9) What is the opportunity cost of economic growth?
A) current period consumption goods
B) current period capital goods
C) land
D) both current period consumption and capital goods
E) both current period capital goods and land
Skill: Level 2: Using deinitions
Section: Checkpoint 3.3
Status: Old
AACSB: Relective thinking
10) The above igure 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
Status: Old
AACSB: Analytical thinking
51
11) The above igure 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 diference among the three points because they are all production eicient.
E) More information is needed to answer the question.
Skill: Level 3: Using models
Section: Checkpoint 3.3
Status: Old
AACSB: Analytical thinking
12) Suppose Puerto Rico and Hawaii currently have the same production possibilities so
that the above igure 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
Status: Old
AACSB: Analytical thinking
52
13) Suppose Puerto Rico and Hawaii currently have the same production possibilities so
that the above igure 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 igure, 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
Status: Old
AACSB: Analytical thinking
14) Suppose India and France have the same PPF, shown in the igure 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
Status: Old
AACSB: Analytical thinking
53
15) Suppose India and France have the same PPF, shown in the igure 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
Status: Old
AACSB: Analytical thinking
16) Suppose India and France have the same PPF, shown in the igure 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
Status: Old
AACSB: Analytical thinking
54
17) Suppose that Germany, France, Estonia, and India all have the same production
possibilities, illustrated in the igure above. Based on the production points in the igure,
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
Status: Old
AACSB: Analytical thinking
18) Suppose that Germany, France, Estonia, and India all have the same production
possibilities, illustrated in the igure above. Based on the production points in the igure,
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
Status: Old
AACSB: Analytical thinking
55
19) Suppose that Germany, France, Estonia, and India all have the same production
possibilities, illustrated in the igure above. Based on the production points in the igure,
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
Status: Old
AACSB: Analytical thinking
20) Suppose that Germany, France, Estonia, and India all have the same production
possibilities, illustrated in the igure above. Based on the production points in the igure,
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
Status: Old
AACSB: Analytical thinking
21) 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 deinitions
Section: Checkpoint 3.3
Status: Old
AACSB: Relective thinking
56
22) 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
Status: Old
AACSB: Relective thinking
23) 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
Status: Old
AACSB: Relective thinking
24) 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
Status: Old
AACSB: Relective thinking
57
25) 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: Deinition
Section: Checkpoint 3.3
Status: Old
AACSB: Relective thinking
26) The opportunity cost of economic growth is ________ and the beneit 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: Deinition
Section: Checkpoint 3.3
Status: Old
AACSB: Relective thinking
3.4 Specialization and Trade
1) If Wendy can produce more of all goods than Tommy in an hour, 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 beneit from trade between the two of them.
Skill: Level 1: Deinition
Section: Checkpoint 3.4
Status: Old
AACSB: Relective thinking
58
2) 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 beneit by trade between the two of them.
Skill: Level 3: Using models
Section: Checkpoint 3.4
Status: Old
AACSB: Relective thinking
3) When Mik has an absolute advantage in the production of two goods over Tommy, Mik
A) is less productive than Tommy.
B) is better of 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: Deinition
Section: Checkpoint 3.4
Status: Old
AACSB: Relective thinking
4) 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 deinitions
Section: Checkpoint 3.4
Status: Old
AACSB: Analytical thinking
59
5) If Toni has an absolute advantage in both sewing and ironing when compared to Tom,
then
A) they might beneit from trading, but we need more information to determine in which
task they should specialize.
B) neither Toni nor Tom can beneit from trading with each other.
C) Toni should specialize in sewing, and Tom should specialize in ironing.
D) Toni cannot beneit from trading with Tom, but Tom can beneit from trading with Toni.
E) Tom cannot beneit from trading with Toni, but Toni can beneit from trading with Tom.
Skill: Level 3: Using models
Section: Checkpoint 3.4
Status: Old
AACSB: Relective thinking
6) If a country has
A) an absolute advantage in producing a good, it deinitely 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 deinitely will not have a comparative
advantage in producing that good.
E) None of the above answers is correct.
Skill: Level 2: Using deinitions
Section: Checkpoint 3.4
Status: Old
AACSB: Relective thinking
7) 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 deinitions
Section: Checkpoint 3.4
Status: Old
AACSB: Analytical thinking
60