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Economics Chapter 2 A—Some Tools of the Economist
MULTIPLE CHOICE
1. Which of the following sayings best reflects the concept of opportunity cost?
a.
"You can't teach an old dog new tricks."
b.
"Time is money."
c.
"I have a baker's dozen."
d.
"There's no business like show business."
2. If an economy is operating at a point inside the production possibilities curve,
a.
its resources are not being used efficiently.
b.
the curve will begin to shift inward.
c.
the curve will begin to shift outward.
d.
This is a trick question because an economy cannot produce at a point inside the curve.
3. The primary benefit that results when a nation employs its resources in accordance with the principle
of comparative advantage is
a.
an expansion in investment resulting from a reallocation of resources away from
consumption.
b.
a larger output resulting from a more efficient use of resources.
c.
greater equality of income resulting from an increase in the number of workers.
d.
an increase in the profitability of business enterprises resulting from an increase in
investment.
4. Suppose the price of an airline ticket from Dallas to Boston costs $600. A bus ticket costs $150.
Traveling by plane takes 6 hours compared with 51 hours by bus. Other things constant, an individual
would gain by choosing air travel if, and only if, his time were valued at more than
a.
$6 per hour.
b.
$8 per hour.
c.
$10 per hour.
d.
$15 per hour.
5. With voluntary exchange,
a.
both the buyer and seller will be made better off.
b.
the buyer will be made better off, while the seller will be made worse off.
c.
the seller will be made better off, while the buyer will be made worse off.
d.
both the buyer and the seller will be made worse off.
6. "Now that Terrance paints the broad surfaces and I do the trim work, we can paint a house in
three-fourths the time that it took for each of us to do both." This statement most clearly reflects
a.
the importance of secondary effects.
b.
the fallacy of composition.
c.
the law of comparative advantage.
d.
behavior inconsistent with economizing.
7. Which of the following will most likely occur under a system of clearly defined and enforced private
property rights?
a.
Resource owners will fail to conserve vital resources, even if they expect their supply to
be highly limited in the future.
b.
Resource owners will ignore the wishes of others, including others who would like to use
the resource that is privately owned.
c.
Resource owners will fail to consider the wishes of potential future buyers when they
decide how to employ privately owned resources.
d.
Resource owners will gain by discovering and employing their resources in ways that are
highly valued by others.
8. Three basic decisions must be made by all economies. What are they?
a.
how much will be produced, when it will be produced, and how much it will cost
b.
what the price of each good will be, who will produce each good, and who will consume
each good
c.
what will be produced, how goods will be produced, and for whom goods will be
produced
d.
how the opportunity cost principle will be applied, if and how the law of comparative
advantage will be utilized, and whether the production possibilities constraint will apply
9. If a firm or a nation desires to maximize its output, each productive assignment should be carried out
by those persons who
a.
have the highest opportunity cost.
b.
have a comparative advantage in the productive activity.
c.
can complete the productive activity most rapidly.
d.
least enjoy performing the productive activity.
10. The opportunity cost of an option
a.
measures the undesirable aspects of the option.
b.
includes only the monetary cost of the option.
c.
is the highest-valued alternative that must be given up as the result of choosing the option.
d.
is objective, and it will be the same for all individuals.
11. Opportunity cost is defined
a.
only in terms of money spent
b.
as the value of all alternatives not chosen
c.
as the value of the best alternative not chosen
d.
as the difference between the benefits from a choice and the benefits from the next best
alternative
e.
as the difference between the benefits from a choice and the costs of that choice
12. The opportunity cost of an activity
a.
depends on the individual's subjective values and opinions
b.
is the same for everyone
c.
must be calculated and known before undertaking that activity
d.
is irrelevant to decision making
e.
is not influenced by time costs
13. The opportunity cost of an action is
a.
objective and will be the same for all individuals.
b.
a measure of the undesirable aspects involved in the action.
c.
applicable only to choices involving material goods like commodities.
d.
the highest valued alternative forgone as the result of choosing an option.
14. Hutch Technology makes computer monitors, which sell for $500 each. What is the opportunity cost
of producing ten monitors?
a.
$5,000
b.
the other goods that could be produced with the resources that produce the ten monitors
c.
the profits that Hutch earns when it sells the ten monitors
d.
the profits that Hutch loses if it does not produce the monitors
e.
