier for a country. In order for it to
move from producing at point A to producing at point B, the country would need to
A) decrease SUV production by 1 million.
B) decrease SUV production by 3 million.
C) decrease SUV production by 4 million.
D) decrease compact car production by 3 million.
E) acquire more resources and/or more advanced technology.
Skill: Level 2: Using definitions
Section: Checkpoint 3.2
Author: JC
AACSB: Analytical reasoning
44
Copyright © 2011 Pearson Education, Inc.
53) The figure above shows the production possibilities frontier for a country. In order for it to
move from producing at point A to producing at point B, the country would need to incur an
opportunity cost of
A) 1 million SUVs.
B) 3 million SUVs.
C) 4 million SUVs.
D) 3 million compact cars.
E) 0 because the gain in compact cars exceeds the loss in SUVs.
Skill: Level 2: Using definitions
Section: Checkpoint 3.2
Author: JC
AACSB: Analytical reasoning
54) The figure above shows the production possibilities frontier for a country. How does the
opportunity cost of compact cars forgone per SUV gained moving from point C to point B
compare with the movement from point B to point A?
A) The opportunity cost of moving from point C to point B is greater than the movement from
point B to point A.
B) The opportunity cost of moving from point C to point B is the same as the movement from
point B to point A.
C) The opportunity cost of moving from point C to point B is less than the movement from point
B to point A.
D) The opportunity costs cannot be compared because the units of moving from point C to point
B differ from the units of moving from point B to point A.
E) More information is needed to determine how the two opportunity costs compare.
Skill: Level 2: Using definitions
Section: Checkpoint 3.2
Author: JC
AACSB: Analytical reasoning
45
Copyright © 2011 Pearson Education, Inc.
55) Once you find the opportunity cost of producing one unit of a good, to find the opportunity
cost of producing the other good, you must
A) take the inverse.
B) multiply by the total amount produced of the second good.
C) divide by the total amount produced of the second good.
D) do nothing because the opportunity cost for the first good is the same as the opportunity cost
for the second good.
E) None of the answers are correct.
Skill: Level 3: Using models
Section: Checkpoint 3.2
Author: TS
AACSB: Analytical reasoning
56) 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) 1/4.
C) 2.
D) 4.
E) an amount that cannot be calculated without more information.
Skill: Level 3: Using models
Section: Checkpoint 3.2
Author: SB
AACSB: Analytical reasoning
57) The opportunity cost of producing more of one good on a production possibilities frontier is
A) a dollar amount.
B) a ratio of quantities.
C) a ratio of prices.
D) equal to the area inside the production possibilities frontier.
E) a theoretical concept which cannot be measured.
Skill: Level 2: Using definitions
Section: Checkpoint 3.2
Author: SB
AACSB: Analytical reasoning
46
Copyright © 2011 Pearson Education, Inc.
58) The opportunity cost of one more slice of pizza in terms of sodas is the
A) number of pizza slices we have to give up in order to get one extra soda.
B) number of sodas we have to give up in order to get one extra pizza slice.
C) total number of sodas that we have divided by the total number of pizza slices that we have.
D) total number of pizza slices that we have divided by the total number of sodas that we have.
E) price of a pizza slice minus the price of a soda.
Skill: Level 1: Definition
Section: Checkpoint 3.2
Author: STUDY GUIDE
AACSB: Reflective thinking
59) Moving between two points on a PPF, a country gains 6 automobiles and forgoes 3 trucks.
The opportunity cost of 1 automobile is
A) 3 trucks.
B) 6 automobiles - 3 trucks.
C) 2 trucks.
D) 1/2 of a truck.
E) 1 automobile.
Skill: Level 3: Using models
Section: Checkpoint 3.2
Author: STUDY GUIDE
AACSB: Analytical reasoning
60) Moving between two points on a PPF, a country gains 8 desktop computers and forgoes 4
laptop computers. The opportunity cost of 1 desktop computer is
A) 4 laptops.
B) 8 desktops.
C) 1 desktop.
D) 2 laptops.
E) 1/2 of a laptop.
Skill: Level 3: Using models
Section: Checkpoint 3.2
Author: STUDY GUIDE
AACSB: Analytical reasoning
47
Copyright © 2011 Pearson Education, Inc.
61) A country produces only cans of soup and ink 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 increasing.
B) cans of soup is decreasing.
C) cans of soup remains unchanged.
D) ink pens is increasing.
E) More information is needed to determine what happens to the opportunity cost.
Skill: Level 2: Using definitions
Section: Checkpoint 3.2
Author: STUDY GUIDE
AACSB: Reflective thinking
62) Moving along a country's PPF, a reason opportunity costs increase is that
A) unemployment decreases as a country produces more and more of one good.
B) unemployment increases as a country produces more and more of one good.
C) technology declines as a country produces more and more of one good.
D) some resources are better suited for producing one good rather than the other.
E) technology must advance in order to produce more and more of one good.
Skill: Level 2: Using definitions
Section: Checkpoint 3.2
Author: STUDY GUIDE
AACSB: Reflective thinking
63) Increasing opportunity cost exists
A) in the real world.
B) as long as there is high unemployment.
C) only in theory but not in real life.
D) for a country but not for an individual.
E) inside the PPF but not on the PPF.
Skill: Level 1: Definition
Section: Checkpoint 3.2
Author: STUDY GUIDE
AACSB: Reflective thinking
48
Copyright © 2011 Pearson Education, Inc.
3.3 Economic Growth
1) Which of the following is the best definition of economic growth?
A) The investment in capital and consumption goods by an economy.
B) The opportunity cost of capital.
C) The opportunity cost of consumption.
D) Increased development of land and entrepreneurship.
E) The sustained expansion of production possibilities.
Skill: Level 1: Definition
Section: Checkpoint 3.3
Author: KG
AACSB: Reflective thinking
2) The sustained expansion of production possibilities is called
A) economic investment.
B) production expansion.
C) opportunity cost of growth.
D) economic growth.
E) production possibilities.
Skill: Level 1: Definition
Section: Checkpoint 3.3
Author: KG
AACSB: Reflective thinking
3) Economic growth depends upon which of the following?
i. Increasing the quantity of labor.
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.
Skill: Level 1: Definition
Section: Checkpoint 3.3
Author: MR
AACSB: Reflective thinking
49
Copyright © 2011 Pearson Education, Inc.
4) Economic growth depends upon which of the following?
i. Improving the quality of labor
ii. Technological advancement
iii. Increasing the amount of capital
A) i only
B) ii only
C) iii only
D) i and iii
E) i, ii, and iii
Skill: Level 1: Definition
Section: Checkpoint 3.3
Author: TPS
AACSB: Reflective thinking
5) As an economy grows,
A) its PPF shifts outward.
B) it can eliminate scarcity.
C) the opportunity cost of production will approach 0.
D) the opportunity cost of production will increase.
E) its PPF does not shift; instead, the production point moves from inside the PPF to be closer to
the PPF.
Skill: Level 1: Definition
Section: Checkpoint 3.3
Author: NAU
AACSB: Reflective thinking
6) The opportunity cost of economic growth is
A) 0, because it means an expansion of production possibilities.
B) the decrease in the current production of productive factors.
C) a slower accumulation of human capital.
D) the decrease in the current production of consumption goods.
E) the increase in the nation's capital stock and/or its technology.
Skill: Level 1: Definition
Section: Checkpoint 3.3
Author: DMC
AACSB: Reflective thinking
50
Copyright © 2011 Pearson Education, Inc.
7) What is the opportunity cost of economic growth?
A) Consumption goods.
B) Capital goods.
C) Land.
D) Both consumption and capital goods.
E) Both capital goods and land.
Skill: Level 2: Using definitions
Section: Checkpoint 3.3
Author: KG
AACSB: Reflective thinking
8) The above figure shows the PPF for a country that produces computers and computer
factories. Which of the following would most likely shift the PPF from PPF0 in one year to
PPF1 in the next?
A) Nothing, because the PPF does not shift.
B) Increase the production of computers from 9 million (at point C) to 11 million (at point B).
C) Decrease the production of computers from 11 million (at point B) to 9 million (at point C)
and build 9 new computer factories.
D) Increase consumption of both computers and computer factories.
E) Decrease production of both computers and computer factories by moving into the interior of
the PPF.
Skill: Level 3: Using models
Section: Checkpoint 3.3
Author: KG
AACSB: Analytical reasoning
51
Copyright © 2011 Pearson Education, Inc.
9) The above figure shows the PPF for a country that produces computers and computer
factories. The nation's production possibilities frontier is PPF0 . At which of the following
production points would the economy grow most rapidly?
A) Point A.
B) Point B.
