Foundations of Macroeconomics, 7e (Bade/Parkin)
Chapter 3 The Economic Problem
3.1 Production Possibilities
1) The United States produced approximately ________ worth of goods and services in 2011.
A) $15 trillion
B) $15 billion
C) $150 trillion
D) $150 billion
E) $1,500 trillion
Skill: Level 1: Deinition
Section: Checkpoint 3.1
Status: Old
AACSB: Relective 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 ixed 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 deinitions
Section: Checkpoint 3.1
Status: Old
AACSB: Relective thinking
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 deinitions
Section: Checkpoint 3.1
Status: Old
AACSB: Relective 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.
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Skill: Level 1: Deinition
Section: Checkpoint 3.1
Status: Old
AACSB: Relective 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: Deinition
Section: Checkpoint 3.1
Status: Old
AACSB: Relective thinking
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 ineiciently.
Skill: Level 1: Deinition
Section: Checkpoint 3.1
Status: Old
AACSB: Relective thinking
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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 ineiciently.
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: Deinition
Section: Checkpoint 3.1
Status: Old
AACSB: Relective 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) afordable and unafordable combinations of production.
Skill: Level 3: Using models
Section: Checkpoint 3.1
Status: Old
AACSB: Relective thinking
9) Consider a production possibility frontier with jeans on the vertical axis and shoes on the
horizontal axis. As the country moves along the frontier closer to the horizontal axis,
A) more jeans are produced.
B) the country eventually chooses an unattainable point.
C) free lunches occur.
D) more tradeofs occur.
E) more shoes are produced.
Skill: Level 4: Applying models
Section: Checkpoint 3.1
Status: Old
AACSB: Analytical thinking
3
10) While moving along a production possibilities frontier, the amount of labor ________, the
amount of capital ________, and the level of technology ________.
A) is ixed; is ixed; varies
B) varies; is ixed; varies
C) varies; is ixed; is ixed
D) is ixed; is ixed; is ixed
E) varies; varies; varies
Skill: Level 3: Using models
Section: Checkpoint 3.1
Status: Old
AACSB: Relective thinking
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 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
Status: Old
AACSB: Analytical thinking
12) 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
Status: Old
AACSB: Analytical thinking
13) 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.
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E) changing the amount of factors of production that are employed.
Skill: Level 3: Using models
Section: Checkpoint 3.1
Status: Old
AACSB: Relective thinking
14) Assume that an association of young workers has lobbied Congress to require that all
workers retire once they reach the age of ifty. 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
Status: Old
AACSB: Analytical thinking
15) 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 tradeof 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
Status: Old
AACSB: Analytical thinking
5
16) When all of the available factors of production are being eiciently 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 ininite.
Skill: Level 2: Using deinitions
Section: Checkpoint 3.1
Status: Old
AACSB: Relective thinking
17) 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: Deinition
Section: Checkpoint 3.1
Status: Old
AACSB: Relective thinking
18) 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
Status: Old
AACSB: Relective thinking
6
19) Production eiciency 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 deinitions
Section: Checkpoint 3.1
Status: Old
AACSB: Relective thinking
20) 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 eiciency
B) minimum marginal cost
C) PPF eiciency
D) production eiciency
E) maximum marginal beneit
Skill: Level 2: Using deinitions
Section: Checkpoint 3.1
Status: Old
AACSB: Relective thinking
21) Production eiciency 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 deinitions
Section: Checkpoint 3.1
Status: Old
AACSB: Relective thinking
7
22) When production eiciency does NOT occur,
i. an economy is producing at a point within its PPF.
ii. there are unemployed resources.
iii. allocative eiciency cannot 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
Status: Old
AACSB: Relective thinking
23) 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: Deinition
Section: Checkpoint 3.1
Status: Old
AACSB: Relective thinking
24) If a society moves from a period of time with signiicant 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
Status: Old
AACSB: Analytical thinking
8
25) Suppose that an economy is currently producing at a point that lies inside of its
production possibilities set. Which of the following would best explain this circumstance?
A) The economy does not have enough resources to produce at a point closer to the frontier
of the production possibilities set.
B) The prevailing level of technology prevents the economy from producing at a point
closer to the frontier of the production possibilities set.
C) The economy is experiencing a high level of unemployment.
D) Any of the above statements could explain this situation.
E) None of the above statements could explain this situation.
Skill: Level 3: Using models
Section: Checkpoint 3.1
Status: New
AACSB: Analytical thinking
26) Which of the following statements is correct?
A) An increase in productivity moves the economy from inside the production possibilities
frontier to the frontier itself.
B) An increase in productivity shifts the economy from producing at a point on the
production possibilities frontier to a point outside the production possibilities frontier.
C) An increase in unemployment shifts the economy further inside its production
possibilities frontier.
D) An increase in unemployment shifts the economy from a point outside the production
possibilities frontier back to the production possibilities frontier.
E) A reduction in unemployment shifts the entire production possibilities frontier outward.
Skill: Level 3: Using models
Section: Checkpoint 3.1
Status: New
AACSB: Analytical thinking
27) A point on the production possibilities frontier relects 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 is correct.
Skill: Level 2: Using deinitions
Section: Checkpoint 3.1
Status: Old
AACSB: Relective thinking
9
28) Suppose a country operates on its production possibility frontier when it produces 1000
books and 1000 tables. The combination of ________ relects ________
A) 500 books and 1000 tables; an ineicient but attainable point.
B) 1000 books and 500 tables; an eicient point.
C) 1000 books and 1000 tables; a free lunch.
D) 500 books and 500 tables; an attainable and eicient point.
E) 1000 books and 1500 tables; a free lunch.
Skill: Level 3: Using models
Section: Checkpoint 3.1
Status: Old
AACSB: Analytical thinking
29) Consider a production possibility frontier with books and tables. A combination of 1000
books and 500 tables is on the frontier. Which of the following are true?
i. Production of 700 books and 400 tables is attainable but ineicient.
ii. Production of 1000 books and 600 tables is unattainable.
iii. Production of 500 books and 1000 tables is inside the frontier.
A) i and ii
B) i, ii and iii
C) i and iii
D) ii and iii
E) i only
Skill: Level 3: Using models
Section: Checkpoint 3.1
Status: Old
AACSB: Analytical thinking
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