All of the above are correct.
15. A ticket to a concert costs $45. You have a ticket and can resell it for $75. Your opportunity cost of
actually attending the concert is
a.
$30.
b.
$45.
c.
$75.
d.
$120.
16. For most students attending state universities, the largest cost component of going to college is
a.
the cost of books and supplies.
b.
the cost of room and board.
c.
tuition.
d.
the opportunity cost in terms of forgone current income from the time spent attending
college.
17. Based on the idea of opportunity cost, which of the following students would be most likely to drop
out of college before completing their degree?
a.
a senior mathematics major with a solid B average
b.
a junior physical therapy student who has just read about the fantastic job offers available
to students with degrees in her area
c.
a star college football player in his junior year that just received a $5 million offer from a
professional team
d.
a junior economics major who wants to attend graduate school
18. The opportunity cost of building a park in your hometown would be the
a.
money cost of constructing the park.
b.
highest valued bundle of other goods and services that must be forgone because of the
park construction.
c.
necessary increase in tax revenues to finance the construction.
d.
amount of time spent in leisure activities in the park once it is constructed.
19. Recent legislation provides parents with a substantial reduction in their personal income tax liability
for each child that they have. The economic way of thinking indicates that legislation of this type will
a.
make it more costly for parents to provide for their children.
b.
reduce the value of children to their parents and, therefore, lead to a reduction in the birth
rate.
c.
reduce the after-tax cost of raising children and, therefore, increase the birth rate.
d.
exert no impact on either the cost of raising children or the birth rate since having children
is a not an economic activity.
20. Retired persons travel by bus and automobile more frequently than do business executives, who more
commonly use air travel. An economic explanation for this would be that
a.
business executives have more time to travel.
b.
it is more important for retired persons to save time.
c.
business executives value their time more highly.
d.
retired persons have more money than do business executives.
21. Statistical data provided by the U.S. Department of Transportation shows that the median income of
individuals traveling on the nation's bus systems is $18,000 compared to $65,000 for those who
normally travel by air. This finding is best explained by which of the following statements?
a.
Persons with high income are more likely to fly because the opportunity cost of their time
is generally higher than those with lesser income.
b.
Traditionally, lower income groups prefer slower methods of transportation.
c.
Wealthy individuals own stock in the airlines and, therefore, receive preferential
treatment.
d.
Low-income groups are generally located near bus stations; wealthy groups congregate
around airports.
22. The wages of house painters will tend to rise when
a.
more people recognize that house painters have very low incomes.
b.
the alternative earning opportunities of house painters improve.
c.
house painters can no longer find good paying alternatives for their labor.
d.
unemployment in the economy is high and there are few alternative jobs available for
house painters.
23. Land used to grow corn could also be used to grow soybeans. Which of the following is true when the
farmer plants soybeans and the market price of corn rises?
a.
The opportunity cost of producing soybeans decreases.
b.
The opportunity cost of producing soybeans increases.
c.
There will be no change in the opportunity cost of producing soybeans.
d.
The opportunity cost of producing corn increases.
24. Land used to grow alfalfa could also be used to grow hay. Which of the following is true when the
farmer plants hay and the market price of alfalfa rises?
a.
The opportunity cost of producing hay decreases.
b.
The opportunity cost of producing hay increases.
c.
There will be no change in the opportunity cost of producing hay.
d.
The opportunity cost of producing alfalfa increases.
25. Because of a late night out with friends, Ayana decided to sleep in rather than attend her 8 a.m.
economics class. According to economic analysis, her choice was
a.
irrational, because economic analysis suggests you should always attend classes that you
have already paid for.
b.
irrational, because oversleeping is not in Ayana’s self-interest.
c.
rational only if Ayana has not missed any other classes.
d.
rational if Ayana values sleep more highly than the benefit she expects to receive from
attending the class.