C) Point C.
D) It makes no difference among the three points because they are all production efficient.
E) More information is needed to answer the question.
Skill: Level 3: Using models
Section: Checkpoint 3.3
Author: MR
AACSB: Analytical reasoning
10) Suppose Puerto Rico and Hawaii currently have the same production possibilities so that the
above figure is the PPF for hotels and consumption goods in the two areas. Hotels are a capital
good that,once built, will help produce still more consumption goods. If Puerto Rico produces
more hotels than Hawaii,
A) Hawaii’s PPF will shift outward further than Puerto Rico’s PPF.
B) Hawaii’s PPF will shift inward.
C) Puerto Rico’s PPF will not shift.
D) Puerto Rico’s and Hawaii’s PPF will shift outward by the same amount.
E) Puerto Rico’s PPF will shift outward further than Hawaii’s PPF.
Skill: Level 3: Using models
Section: Checkpoint 3.3
Author: KG
AACSB: Analytical reasoning
52
Copyright © 2011 Pearson Education, Inc.
11) Suppose Puerto Rico and Hawaii currently have the same production possibilities so that the
above figure is the PPF for hotels and consumption goods in the two areas. Hotels are a capital
good that,once built, will help produce still more consumption goods.. According to the figure,
which island will have more rapid economic growth?
A) Hawaii
B) Both Hawaii and Puerto Rico will grow at the same speed.
C) Puerto Rico
D) Neither Hawaii nor Puerto Rico will grow.
E) More than one of the above answers is correct.
Skill: Level 3: Using models
Section: Checkpoint 3.3
Author: KG
AACSB: Analytical reasoning
12) Suppose India and France have the same PPF, shown in the figure above. Based on their
current production points, which is India's most likely future PPF?
A) PPF2.
B) PPF1.
C) PPF0.
D) Either PPF0 or PPF1.
E) None of the above because economic growth will not happen in India.
Skill: Level 3: Using models
Section: Checkpoint 3.3
Author: KG
AACSB: Analytical reasoning
53
Copyright © 2011 Pearson Education, Inc.
13) Suppose India and France have the same PPF, shown in the figure above. Based on their
current production points, which is France's most likely future PPF?
A) PPF2.
B) PPF1.
C) PPF0.
D) Either PPF0 or PPF1.
E) None of the above because economic growth will not happen in India.
Skill: Level 3: Using models
Section: Checkpoint 3.3
Author: KG
AACSB: Analytical reasoning
14) Suppose India and France have the same PPF, shown in the figure above. Based on their
current production points, India's most likely future PPF is ________ and France's most likely
future PPF is ________.
A) PPF1; PPF1
B) PPF2; PPF2
C) PPF0; PPF0.
D) PPF2; PPF1.
E) PPF1; PPF2.
Skill: Level 3: Using models
Section: Checkpoint 3.3
Author: KG
AACSB: Analytical reasoning
54
Copyright © 2011 Pearson Education, Inc.
15) Suppose that Germany, France, Estonia, and India all have the same production possibilities,
illustrated in the figure above. Based on the production points in the figure, which country is
most likely to expand its PPF to PPF3?
A) India
B) Germany
C) Estonia
D) France and Germany equally.
E) France
Skill: Level 3: Using models
Section: Checkpoint 3.3
Author: KG
AACSB: Analytical reasoning
16) Suppose that Germany, France, Estonia, and India all have the same production possibilities,
illustrated in the figure above. Based on the production points in the figure, which country is
most likely to expand its PPF to PPF1?
A) France and Germany equally.
B) India
C) Estonia
D) France
E) Germany
Skill: Level 3: Using models
Section: Checkpoint 3.3
Author: KG
AACSB: Analytical reasoning
55
Copyright © 2011 Pearson Education, Inc.
17) Suppose that Germany, France, Estonia, and India all have the same production possibilities,
illustrated in the figure above. Based on the production points in the figure, India is most likely
to expand its PPF to
A) PPF3 or PPF2.
B) PPF3.
C) PPF1.
D) PPF1. or PPF2.
E) PPF2.
Skill: Level 3: Using models
Section: Checkpoint 3.3
Author: KG
AACSB: Analytical reasoning
18) Suppose that Germany, France, Estonia, and India all have the same production possibilities,
illustrated in the figure above. Based on the production points in the figure, Germany is most
likely to expand its PPF to
A) PPF3 or PPF2.
B) PPF3.
C) PPF1.
D) PPF1. or PPF2.
E) PPF2.
Skill: Level 3: Using models
Section: Checkpoint 3.3
Author: KG
AACSB: Analytical reasoning
19) To increase its economic growth, a nation should
A) limit the number of people in college because they produce nothing.
B) encourage spending on goods and services.
C) encourage education because that increases the quality of labor.
D) increase current consumption.
E) eliminate expenditure on capital goods.
Skill: Level 2: Using definitions
Section: Checkpoint 3.3
Author: STUDY GUIDE
AACSB: Reflective thinking
56
Copyright © 2011 Pearson Education, Inc.
20) Other things equal, if Mexico devotes more resources to train its population than Spain,
A) Mexico will be able to eliminate opportunity cost faster than Spain.
B) Mexico will be able to eliminate scarcity faster than Spain.
C) Spain will grow faster than Mexico.
D) Mexico will have more current consumption than Spain.
E) Mexico will grow faster than Spain.
Skill: Level 3: Using models
Section: Checkpoint 3.3
Author: STUDY GUIDE
AACSB: Reflective thinking
21) If a nation devotes a larger share of its current production to consumption goods, then
A) its economic growth will slow down.
B) its PPF will shift outward.
C) its PPF will shift inward.
D) some productive factors will become unemployed.
E) it must produce at a point within its PPF.
Skill: Level 3: Using models
Section: Checkpoint 3.3
Author: STUDY GUIDE
AACSB: Reflective thinking
22) Which of the following statements is correct?
i. As the economy grows, the opportunity costs of economic growth decrease.
ii. Economic growth has no opportunity cost.
iii. The opportunity cost of economic growth is current consumption forgone.
A) i only
B) ii only
C) iii only
D) i and iii
E) i and ii
Skill: Level 3: Using models
Section: Checkpoint 3.3
Author: STUDY GUIDE
AACSB: Reflective thinking
57
Copyright © 2011 Pearson Education, Inc.
23) When a country's production possibilities frontier shifts outward over time, the country is
experiencing
A) no opportunity cost.
B) economic growth.
C) higher unemployment of resources.
D) a decrease in unemployment of resources.
E) an end to opportunity cost.
Skill: Level 1: Definition
Section: Checkpoint 3.3
Author: STUDY GUIDE
AACSB: Reflective thinking
24) The opportunity cost of economic growth is ________ and the benefit of economic growth is
________.
A) increased current consumption; increased future consumption
B) increased current consumption; decreased future consumption
C) decreased current consumption; increased future consumption
D) decreased current consumption; decreased future consumption
E) nothing; increased future consumption
Skill: Level 1: Definition
Section: Checkpoint 3.3
Author: STUDY GUIDE
AACSB: Reflective thinking
3.4 Specialization and Trade
1) 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 comparative advantage in both cutting the grass and cleaning the house.
B) Hank and Holly both have a comparative advantage in cutting the grass.
C) Hank has a lower opportunity cost of cutting the grass.
D) Hank has an absolute advantage in both cutting the grass and cleaning the house.
E) Holly has a comparative advantage in cutting the grass.
Skill: Level 2: Using definitions
Section: Checkpoint 3.4
Author: PH
AACSB: Analytical reasoning
58
Copyright © 2011 Pearson Education, Inc.
2) The United States can use all its resources to produce 250 DVDs or 500 shoes. China can use
all of its resources to produce 30 DVDs or 300 shoes. The opportunity cost of producing a DVD
in the United States is
A) 2 shoes.
B) 1/2 of a shoe.
C) 20 shoes.
D) 500 shoes.
E) 1 DVD.
Skill: Level 3: Using models
Section: Checkpoint 3.4
Author: MR
AACSB: Analytical reasoning
3) In the table above, how many jackets must Mary forgo for every dress she makes?
A) 12 jackets
B) 3/4 of a jacket
C) 2/3 of a jacket
D) 1 1/2 jackets
E) 8 jackets
Skill: Level 3: Using models
Section: Checkpoint 3.4
Author: PH
AACSB: Analytical reasoning
4) In the table above, how many jackets must Mark forgo for every dress he makes?
A) 1 jacket
B) 16 jackets
C) 2/3 of a jacket
D) 1 1/2 jackets
E) 24 dresses
Skill: Level 3: Using models
Section: Checkpoint 3.4
Author: PH
AACSB: Analytical reasoning
59
Copyright © 2011 Pearson Education, Inc.