26. Which of the following activities describes the opportunity cost of attending an economics class?
a.
the value of the time it takes to get to campus every day
b.
the cost of the gasoline needed to drive a car to campus
c.
the value of the highest valued alternative that must be forgone because of attending the
class
d.
transportation costs plus the cost of tuition and textbooks for the course
27. Which of the following most accurately reflects the opportunity cost to a pharmacist who drives a taxi?
a.
the dollars spent on his previously acquired education in pharmacy
b.
the revenue derived from operating the cab
c.
zero if the pharmacist received his education on a scholarship that paid his full tuition
d.
the value of the pharmacist’s time in its highest valued use other than driving a cab
28. Which of the following would be most likely to increase your opportunity cost of attending college?
a.
a recession in the economy that made finding a job more difficult
b.
receiving a very attractive offer to start a job today that would permit you to earn about 50
percent more than you expected to make after graduation
c.
the retirement of your favorite professor under whom you hoped to study during the next
semester
d.
information indicating that salaries were declining and that there were very few openings
for college graduates in your field
29. Suppose an airline ticket from Portland to Orlando costs $760. A bus ticket costs $360. Traveling by
plane will take 6 hours, compared with 26 hours by bus. Other things constant, the minimum value of
one's time that would induce a rational individual to fly rather than drive would be
a.
$18 per hour.
b.
$20 per hour.
c.
$38 per hour.
d.
$44 per hour.
30. Air travel from New York to Miami costs $300 and takes 6 hours. A bus ticket between the cities costs
$150 and takes 56 hours. Other things constant, the minimum value of one's time that would induce a
rational individual to fly rather than drive would be
a.
$1 per hour.
b.
$3 per hour.
c.
$5 per hour.
d.
$50 per hour.
31. Maurice can drive or fly from Jacksonville, Florida to Atlanda, Georgia, for a one-day business trip. If
he drives, he will be able to work three hours once he arrives in Atlanta, whereas traveling by plane
will enable him to work eight hours. His expected income from each hour of work in Atlanta is $30. If
Maurice is a rational decision maker, he will fly if and only if the price differential (air cost minus
driving cost) is less than
a.
$30.
b.
$90.
c.
$150.
d.
$240.
32. Melanie has a choice of driving or flying from Durham, North Carolina to Knoxville, Tennessee for a
one-day business trip. If she travels by air, she will be able to work seven hours in Knoxville, while if
she drives, she will only have time to work four hours once there. Her expected income from each
hour of work in Knoxville is $40. If Melanie a rational decision maker, she will chose to fly if and
only if the price differential (air cost minus driving cost) is less than
a.
$40.
b.
$120.
c.
$160.
d.
$280.
33. In an informed and voluntary exchange,
a.
both parties receive something they value more than what they gave up.
b.
both parties place an equal value on what they received and what they gave up.
c.
neither party can gain more than the other.
d.
one trader can gain only at the expense of the other.
34. In voluntary exchange, if the seller of a product gains,
a.
the buyer will generally lose an amount greater than the gain to the seller.
b.
the buyer must lose an amount equal to what the seller gains.
c.
someone else must lose an equal amount.
d.
the buyer must also gain; mutual gain provides the foundation for exchange.
35. Which of the following statements about exchange is false?
a.
The expectation of gain motivates people to engage in trade.
b.
If a party to a potential exchange does not believe that it will lead to personal gain, he or
she can chose not to engage in the trade.
c.
Voluntary exchange is generally mutually beneficial to the trading partners.
d.
If one trading partner gains, the other must lose.
36. Isabella decides to buy a dress that Olivia has for sale; they agree on a price of $20. Which of the
following best describes who gains and who loses from the transaction?
a.
If the dress originally costs more than $20, Isabella gains and Olivia loses.
b.
If the dress originally costs less than $20, Olivia gains and Isabella loses.
c.
Both parties expect to gain from this transaction.
d.
If Olivia gains from the transaction, Isabella must lose an equal amount.
37. If Sean sells Tom a tennis racket for $50, we would expect
a.
both parties to gain from this transaction.
b.
Sean to gain from the transaction, while Tom loses.
c.
Tom to gain from the transaction, while Sean loses.
d.
the well-being of both parties to be unchanged.
38. Mateo values his camper at $4,000, and Nicole values it at $9,000. If Nicole buys it from Mateo for
$7,000, which of the following is true?
a.
Mateo gains $3,000 of value, and Nicole gains $2,000 of value.
b.
Mateo gains $7,000 of value, and Nicole loses $7,000 of value.
c.