5) In the above table, for Mary the opportunity cost of producing a dress is ________ and the
opportunity cost for Mark of producing a dress is ________.
A) 1 1/2 jackets; 2/3 of a jacket
B) 1 1/2 jackets; 2 1/2 jackets
C) 1 1/4 jackets; 1/2 of a jacket
D) 1 jacket; 1 jacket
E) 1 dress; 1 dress
Skill: Level 3: Using models
Section: Checkpoint 3.4
Author: PH
AACSB: Analytical reasoning
6) A country has a comparative advantage in the production of a good if it can
A) produce more of the good than another country.
B) produce more of the good most efficiently.
C) produce the good on and remain on its production possibilities frontier.
D) tradeoff producing the good for another good.
E) produce the good at the lowest opportunity cost.
Skill: Level 1: Definition
Section: Checkpoint 3.4
Author: MR
AACSB: Reflective thinking
7) Having a comparative advantage means a nation can
A) benefit from trade.
B) produce at a higher opportunity cost.
C) produce more of the good.
D) produce without incurring an opportunity cost.
E) produce the good at a point beyond its PPF.
Skill: Level 1: Definition
Section: Checkpoint 3.4
Author: SB
AACSB: Reflective thinking
60
Copyright © 2011 Pearson Education, Inc.
8) 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) a constant opportunity cost in producing that product.
C) a decreasing opportunity cost in producing that product.
D) a lower opportunity cost in producing that product than someone else.
E) an increasing marginal benefit in producing the good.
Skill: Level 1: Definition
Section: Checkpoint 3.4
Author: PH
AACSB: Reflective thinking
9) Which of the following best describes comparative advantage?
A) being able to produce more output than any other country
B) using the fewest number of resources to produce a given amount of output
C) having the largest number of resources compared to other countries
D) forgoing the fewest units of one product to produce a unit of another product
E) It is the same as absolute advantage.
Skill: Level 2: Using definitions
Section: Checkpoint 3.4
Author: TS
AACSB: Reflective thinking
10) Which of the following is correct about comparative advantage?
A) Some countries will have a comparative advantage in everything.
B) Having a comparative advantage without an absolute advantage is impossible.
C) A comparative advantage in a good means that the country can produce more of the good than
any other country.
D) A country has a comparative advantage in the production of a good if it can produce the good
at lower opportunity cost than any other country.
E) None of the above answers is correct.
Skill: Level 3: Using models
Section: Checkpoint 3.4
Author: TS
AACSB: Reflective thinking
61
Copyright © 2011 Pearson Education, Inc.
11) John can make pizza at a lower opportunity cost than Allen, but Allen can make more pizzas
per day than John. Therefore,
A) John cannot benefit from trade with Allen.
B) Allen cannot benefit from trade with John.
C) John has a comparative advantage in pizza.
D) John has an absolute advantage in pizza.
E) Allen has a comparative advantage in pizza.
Skill: Level 2: Using definitions
Section: Checkpoint 3.4
Author: SB
AACSB: Reflective thinking
12) Alice and Gene work in the mailroom, sorting and delivering mail. In order for them to
benefit from specialization and trade, Alice must
A) be able to both sort and deliver faster than Gene.
B) be equally productive in both sorting and delivering.
C) have a comparative advantage in both sorting and delivering.
D) have a comparative advantage in one task and Gene must have a comparative advantage in
the other task.
E) be equally productive as Gene in both sorting and delivering.
Skill: Level 2: Using definitions
Section: Checkpoint 3.4
Author: SB
AACSB: Reflective thinking
13) 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) an absolute advantage.
B) a comparative advantage.
C) specialization.
D) production possibilities.
E) a trade off.
Skill: Level 1: Definition
Section: Checkpoint 3.4
Author: SA
AACSB: Reflective thinking
62
Copyright © 2011 Pearson Education, Inc.
14) For country Gamma the opportunity cost for producing 1 computer is 10 tons of steel. For
country Beta the opportunity cost for producing 1 computer is 6 tons 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.
Skill: Level 2: Using definitions
Section: Checkpoint 3.4
Author: MR
AACSB: Analytical reasoning
15) For country North, the opportunity cost incurred when 3 tractors are produced is 21 watches.
For country South, the opportunity cost incurred when 5 tractors are produced is 100 watches.
Which country has the comparative advantage in the production of tractors?
A) North
B) South
C) Both have the comparative advantage in the production of tractors.
D) Neither country has the comparative advantage in the production of tractors.
E) More information is needed about which country has the comparative advantage in the
production of watches.
Skill: Level 2: Using definitions
Section: Checkpoint 3.4
Author: MR
AACSB: Analytical reasoning
16) 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 has a comparative advantage over Country B in the production of planes.
B) Country B has a comparative advantage over Country A in the production of planes.
C) the two countries have no incentive to trade with one another.
D) Country A would like to trade with B, but B cannot gain by trading with A.
E) Country A has an absolute advantage in producing planes and a comparative advantage in
producing boats.
Skill: Level 3: Using models
Section: Checkpoint 3.4
Author: MR
AACSB: Analytical reasoning
63
Copyright © 2011 Pearson Education, Inc.
17) David takes 10 minutes to process a customer, and 20 minutes to stock the shelves. Danny
takes 15 minutes to process a customer, and 15 minutes to stock the shelves. Which of the
following statements is true?
A) David has an absolute advantage in performing both tasks.
B) Danny has an absolute advantage in performing both tasks.
C) David has a comparative advantage in processing customers but not in stocking shelves.
D) Danny has a comparative advantage in processing customers but not in stocking shelves.
E) Danny has a comparative advantage in processing customers and in stocking shelves.
Skill: Level 3: Using models
Section: Checkpoint 3.4
Author: PH
AACSB: Analytical reasoning
18) 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 specialize in jackets?
A) Rika
B) Jeff
C) neither
D) both
E) More information is needed about their production possibilities frontiers to determine who
should specialize in jackets.
Skill: Level 3: Using models
Section: Checkpoint 3.4
Author: SB
AACSB: Analytical reasoning
64
Copyright © 2011 Pearson Education, Inc.
19) In the table above, Jack's opportunity cost for 1 pound of food is ________ and his
opportunity cost for 1 pound of clothing is ________.
A) 1 pound of clothing; 4 pounds of food
B) 1/2 of a pound of clothing; 2 pounds of food
C) 1/3 of a pound of clothing; 3 pounds of food
D) 2 pounds of clothing; 2 pounds of food
E) 1 pound of food; 1 pound of clothing
Skill: Level 4: Applying models
Section: Checkpoint 3.4
Author: PH
AACSB: Analytical reasoning
20) In the table above, Jill's opportunity cost for 1 pound of food is ________ and her
opportunity cost for 1 pound of clothing is ________.
A) 1 pound of clothing; 4 pounds of food
B) 1/2 of a pound of clothing; 2 pounds of food
C) 1/3 of a pound of clothing; 3 pounds of food
D) 2 pounds of clothing; 2 pounds of food
E) 1 pound of food; 1 pound of clothing
Skill: Level 4: Applying models
Section: Checkpoint 3.4
Author: PH
AACSB: Analytical reasoning
65
Copyright © 2011 Pearson Education, Inc.
21) In the table above, Jack's comparative advantage is producing ________ and Jill's
comparative advantage is producing ________.
A) clothing; food
B) clothing and food; nothing
C) nothing; clothing and food
D) food; clothing
E) clothing; clothing
Skill: Level 4: Applying models
Section: Checkpoint 3.4
Author: PH
AACSB: Analytical reasoning
22) Deb and Pete have volunteered to help their favorite charity mail out fundraiser information.
The figure above shows their production possibilities frontiers for assembling packets and
stuffing envelopes. If Deb spends all her time assembling packets, how many can she assemble?
A) 32
B) 40
C) 64
D) 160
E) 22
Skill: Level 3: Using models
Section: Checkpoint 3.4
Author: SB
AACSB: Analytical reasoning
66
Copyright © 2011 Pearson Education, Inc.
23) Deb and Pete have volunteered to help their favorite charity mail out fundraiser information.
The figure above shows their production possibilities frontiers for assembling packets and
stuffing envelopes. What is Deb's opportunity cost of assembling 1 packet?
A) 160 envelopes
B) 40 envelopes
C) 4 envelopes
D) 1/4 of an envelope
E) 4 packets
Skill: Level 3: Using models
Section: Checkpoint 3.4
Author: SB
AACSB: Analytical reasoning
24) Deb and Pete have volunteered to help their favorite charity mail out fundraiser information.
The figure above shows their production possibilities frontiers for assembling packets and
stuffing envelopes. Which of the following statements is correct?
A) Deb has a comparative advantage in assembling packets.
B) Pete has an absolute advantage in both assembling packets and stuffing envelopes.
C) Deb has a comparative advantage in stuffing envelopes.
D) Deb has an absolute advantage in both assembling packets and stuffing envelopes.
E) Deb has a comparative advantage in both assembling packets and stuffing envelopes.
Skill: Level 3: Using models
Section: Checkpoint 3.4
Author: MR
AACSB: Analytical reasoning
25) Deb and Pete have volunteered to help their favorite charity mail out fundraiser information.
The figure above shows their production possibilities frontiers for assembling packets and
stuffing envelopes. If Deb and Pete specialize and trade, how many packets will be assembled?
A) 40
B) more than 40 and less than 80
C) 80
D) 160
E) more than 80 and less than 160
Skill: Level 3: Using models
Section: Checkpoint 3.4
Author: SB
AACSB: Analytical reasoning
67
Copyright © 2011 Pearson Education, Inc.
26) Gabriel operates a ranch in Idaho where he raises cattle and grows potatoes. The figure
above illustrates his production possibilities frontier. What is Gabriel's opportunity cost of
growing another ton of potatoes?
A) 400 cows
B) 80 cows
C) 100 cows
D) 0 cows
E) 1 ton of potatoes
Skill: Level 3: Using models
Section: Checkpoint 3.4
Author: JC
AACSB: Analytical reasoning
68
Copyright © 2011 Pearson Education, Inc.
27) Gabriel operates a ranch in Idaho where he raises cattle and grows potatoes. The figure
above illustrates his production possibilities frontier. What is Gabriel's opportunity cost of
raising another 100 cows?
A) 1.25 tons of potatoes
B) 5.0 tons of potatoes
C) 3.0 tons of potatoes
D) 1.0 ton of potatoes
E) 100 cows
Skill: Level 3: Using models
Section: Checkpoint 3.4
Author: JC
AACSB: Analytical reasoning
69
Copyright © 2011 Pearson Education, Inc.
28) In the above figure, Jack's opportunity cost of producing 1 gallon of soda is ________ of
bottled water.
A) 1 gallon
B) 1/2 of a gallon
C) 6 gallons
D) 1/4 of a gallon
E) 2 gallons
Skill: Level 3: Using models
Section: Checkpoint 3.4
Author: CD
AACSB: Analytical reasoning
29) In the above figure, Jack's opportunity cost of producing 1 gallon of bottled water is
________ of soda.
A) 2 gallons
B) 1/2 of a gallon
C) 6 gallons
D) 1/4 of a gallon
E) 1 gallon
Skill: Level 3: Using models
Section: Checkpoint 3.4
Author: CD
AACSB: Analytical reasoning
70
Copyright © 2011 Pearson Education, Inc.
30) In the above figure, Jill's opportunity cost of producing 1 gallon of soda is ________ of
bottled water.
A) 2 gallons
B) 1/2 of a gallon
C) 4 gallons
D) 1 gallon
E) 1/4 of a gallon
Skill: Level 3: Using models
Section: Checkpoint 3.4
Author: CD
AACSB: Analytical reasoning
31) In the above figure, Jill's opportunity cost of producing 1 gallon of bottled water is ________
of soda.
A) 2 gallons
B) 1/2 of a gallon
C) 4 gallons
D) 1 gallon
E) 1/4 of a gallon
Skill: Level 3: Using models
Section: Checkpoint 3.4
Author: CD
AACSB: Analytical reasoning
32) Using the figure above, if Jack and Jill specialize and gain from trade, then
A) Jack produces equal amounts of gallons of water and bottled water.
B) Jack specializes in the production of bottled water.
C) Jack and Jill produce beyond their PPF.
D) Jack specializes in the production of soda.
E) Jack specializes on the production of soda and water.
Skill: Level 3: Using models
Section: Checkpoint 3.4
Author: CD
AACSB: Analytical reasoning
71
Copyright © 2011 Pearson Education, Inc.
33) The figure above shows the production possibilities frontiers for the United Kingdom and
France. What is the opportunity cost of one bushel of wheat in France?
A) 1/4 of a pound of fish
B) 4 pounds of fish
C) 1 pound of fish
D) 100 pounds of fish
E) 2 pounds of fish
Skill: Level 3: Using models
Section: Checkpoint 3.4
Author: JC
AACSB: Analytical reasoning
34) The figure above shows the production possibilities frontiers for the United Kingdom and
France. What is the opportunity cost of one bushel of wheat for the United Kingdom?
A) 1/4 of a pound of fish
B) 1/2 of a pound of fish
C) 1 pound of fish
D) 200 pounds of fish
E) 2 pounds of fish
Skill: Level 3: Using models
Section: Checkpoint 3.4
Author: JC
AACSB: Analytical reasoning
72
Copyright © 2011 Pearson Education, Inc.
35) The figure above shows the production possibilities frontiers for the United Kingdom and
France. If the United Kingdom and France specialize and engage in trade, the United Kingdom
will produce ________ and France will produce ________.
A) wheat; wheat
B) wheat; fish
C) fish; wheat
D) fish; fish
E) both wheat and fish; both wheat and fish
Skill: Level 3: Using models
Section: Checkpoint 3.4
Author: JC
AACSB: Analytical reasoning
36) The figure above shows the production possibilities frontiers for the United Kingdom and
France. If the United Kingdom and France specialize and engage in trade, the United Kingdom
will export ________ and France will export ________.
A) wheat; wheat
B) wheat; fish
C) fish; wheat
D) fish; fish
E) nothing; nothing
Skill: Level 3: Using models
Section: Checkpoint 3.4
Author: MR
AACSB: Analytical reasoning
37) What is gained when people engage in specialization and trade?
A) Specialization and trade allow people to consume outside their individual production
possibilities frontiers.
B) Specialization and trade allow people to consume inside their production possibilities
frontiers.
C) Specialization and trade allow people to consume at a point on their production possibilities
frontiers.
D) Specialization and trade allow people to produce outside their individual production
possibilities frontiers.
E) There are no gains from specialization and trade.
Skill: Level 2: Using definitions
Section: Checkpoint 3.4
Author: PH
AACSB: Reflective thinking
73
Copyright © 2011 Pearson Education, Inc.
38) Gains from trade
A) occur when one party to the trade has an absolute advantage in both goods.
B) result in being able to consume beyond the trading individuals' production possibilities
frontiers.
C) occur when people do not specialize.
D) occur when opportunity costs are equal.
E) always benefit one party but not the other party of any trade.
Skill: Level 3: Using models
Section: Checkpoint 3.4
Author: SB
AACSB: Reflective thinking
39) To achieve gains from trade, a country
A) needs to have an absolute advantage in the production of all goods.
B) specializes in the producing a good in which it has a lower opportunity cost.
C) must produce at a point beyond its PPF.
D) should produce at the midpoint of its PPF.
E) needs to have an absolute advantage in the production of at least one good.
Skill: Level 2: Using definitions
Section: Checkpoint 3.4
Author: CD
AACSB: Reflective thinking
40) Specialization and trade
A) does not benefit anyone.
B) allows nations to produce inside their individual production possibilities frontier.
C) allows nations to consume combinations of products that are outside their individual
production possibilities frontier.
D) shifts the production possibilities frontier inward.
E) shifts the production possibilities frontier outward.
Skill: Level 2: Using definitions
Section: Checkpoint 3.4
Author: SA
AACSB: Reflective thinking
74
Copyright © 2011 Pearson Education, Inc.
41) The United States is one of the richest nations in the world,
A) so does not need to trade with poor nations in order to achieve any gains from trade.
B) so might not have a comparative advantage in producing any goods.
C) but it can still benefit from specialization and trade.
D) so it must have a comparative advantage in the production of all goods.
E) so it must have an absolute advantage in the production of all goods.
Skill: Level 4: Applying models
Section: Checkpoint 3.4
Author: SA
AACSB: Reflective thinking
42) Specialization 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 production possibilities frontier.
C) on its production possibilities frontier.
D) on its trading partner's production possibilities frontier.
E) inside its trading partner's production possibilities frontier.
Skill: Level 2: Using definitions
Section: Checkpoint 3.4
Author: MR
AACSB: Reflective thinking
43) By specializing and trading, a country is able to
A) obtain the absolute advantage in the goods it produces.
B) consume but not to produce combinations of goods that lie beyond its production possibilities
frontier.
C) produce but not to consume combinations of goods that lie beyond its production possibilities
frontier.
D) both produce and consume combinations of goods that lie beyond its production possibilities
frontier.