Mateo gains $7,000 of value, and Nicole gains $6,000 of value.
d.
Mateo and Nicole both gain $7,000 of value.
39. Noah values his car at $10,000, and Emily values it at $14,000. If Emily buys it from Noah for
$11,000, which of the following is true?
a.
Noah gains $1,000 of value, and Emily gains $3,000 of value.
b.
Noah gains $11,000 of value, and Emily loses $11,000 of value.
c.
Noah gains $10,000 of value, and Emily loses $14,000 of value.
d.
Noah and Emily both gain $11,000 of value.
40. Which of the following most accurately states the economic significance of exchange?
a.
Physical goods have value because they exist; exchange can neither increase nor decrease
their value.
b.
Production of physical goods creates value; exchange merely redistributes this value.
c.
Exchange creates value by moving goods from parties who value them less to parties who
value them more.
d.
Exchange reduces value since it consumes resources without adding to the physical supply
of goods.
41. Which of the following about trade is true?
a.
Trade does not produce anything new; therefore, it cannot create value.
b.
The value of a good is determined by the cost of the material resources required for its
production.
c.
The value of a good generally depends on who uses it and circumstances such as when and
where it is used.
d.
All of the above are true.
42. In economics, the term that refers to the time, effort, and other resources needed to search out,
negotiate, and consummate an exchange is
a.
transaction costs.
b.
specialization costs.
c.
pecuniary costs.
d.
comparative costs.
43. In economics, transaction costs refer to the
a.
time, effort, and other resources needed to search out and negotiate an exchange.
b.
dollar cost or price of the item traded.
c.
cost an economy suffers when it allows specialization according to comparative
advantage.
d.
amount by which the price of an item increases due to the presence of a middleman.
44. High transaction costs will tend to
a.
reduce the number of mutually beneficial exchanges that occur.
b.
allow easier specialization according to the law of comparative advantage.
c.
increase the value created by exchanges in an economy.
d.
increase the number of mutually beneficial exchanges that occur.
45. Compared to a situation where transaction costs are zero, the existence of transaction costs
a.
will reduce the volume of trade.
b.
will reduce the gains from trade.
c.
may lead some buyers and sellers to employ middlemen.
d.
All of the above are correct.
46. Which of the following is true with regard to value and exchange?
a.
Exchange generally moves a good from a person who values it more to a person who
values it less.
b.
Transaction costs reduce our ability to gain from potentially advantageous trades.
c.
Middlemen increase transaction costs and, thereby, reduce the potential gains derived from
trade.
d.
Physical goods have an objective value that is unrelated to time and the person of
ownership.
47. A nation with cheap, efficient communications is likely to be
a.
richer, ceteris paribus, because transaction costs will be lower and trade greater.
b.
richer only if production of goods is cheaper, too, since trade itself cannot create value.
c.
poorer since it spends so much on communication instead of true productivity.
d.
spending too much on communications, which adds nothing to the value of output.
48. If the Internet makes it easier for sellers to find buyers and makes it easier for buyers to learn about the
products that are available for sale, we would expect that
a.
the volume of trade will decline.
b.
transaction costs will rise.
c.
the gains from trade will increase.
d.
buyers and sellers will be worse off.
49. Internet sites such as eBay make it easier for sellers and buyers to find one another and, by doing so,
a.
reduce transactions costs.
b.
increase transaction costs.
c.
reduce the number of exchanges that occur.
d.
lower the value created by the goods and services available.
50. A middleman is a person who
a.
specializes in arranging trades and selling, guaranteeing, and servicing items traded.
b.
acts as a middle person between the top management of a business firm and the hourly
employees who actually produce the goods and services.
c.
adds to the seller's expense and the buyer's buying price without providing a service to
either.
d.
levies a tax on private sector activity and uses the funds to support government activities.
51. Middlemen are individuals who
a.
add to the buyer's expense without performing a useful function.
b.
add to the seller's cost without performing a useful function.
c.
provide services that reduce the cost of transactions and help achieve additional gains from
trade.
d.
act as a middle person between the top management of a business firm and the hourly
employees who actually produce the goods and services.
52. In economics, the term for a person who reduces transaction costs by arranging trades for buyers and
sellers is
a.
an exchange broker.
b.
a middleman.
c.
a transactions specialist.
d.
an opportunity finder.