E) neither produce nor consume combinations of goods that lie beyond its production
possibilities frontier.
Skill: Level 3: Using models
Section: Checkpoint 3.4
Author: TS
AACSB: Reflective thinking
75
Copyright © 2011 Pearson Education, Inc.
44) With no international trade, a country ________ consume at a point outside of its PPF; with
international trade, a country ________ consume at a point outside of its PPF.
A) cannot; can
B) can; cannot
C) can; can
D) cannot; cannot
E) None of the above answers are correct because the presence or absence of international trade
has nothing to do with where a country consumes in comparison to its PPF.
Skill: Level 3: Using models
Section: Checkpoint 3.4
Author: NAU
AACSB: Reflective thinking
45) In terms of a nation's production possibilities frontier, what impact does international trade
have?
A) International trade shifts the nation's production possibilities frontier outward.
B) International trade shifts the nation's production possibilities frontier inward.
C) International trade allows the nation to consume at a point outside its production possibilities
frontier.
D) International trade shifts the production possibilities frontier outward for the goods that are
exported and inward for the goods that are imported.
E) International trade shifts the production possibilities frontier outward for the goods that are
imported and inward for the goods that are exported.
Skill: Level 3: Using models
Section: Checkpoint 3.4
Author: TS
AACSB: Reflective thinking
46) If a nation has an absolute advantage in producing a good, then it
A) will have a comparative advantage in producing that good.
B) will have no need to trade with other nations.
C) will always specialize in that good.
D) might or might not have a comparative advantage in producing that good.
E) will not have a comparative advantage in producing that good.
Skill: Level 3: Using models
Section: Checkpoint 3.4
Author: SA
AACSB: Reflective thinking
76
Copyright © 2011 Pearson Education, Inc.
47) If Wendy can produce more of all goods than Tommy, then
A) Wendy has an absolute advantage in all goods.
B) Wendy does not need to trade with Tommy in order to achieve the gains from trade.
C) Wendy has a comparative advantage in all goods.
D) Tommy has an absolute advantage in all goods.
E) Only Tommy but not Wendy can benefit from trade between the two of them.
Skill: Level 1: Definition
Section: Checkpoint 3.4
Author: SA
AACSB: Reflective thinking
48) Mac can bake more cookies than Monica per hour. It must be true that
A) Monica has an absolute advantage in cookie baking.
B) Mac has an absolute advantage in baking cookies.
C) Mac has a comparative advantage in baking cookies.
D) Monica has a comparative advantage in baking cookies.
E) Mac cannot benefit by trade between the two of them.
Skill: Level 3: Using models
Section: Checkpoint 3.4
Author: PH
AACSB: Reflective thinking
49) If Toni has an absolute advantage in both sewing and ironing when compared to Tom, then
A) they might benefit from trading, but we need more information to determine in which task
they should specialize.
B) neither Toni nor Tom can benefit from trading with each other.
C) Toni should specialize in sewing and Tom should specialize in ironing.
D) Toni cannot benefit from trading with Tom but Tom can benefit from trading with Toni.
E) Tom cannot benefit from trading with Toni but Toni can benefit from trading with Tom.
Skill: Level 3: Using models
Section: Checkpoint 3.4
Author: PH
AACSB: Reflective thinking
77
Copyright © 2011 Pearson Education, Inc.
50) Having an absolute advantage
A) is the basis for specialization and trade.
B) means having a higher opportunity cost than the trading partner.
C) means having a lower opportunity cost than the trading partner.
D) means being able to produce more of each product than the trading partner.
E) means having a comparative advantage in production of the same goods.
Skill: Level 1: Definition
Section: Checkpoint 3.4
Author: SBJ
AACSB: Reflective thinking
51) If a country has
A) an absolute advantage in producing a good, it definitely also has a comparative advantage in
producing that good.
B) an absolute advantage in producing a good, it might or might not have a comparative
advantage in producing that good.
C) a comparative advantage in production of a good, it must also have an absolute advantage in
producing that good.
D) an absolute advantage in producing a good, it definitely will not have a comparative
advantage in producing that good.
E) None of the above answers is correct.
Skill: Level 2: Using definitions
Section: Checkpoint 3.4
Author: CD
AACSB: Reflective thinking
52) When Mik has an absolute advantage in the production of two goods over Tommy, Mik
A) is less productive than Tommy.
B) is better off if he does not engage in specialization and trade with Tommy.
C) is more productive in producing both goods than Tommy.
D) always has a comparative advantage over Tommy in the production of both goods.
E) cannot gain from trade with Tommy.
Skill: Level 1: Definition
Section: Checkpoint 3.4
Author: PH
AACSB: Reflective thinking
78
Copyright © 2011 Pearson Education, Inc.
53) 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) Mary in producing both goods
B) John in producing both goods
C) Mary in producing chairs, John in producing lamps
D) John in producing chairs, Mary in producing lamps
E) Both Mary and John in both goods
Skill: Level 2: Using definitions
Section: Checkpoint 3.4
Author: TS
AACSB: Analytical reasoning
54) Huey and Steve can grow potatoes or tomatoes. The table above shows the pounds of
potatoes and tomatoes Huey and Steve can grow in a week. Based on the table, Huey's
opportunity cost of producing one pound of tomatoes is
A) 1.5 pounds of potatoes.
B) 0.66 pound of potatoes.
C) 0, because he has an absolute advantage in it.
D) 0, because he has a comparative advantage in it.
E) 1.0 pound of potatoes.
Skill: Level 3: Using models
Section: Checkpoint 3.4
Author: SA
AACSB: Analytical reasoning
79
Copyright © 2011 Pearson Education, Inc.
55) Huey and Steve can grow potatoes or tomatoes. The table above shows the pounds of
potatoes and tomatoes Huey and Steve can grow in a week. Based on the table, Steve has a
comparative advantage in
A) both potatoes and tomatoes.
B) neither potatoes nor tomatoes.
C) potatoes.
D) tomatoes.
E) More information is needed about Huey's comparative advantage in order to determine Steve's
comparative advantage.
Skill: Level 3: Using models
Section: Checkpoint 3.4
Author: SA
AACSB: Analytical reasoning
56) Huey and Steve can grow potatoes or tomatoes. The table above shows the pounds of
potatoes and tomatoes Huey and Steve can grow in a week. Based on the table, which of the
following statements is correct?
A) Steve has an absolute advantage in both potatoes and tomatoes.
B) Steve has a comparative advantage in both potatoes and tomatoes.
C) Steve has an absolute advantage in potatoes only.
D) Huey has an absolute advantage in potatoes only.
E) Huey has an absolute advantage in both potatoes and tomatoes.
Skill: Level 3: Using models
Section: Checkpoint 3.4
Author: SA
AACSB: Analytical reasoning
57) "Comparative advantage" is defined as a situation in which one person can produce
A) more of all goods than another person.
B) more of a good than another person.
C) a good for a lower dollar cost than another person.
D) a good for a lower opportunity cost than another person.
E) all goods for lower opportunity costs than another person.
Skill: Level 1: Definition
Section: Checkpoint 3.4
Author: STUDY GUIDE
AACSB: Reflective thinking
80
Copyright © 2011 Pearson Education, Inc.
58) 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) 1/2 of a pizza.
B) 1 pizza.
C) 2 pizzas.
D) 20 pizzas.
E) 2 tacos.
Skill: Level 2: Using definitions
Section: Checkpoint 3.4
Author: STUDY GUIDE
AACSB: Analytical reasoning
59) 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. Cindy's opportunity cost of
producing 1 taco is
A) 3/4 of a pizza.
B) 1 pizza.
C) 30 pizzas.
D) 40 pizzas.
E) 1 1/3 of a taco.
Skill: Level 2: Using definitions
Section: Checkpoint 3.4
Author: STUDY GUIDE
AACSB: Analytical reasoning
60) 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 at producing tacos.
B) Scott has a comparative advantage at producing tacos.
C) Cindy and Scott have the same comparative advantage in producing tacos.
D) neither Cindy nor Scott has a comparative advantage in producing tacos.
E) Cindy and Scott have the same comparative advantage in producing pizzas.
Skill: Level 3: Using models
Section: Checkpoint 3.4
Author: STUDY GUIDE
AACSB: Analytical reasoning
81
Copyright © 2011 Pearson Education, Inc.
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 a comparative advantage in producing bread.
B) John has a comparative advantage in producing cakes.
C) Phyllis has an absolute advantage in both goods.
D) John has an absolute advantage in both goods.
E) Phyllis has a comparative advantage in producing both cakes and bread.
Skill: Level 3: Using models
Section: Checkpoint 3.4
Author: STUDY GUIDE
AACSB: Analytical reasoning
62) In one hour John can produce 20 loaves of bread or 16 cakes. In one hour Phyllis can
produce 30 loaves of bread or 15 cakes. Which of the following statements is true?
A) Phyllis has a comparative advantage in producing bread.
B) John has a comparative advantage in producing cakes.
C) Phyllis has an absolute advantage in both goods.
D) John has an absolute advantage in both goods.
E) Phyllis has a comparative advantage in producing both cakes and bread.
Skill: Level 3: Using models
Section: Checkpoint 3.4
Author: STUDY GUIDE
AACSB: Analytical reasoning
82
Copyright © 2011 Pearson Education, Inc.
3.5 Chapter Figures
1) The figure above shows a production possibilities frontier. In the figure, which of the
following combinations of the two goods cannot be produced with the current resources and
technology?
A) 2 million cell phones and 13 million DVDs
B) 4 million cell phones and 4 million DVDs
C) 1 million cell phones and 14 million DVDs
D) 3 million cell phones and 5 million DVDs
E) 5 million cell phones and no DVDs
Skill: Level 3: Using models
Section: Checkpoint 3.1
Author: SH
AACSB: Analytical reasoning
83
Copyright © 2011 Pearson Education, Inc.
2) The figure above shows a production possibilities frontier. In the figure, which of the
following combinations of the two goods are efficient?
A) 2 million cell phones and 13 million DVDs
B) 5 million cell phones and 15 million DVDs
C) No cell phones and 15 million DVDs
D) 4 million cell phones and 4 million DVDs
E) None of these combinations is efficient.
Skill: Level 3: Using models
Section: Checkpoint 3.1
Author: SH
AACSB: Analytical reasoning
3) The figure above shows a production possibilities frontier. In the figure, the economy faces a
tradeoff when ________ cell phones and ________ DVDs. are produced.
A) 3 million; 9 million
B) 2 million; 9 million
C) 3 million; 8 million
D) 4.5 million; no
E) 5 million; 15 million
Skill: Level 3: Using models
Section: Checkpoint 3.1
Author: SH
AACSB: Analytical reasoning
4) The figure above shows a production possibilities frontier. In the figure, when the economy
moves from point E to point D, what is the opportunity cost of a DVD?
A) 0.25 cell phones
B) 0.5 cell phones
C) 1 cell phone
D) 4 cell phones
E) zero
Skill: Level 3: Using models
Section: Checkpoint 3.2
Author: SH
AACSB: Analytical reasoning
84
Copyright © 2011 Pearson Education, Inc.
5) The figure above shows a production possibilities frontier. In the figure, when the economy
moves from point D to point C, the opportunity cost of producing one more DVD ________, and
when it moves from point C to D, the opportunity cost of producing one more cell phone
________.
A) increases; increases
B) increases; decreases
C) decreases; decreases
D) decreases; increases
E) increases; remains the same
Skill: Level 3: Using models
Section: Checkpoint 3.2
Author: SH
AACSB: Analytical reasoning
6) The figure above shows a production possibilities frontier. In the figure, when the economy
moves from point C to point B, what is the opportunity cost of a DVD?
A) 0.5 cell phones.
B) 2 cell phones.
C) 0.5 million cell phones.
D) 2 million cell phones.
E) zero.
Skill: Level 3: Using models
Section: Checkpoint 3.2
Author: SH
AACSB: Analytical reasoning
85
Copyright © 2011 Pearson Education, Inc.
7) The figure above shows how the PPF for cell phones and new cell-phone factories can
expand. In the figure, if the economy produced 4 million cell phones using the resources
efficiently, the PPF would
A) expand, but not as far as shown in the figure.
B) not expand.
C) expand farther than shown in the figure.
D) expand along the vertical axis and not along the horizontal axis.
E) expand evenly along both axes.
Skill: Level 3: Using models
Section: Checkpoint 3.3
Author: SH
AACSB: Analytical reasoning
86
Copyright © 2011 Pearson Education, Inc.
8) The figure above shows how the PPF for cell phones and new cell-phone factories can
expand. In the figure, if the economy chose the point on this year's PPF that is above point K,
the next year's PPF would
A) shift outward along the horizontal axis farther than the new PPF shown in the figure.
B) shift outward along the horizontal axis, but not as far as the new PPF shown in the figure.
C) shift outward along the vertical axis, not along the horizontal axis.
D) shift inward along the horizontal axis.
E) shift inward along the vertical axis.
Skill: Level 3: Using models
Section: Checkpoint 3.3
Author: SH
AACSB: Analytical reasoning
9) The figure above shows how the PPF for cell phones and new cell-phone factories can
expand. In the figure, if the economy chose the point on this year's PPF that is below point K,
the next year's PPF would
A) shift outward along the horizontal axis farther than the new PPF shown in the figure.
B) shift outward along the horizontal axis, but not as far as the new PPF shown in the figure.
C) shift outward along the vertical axis, not along the horizontal axis.
D) shift inward along the horizontal axis.
E) shift inward along the vertical axis.
Skill: Level 3: Using models
Section: Checkpoint 3.3
Author: SH
AACSB: Analytical reasoning
87
Copyright © 2011 Pearson Education, Inc.
The figure above show Liz's and Joe's production possibilities for Salads and Smoothies.
10) Liz has a comparative advantage in ________ and an absolute advantage in ________.
A) smoothies only; both goods
B) smoothies only; smoothies only
C) both goods; both goods
D) salads only; both goods
E) salads only; salads only
Skill: Level 3: Using models
Section: Checkpoint 3.4
Author: SH
AACSB: Analytical reasoning
88
Copyright © 2011 Pearson Education, Inc.
11) Liz has a comparative advantage in ________ because ________.
A) smoothies; her opportunity cost of producing smoothies is lower than Joe's
B) salads; her opportunity cost of producing salads is lower than Joe's
C) smoothies; she can produce more smoothies per hour than Joe can
D) salads; she can produce more salads per hour than Joe can
E) both goods; she can produce more of both goods per hour than Joe can
Skill: Level 3: Using models
Section: Checkpoint 3.4
Author: SH
AACSB: Analytical reasoning
12) Given the information in the figure above, Liz ________ benefit from trade with Joe because
________.
A) can; each of them has a comparative advantage in one of the goods
B) can; each of them has an absolute advantage in one of the goods
C) cannot; she has an absolute advantage in both goods
D) cannot; she has a comparative advantage in both goods
E) can; Joe is more productive in producing one of the goods
Skill: Level 3: Using models
Section: Checkpoint 3.4
Author: SH
AACSB: Analytical reasoning
13) Given the information in the figure above, Joe can benefit from trade as far as the price at
which he buys Liz's smoothies is
A) below 5 salads per smoothie.
B) not higher than 2 salads per smoothie.
C) not lower than 2 salads per smoothie.
D) not lower than 1 salad per smoothie.
E) not higher than 4 salads per smoothie.
Skill: Level 3: Using models
Section: Checkpoint 3.4
Author: SH
AACSB: Analytical reasoning
89
Copyright © 2011 Pearson Education, Inc.
14) Using the figure above, suppose with no trade Liz and Joe each produce at point A on their
respective PPFs. Then, Liz suggests that they specialize and trade. She would produces only
smoothies and Joe would produce only salads. Then she would sell 10 smoothies to Joe at a
price of 2.5 salads per smoothie. In this scenario,
A) Liz gains 10 smoothies and 5 salads, and Joe gains 5 smoothies.
B) Liz gains 5 smoothies, and Joe gains 10 smoothies.
C) Liz gains 10 smoothies, and Joe loses 5 smoothies.
D) Liz gains 5 smoothies and 5 salads, and Joe loses 5 salads.
E) None of the individuals gain from trade.
Skill: Level 3: Using models
Section: Checkpoint 3.4
Author: SH
AACSB: Analytical reasoning
15) Using the figure above, suppose with no trade Liz and Joe each produce at point A on their
respective PPFs. Then, Joe suggests that they specialize and trade. He would produces only
salads and Liz would produce only smoothies. Then, Joe says, he would buy 16 smoothies from
Liz at a price of 1.5 salads per smoothie. Liz should
A) accept Joe's offer since she will gain 4 smoothies and 4 salads.
B) accept Joe's offer as she will be as well off as with no trade.
C) not accept Joe's offer as the price he offers is too low for her to gain from trade.
D) not accept Joe's offer since she would lose 2 smoothies and 2 salads.
E) accept Joe's offer since she will gain 4 salads.
Skill: Level 3: Using models
Section: Checkpoint 3.4
Author: SH
AACSB: Analytical reasoning
3.6 Integrative Questions
1) As technology advances,
A) all opportunity costs decrease.
B) the PPF shifts outward.