53. Which of the following most accurately states the function of middlemen?
a.
Middlemen add to the expense of buyers and sellers without providing any benefit.
b.
Our economy would work just as well without middlemen since they do not expand the
availability of physical goods.
c.
Middlemen reduce the number of transactions since they increase the buyer's price and
reduce the seller's net revenue.
d.
Middlemen create value by arranging trades and providing information to buyers and
sellers.
54. Which of the following most accurately states the function of middlemen?
a.
Middlemen reduce transaction costs.
b.
Middlemen add to the expense of buyers and sellers without providing any benefit.
c.
Our economy would work just as well without middlemen since they do not expand the
availability of physical goods.
d.
Middlemen reduce the number of transactions since they increase the buyer's price and
reduce the seller's net receipts.
55. Which of the following is true regarding value and exchange?
a.
Middlemen fail to create value since they do not expand the supply of physical goods.
b.
A good or service has a given value regardless of who uses it or how it is used.
c.
If it were not for middlemen, transaction costs would be zero.
d.
Voluntary exchange creates value by channeling goods into the hands of people who value
them most.
56. Which of the following is true regarding value, transaction costs, and exchange?
a.
Middlemen can be viewed as agents who create value by reducing transaction costs and,
thereby, facilitating gains from exchange.
b.
Middlemen fail to create value since they do not expand the supply of physical goods.
c.
A good or service has a given value regardless of who uses it or how it is used.
d.
Voluntary exchange reduces value by channeling goods into the hands of people who
value them least.
57. Economic thinking suggests that a nation in which middlemen are considered to be unproductive
seekers of profit, and where their activities are heavily restricted by law, will
a.
gain by channeling people's efforts away from unproductive middleman activity toward
physical output.
b.
lose the potential gains from trade that would result from lower transaction costs
emanating from middleman activities.
c.
find that it is richer because the added transaction costs normally imposed by middlemen
will be reduced.
d.
gain because the value of total output will rise.
58. The government enforces property rights by
a.
requiring property owners to pay property taxes.
b.
providing police and courts.
c.
forcing people to own property.
d.
providing public parks and recreation facilities.
59. Private property rights involve
a.
the right to exclusive use of the property.
b.
legal protection against those who would seek to use or abuse the property without the
owner's permission.
c.
the right to transfer, sell, exchange, or mortgage the property.
d.
all of the above.
60. Which of the following is a private owner prohibited from doing?
a.
selling the property to another person
b.
erecting a fence designed to keep others from using the property
c.
painting the property a color that others do not like
d.
using the property in a manner that invades or infringes on the property of another
61. When property rights are clearly defined and enforced, private owners will
a.
use their property for selfish ends because they have little or no incentive to consider the
desires of others.
b.
develop and direct their property toward uses that others value highly because the market
will generally reward them for doing so.
c.
have little or no incentive to take care of their property or conserve it for the future.
d.
be unable to derive personal gain if they are sensitive to the desires of others when
deciding how to use their property.
62. Which of the following is true regarding private ownership?
a.
Relative to common ownership, private ownership generally leads to less conservation of
resources.
b.
With private ownership, owners are held accountable for using their resources in a manner
that harms the resources of others.
c.
Private ownership generally gives the owner little incentive to find ways to use the
resource wisely.
d.
With private ownership, resource owners have little incentive to consider the preferences
of others when deciding how to employ a resource.
63. Because private owners are held responsible for damages their property causes to the property of
others, private owners have
a.
a strong incentive to take steps to reduce the chance that they will harm the property of
others.
b.
a strong incentive to use their property now rather than conserving it for the future.
c.
little incentive to take good care of the property.
d.
little incentive to consider the harm their property may do to the property of others.
64. When private ownership rights are well-defined and enforced, owners of physical assets and resources
a.
have no incentive to consider the desires of others.
b.
incur the opportunity cost of ignoring the wishes of others.
c.
are not responsible if the use of their assets impose harm on others.
d.
have little incentive to take care of their assets.
65. Which of the following is true of private ownership?
a.
Private ownership links responsibility with the right of control.
b.
Private owners have little incentive to conserve natural resources for the future.
c.