C) a country moves toward the midpoint along its PPF and can produce more of both goods.
D) all opportunity costs increase.
E) the PPF shifts inward because unemployment occurs.
Skill: Level 3: Using models
Section: Integrative
Author: CD
AACSB: Analytical reasoning
90
Copyright © 2011 Pearson Education, Inc.
2) If a country is operating at a point of production efficiency,
A) it enjoys a free lunch when increasing production.
B) it produces on its production possibilities frontier.
C) it must specialize in the production of a good.
D) it operates on its trade line.
E) it cannot be producing at its point of comparative advantage.
Skill: Level 2: Using definitions
Section: Integrative
Author: CD
AACSB: Reflective thinking
3) Relative to Al, Joe has ________ if Joe can produce a good at a lower opportunity cost than
Al.
A) a comparative advantage
B) more production efficiency
C) a comparative benefit
D) a marginal benefit
E) a free lunch
Skill: Level 3: Using models
Section: Integrative
Author: CD
AACSB: Reflective thinking
4) Suppose that after specializing according to comparative advantage, a country is trading with
another nation that also specializes according to its comparative advantage. Which of the
following statements are true for the first country?
i) It enjoys gains from trade.
ii) It must have an absolute advantage in the production of the good it produces.
iii) It is producing at a point beyond its PPF.
A) i only.
B) i and ii.
C) i and iii.
D) ii and iii.
E) i, ii, and iii.
Skill: Level 3: Using models
Section: Integrative
Author: CD
AACSB: Reflective thinking
91
Copyright © 2011 Pearson Education, Inc.
5) The table above gives the production possibilities frontier for two countries, Anaconda and
Bear. This table shows that
A) when Anaconda and Bear specialize and trade, Anaconda should specialize in the production
of shoes .
B) when Anaconda and Bear specialize and trade, Anaconda should produce at its production
point E.
C) Anaconda has an absolute advantage in the production of corn and shoes.
D) Bear can consume no more than 2 bushels of corn and 700 pairs of shoes.
E) Bear is unable to gain from trade with Anaconda.
Skill: Level 3: Using models
Section: Integrative
Author: CD
AACSB: Analytical reasoning
6) The table above gives the production possibilities frontier for two countries, Anaconda and
Bear. The table shows that
A) Bear achieves production efficiency only at its production point A.
B) Anaconda achieves production efficiency only at its production point A.
C) Anaconda has a comparative advantage in the production of corn.
D) Bear has an absolute advantage in the production of both goods.
E) Both answers A and B are correct.
Skill: Level 3: Using models
Section: Integrative
Author: CD
AACSB: Analytical reasoning
92
Copyright © 2011 Pearson Education, Inc.
7) The table above gives the production possibilities frontier for two countries, Anaconda and
Bear. The opportunity cost of moving from production point B to production point C for
Anaconda equals ________ and for Bear equals ________.
A) 1 ton of corn; 1 ton of corn
B) 650 pairs of shoes; 900 pairs of shoes
C) 550 pairs of shoes; 700 pairs of shoes
D) 100 pairs of shoes; 200 pairs of shoes
E) 50 pairs of shoes; 100 pairs of shoes
Skill: Level 3: Using models
Section: Integrative
Author: CD
AACSB: Analytical reasoning
8) The table above gives the production possibilities frontier for two countries, Anaconda and
Bear. The opportunity cost of moving from ________ is greater for ________.
A) point A to point B; Anaconda
B) point B to point A; Bear
C) point D to point E; Bear
D) point E to point D; Bear
E) any point to any other point; Bear
Skill: Level 3: Using models
Section: Integrative
Author: CD
AACSB: Analytical reasoning
93
Copyright © 2011 Pearson Education, Inc.
9) The figure above shows the PPFs for Jack and Jill. Jack's PPF
A) is also his marginal benefit curve.
B) is also his marginal cost curve.
C) shows the tradeoffs Jack faces between gallons of soda and gallons of bottled water.
D) becomes the line labeled A after Jack trades with Jill.
E) becomes non-existent after Jack trades with Jill.
Skill: Level 2: Using definitions
Section: Integrative
Author: CD
AACSB: Analytical reasoning
3.7 Essay: Production Possibilities
1) What does the vertical intercept of a production possibilities frontier represent?
Skill: Level 2: Using definitions
Section: Checkpoint 3.1
Author: SB
AACSB: Reflective thinking
94
Copyright © 2011 Pearson Education, Inc.
2) What economic concepts are represented in the production possibilities model?
Skill: Level 5: Critical thinking
Section: Checkpoint 3.1
Author: SB
AACSB: Communication
3) How can a combination of goods be unattainable?
Skill: Level 1: Definition
Section: Checkpoint 3.1
Author: SB
AACSB: Reflective thinking
4) A production point beyond the production possibilities frontier represents what?
Skill: Level 1: Definition
Section: Checkpoint 3.1
Author: TS
AACSB: Reflective thinking
95
Copyright © 2011 Pearson Education, Inc.
5) "If Mexico is currently operating at a point beyond its production possibilities frontier, then
there are unemployed or misallocated resources in Mexico." Is this statement true or false?
Briefly explain your answer.
Skill: Level 1: Definition
Section: Checkpoint 3.1
Author: MR
AACSB: Communication
6) "If Mexico is currently operating at a point inside its production possibilities frontier, then
there are unemployed or misallocated resources in Mexico." Is this statement true or false?
Briefly explain your answer.
Skill: Level 1: Definition
Section: Checkpoint 3.1
Author: JC
AACSB: Reflective thinking
7) Are all points inside the production possibilities frontier unattainable?
Skill: Level 1: Definition
Section: Checkpoint 3.1
Author: PH
AACSB: Reflective thinking
96
Copyright © 2011 Pearson Education, Inc.
8) In the movie Cast Away, Tom Hanks plays a FedEx efficiency expert stranded on a deserted
island. While on the island, he divides his time between catching fish, gathering coconuts,
painting, and building a raft. Suppose that these were Mr. Hanks' only activities. Did he face an
opportunity cost from pursuing any of these activities? Why or why not?
Skill: Level 3: Using models
Section: Checkpoint 3.1
Author: JC
AACSB: Communication
9) What does it mean when a "free lunch" is available? Relate your answer to the production
possibilities frontier.
Skill: Level 1: Definition
Section: Checkpoint 3.1
Author: SA
AACSB: Communication
10) Describe the differences between tradeoffs and free lunches in terms of a PPF.
Skill: Level 1: Definition
Section: Checkpoint 3.1
Author: CD
AACSB: Communication
97
Copyright © 2011 Pearson Education, Inc.
11) On a production possibilities frontier diagram, where are production points that have
tradeoffs? Where are production points with a free lunch?
Skill: Level 1: Definition
Section: Checkpoint 3.1
Author: TS
AACSB: Communication
12) Explain why a movement from a point inside a production possibilities frontier to the
production possibilities frontier is described as a free lunch and a movement along a production
possibilities frontier is described as a tradeoff.
Skill: Level 4: Applying models
Section: Checkpoint 3.1
Author: SB
AACSB: Communication
98
Copyright © 2011 Pearson Education, Inc.
13) Draw a production possibilities frontier between beans and peas. Label the unattainable
points, the attainable points with fully employed resources, and the attainable points with
unemployed resources.
Skill: Level 1: Definition
Section: Checkpoint 3.1
Author: MR
AACSB: Analytical reasoning
99
Copyright © 2011 Pearson Education, Inc.
14) The figure above shows a nation's production possibilities frontier for apples and oranges.
a. What combination of goods is represented by point A?
b. What combination of goods is represented by point B?
c. Which point represents an unattainable combination of goods?
d. The movement from point C to point D results in a free lunch. What is the free lunch?
Skill: Level 1: Definition
Section: Checkpoint 3.1
Author: SB
AACSB: Analytical reasoning
100
Copyright © 2011 Pearson Education, Inc.
15) Before the first Gulf War, Kuwait had the capacity to produce a certain amount of oil from
its oil wells. After the war, it found that capacity greatly diminished because the oil wells were
on fire. Draw Kuwait's PPF before and after the war, assuming that the only two goods produced
are oil and food. Further assume that setting the oil wells on fire did not affect Kuwait's ability to
produce food. Explain why the PPF before the war is different from the PPF after the war.
Skill: Level 4: Applying models
Section: Checkpoint 3.1
Author: SA
AACSB: Analytical reasoning
3.8 Essay: Opportunity Cost
1) Moving on a bowed out PPF, what happens to the opportunity cost of its production as a
nation specializes more in one product?
Skill: Level 2: Using definitions
Section: Checkpoint 3.2
Author: TS
AACSB: Reflective thinking
101
Copyright © 2011 Pearson Education, Inc.
2) Why is the production possibilities frontier bowed out?
Skill: Level 2: Using definitions
Section: Checkpoint 3.2
Author: SA
AACSB: Communication
3) Why does the production possibilities frontier have a bowed out shape rather than being a
straight line?
Skill: Level 4: Applying models
Section: Checkpoint 3.2
Author: JC
AACSB: Communication
102
Copyright © 2011 Pearson Education, Inc.
4) When economists state that the opportunity cost of a product increases as more of it is
produced, what do they mean? For instance, what is the opportunity cost? And, where in a PPF
diagram does this statement apply and where does it not apply?
Skill: Level 2: Using definitions
Section: Checkpoint 3.2
Author: PH
AACSB: Communication
5) What is the relationship between the bowed out shape of the production possibilities frontier
and the increasing opportunity cost of a good as more of it is produced?
Skill: Level 2: Using definitions
Section: Checkpoint 3.2
Author: MR
AACSB: Communication
103
Copyright © 2011 Pearson Education, Inc.
6) A (very, very small) country produces milk and shirts and its production possibilities frontier
is in the table above.
a. The nation is currently producing at point B. What is the opportunity cost of two additional
gallons of milk? At point C? At point D? What do your results show?
b. Suppose the nation is initially producing 4 gallons of milk and 40 shirts. What is the
opportunity cost of 2 additional gallons of milk? Explain your answer.
Skill: Level 3: Using models
Section: Checkpoint 3.2
Author: SA
AACSB: Analytical reasoning
104
Copyright © 2011 Pearson Education, Inc.
7) Jean can either type her term paper or create Web pages during the limited time she has
available. The table above shows her PPF.
a. Can Jean type 90 pages and create 2 Web pages?
b. Use the above numbers to calculate the opportunity cost of a typed page as she increases her
time typing and decreases time creating a Web page.
Skill: Level 3: Using models
Section: Checkpoint 3.2
Author: SA
AACSB: Analytical reasoning
105
Copyright © 2011 Pearson Education, Inc.
8) The table above gives the production possibilities frontier for a nation that produces wheat and
soybeans. Use the information in that table to complete the table below, which has in it the
opportunity costs of moving from one production point to another. Do not forget to note the units
of the opportunity costs.
Skill: Level 3: Using models
Section: Checkpoint 3.2
Author: TS
AACSB: Analytical reasoning
106
Copyright © 2011 Pearson Education, Inc.
9) The figure above represents the production possibilities frontier for a country.
a. The nation is currently producing at point B and wants to move to point C. What is the
opportunity cost of the move?
b. The nation is currently producing at point B and wants to move to point A. What is the
opportunity cost of the move?
c. The nation is currently producing at point D and wants to move to point B. What is the
opportunity cost of the move?
Skill: Level 3: Using models
Section: Checkpoint 3.2
Author: JC
AACSB: Analytical reasoning
107
Copyright © 2011 Pearson Education, Inc.
10) The table above presents the production possibilities of Farmer Brown. Use these data to
calculate Farmer Brown's opportunity cost of additional beef as Farmer Brown moves from point
A to B to C to D. Also use the data to calculate Farmer Brown's opportunity cost of additional
wheat as Farmer Brown moves from point D to C to B to A. Based on these costs, does Farmer
Brown use resources that are more productive in one activity than the other or are they equally
productive in both uses? Explain your answer.
Skill: Level 3: Using models
Section: Checkpoint 3.2
Author: SB
AACSB: Analytical reasoning
3.9 Essay: Economic Growth
1) How is economic growth shown in a production possibilities frontier graph?
Skill: Level 2: Using definitions
Section: Checkpoint 3.3
Author: TPS
AACSB: Reflective thinking
108
Copyright © 2011 Pearson Education, Inc.
2) Discuss three factors that can expand a country's production possibilities.
Skill: Level 2: Using definitions
Section: Checkpoint 3.3
Author: AA
AACSB: Reflective thinking
3.10 Essay: Specialization and Trade
1) What is comparative advantage? Give an example.
Skill: Level 1: Definition
Section: Checkpoint 3.4
Author: CD
AACSB: Communication
2) "When a person has an absolute advantage in producing a good, the person necessarily has a
lower opportunity cost of producing it." Is this assertion true or false?
Skill: Level 2: Using definitions
Section: Checkpoint 3.4
Author: PH
AACSB: Communication
109
Copyright © 2011 Pearson Education, Inc.
3) "When a person can produce more of a good or service than another person, the first person
has the comparative advantage in producing the good." Is this assertion correct or incorrect?
Explain your answer.
Skill: Level 2: Using definitions
Section: Checkpoint 3.4
Author: PH
AACSB: Communication
4) Why is it likely that the United States has an absolute advantage in goods and yet it still ends
up importing them from other countries?
Skill: Level 3: Using models
Section: Checkpoint 3.4
Author: SA
AACSB: Communication
5) The United States has an absolute advantage in producing sugar over all of the other sugar
producing countries. Does this fact mean that we should not import any sugar from the other
countries?
Skill: Level 3: Using models
Section: Checkpoint 3.4
Author: PH
AACSB: Communication
110
Copyright © 2011 Pearson Education, Inc.
6) "When countries specialize in producing the good in which they have a comparative
advantage and then trade with each other, only the country with the absolute advantage gains." Is
the previous statement correct or incorrect? Briefly explain your answer.
Skill: Level 2: Using definitions
Section: Checkpoint 3.4
Author: SB
AACSB: Communication
7) "Because the United States is the largest economy in the world and can produce anything it
needs domestically, there are no gains from trade for the United States." Is the previous
statement correct or incorrect?
Skill: Level 2: Using definitions
Section: Checkpoint 3.4
Author: AA
AACSB: Reflective thinking
8) How can a nation that is at an absolute disadvantage gain from trade?
Skill: Level 4: Applying models
Section: Checkpoint 3.4
Author: AA
AACSB: Communication
111
Copyright © 2011 Pearson Education, Inc.
9) Why do nations engage in international trade?
Skill: Level 3: Using models
Section: Checkpoint 3.4
Author: SB
AACSB: Communication
10) Explain why specialization and trade increases a country's overall level of consumption.
Skill: Level 3: Using models
Section: Checkpoint 3.4
Author: CT
AACSB: Analytical reasoning
11) Japan can use all of its resources to produce 100 videos or 400 shoes. China can use all of its
resources to produce 25 videos or 200 shoes. Which nation has the comparative advantage in
shoes and which nation has the comparative advantage in videos?
Skill: Level 3: Using models
Section: Checkpoint 3.4
Author: NAU
AACSB: Analytical reasoning
112
Copyright © 2011 Pearson Education, Inc.
12) The United States can use all of its resources to produce 50 computers or 4,000 shoes.
Suppose that at world market prices, one computer exchanges for 100 shoes. Explain how the
United States can gain from trade.
Skill: Level 4: Applying models
Section: Checkpoint 3.4
Author: NAU
AACSB: Analytical reasoning
13) The table above shows the amounts of cloth and cheese that China and Pakistan can produce
in an hour. Which country has the comparative advantage in cloth and which country has the
comparative advantage in cheese?
Skill: Level 3: Using models
Section: Checkpoint 3.4
Author: SA
AACSB: Analytical reasoning
113
Copyright © 2011 Pearson Education, Inc.
14) Omar and John can fix computers or write computer programs. The table above shows the
number of computers they can fix and the lines of code they can write in a day.
a. Who, if anyone, has the absolute advantage?
b. Who has the comparative advantage in fixing computers? Why?
c. Who has the comparative advantage in writing programs? Why?
Skill: Level 3: Using models
Section: Checkpoint 3.4
Author: SA
AACSB: Analytical reasoning
114
Copyright © 2011 Pearson Education, Inc.
15) Two nations can produce computers and software in the amounts given in the table above.
Does either nation have an absolute advantage in producing the products? Which nation has a
comparative advantage in computers? Which nation has a comparative advantage in software?
Explain your answers.
Skill: Level 3: Using models
Section: Checkpoint 3.4
Author: TS
AACSB: Analytical reasoning
115
Copyright © 2011 Pearson Education, Inc.
16) The figure above shows Prakash's and Gail's production possibilities frontiers for writing
books and magazine articles.
a. What is Prakash's opportunity cost of a book? What is Gail's opportunity cost? Who has the
comparative advantage in writing books?
b. Who has the comparative advantage in writing magazine articles?
c. According to their comparative advantages, who should write books and who should write
magazine articles?
Skill: Level 3: Using models
Section: Checkpoint 3.4
Author: MR
AACSB: Analytical reasoning