Private owners have little incentive to develop and use their assets in ways others value.
d.
Private owners can do anything they want with the things they own regardless of the
damage it does to the property of others.
66. When private ownership of a resource is clearly defined and enforced, the private owner
a.
has little incentive to consider the wishes of others when deciding how to employ the
resource.
b.
has little incentive to use the resource wisely.
c.
has a strong incentive to consume the resource during the period rather than conserving it
for the future.
d.
has a strong incentive to use the resource wisely.
67. Todd owns a truck that he values at $2,000. Susan, who does a lot of hauling, values the truck at
$6,000. If these two are allowed to negotiate, which of the following will most likely occur?
a.
Todd will sell the truck for $1,500.
b.
Susan will buy the truck for $7,000.
c.
The truck will be sold at a price greater than $2,000 but less than $6,000, and both parties
will benefit.
d.
Susan will benefit more than Todd if the truck is sold.
68. Given your knowledge of the incentives created by private ownership, which of the following would
you expect to be false?
a.
People will take better care of their own personal automobile than they will a rental car.
b.
People will take better care of a home they own than they will of a home they rent.
c.
Property owned privately will tend to be better conserved and kept than public property or
property owned in common.
d.
People will be more likely to throw trash out onto their own lawn than they will be to
throw it out onto the side of an interstate highway.
69. The student government associations at several universities have experimented with purchasing
bicycles to leave around campus for everyone's use. Anyone who needs the bike can use it, and they
are not allowed to lock the bike up or take it home, but rather must leave it on campus for someone
else to use. Economic theory would predict that
a.
students will take better care of these commonly owned bicycles than they do their own
bicycles.
b.
students will take equally as good care of these commonly owned bicycles as they do their
own bicycles.
c.
students will not take as good of care of these commonly owned bicycles as they do their
own bicycles.
d.
because universities have a lot of money, these bikes will be better maintained than the
ones owned privately by college students who tend to have little money.
70. The number of cattle slaughtered every year for meat far exceeds the number of elephants slaughtered
every year for their ivory. Despite this, cows can be found everywhere while elephants are on the
verge of extinction in some countries. Which of the following best explains this difference?
a.
Cows can be privately owned while in many countries elephants can not.
b.
The demand for ivory far exceeds the demand for beef.
c.
Animals slaughtered for their meat are generally better conserved by humans than animals
slaughtered for nonfood uses.
d.
People tend to protest more every year to prevent cow extinction than they do for elephant
extinction.
71. In Zimbabwe and Botswana, elephants can be owned by local tribes and trade in ivory is legal, while
in countries such as Kenya, it is illegal to trade in ivory and elephants cannot be privately owned but
are protected by the government. Which of the following is true regarding the change in the elephant
populations since 1979 in these countries?
a.
In Zimbabwe and Botswana, elephants are near the verge of extinction, while in Kenya,
the population of elephants is growing rapidly.
b.
There has been a similar decline in the population of elephants in all of these countries.
c.
There has been a similar increase in the population of elephants in all of these countries.
d.
In Zimbabwe and Botswana, elephant populations have more than doubled, while in
Kenya, the population of elephants has fallen to less than one-third of its previous level.
72. In Africa, which of the following policies has been most successful at increasing elephant populations?
a.
Banning the ivory trade by making the buying and selling of ivory illegal.
b.
Making elephants the common property of the people of the country through government
ownership and control and making the killing of elephants illegal
c.
Allowing private ownership of elephants and making the ivory trade legal
d.
When used together, the policies in a and b have been more successful than the policy in c.
73. Beginning in the early 1990s, private landowners in Zimbabwe have started fencing in large areas of
land that contain black rhinos, which were on the verge of extinction. These private owners charge fees
for a stay at the lodges on the property (eco-tourism) and also sell hunting safaris and photo safaris. As
a result,
a.
the population of black rhinos has fallen substantially.
b.
the population of black rhinos has increased.
c.
many black rhinos are being poached.
d.
the incomes of residents in Zimbabwe has fallen substantially.
74. Suppose that in Australia, the government allows private ownership of chickens but not of cows. If the
people of Australia permanently increase their desire to purchase more chicken and beef, in the long
run, we would expect
a.
the population of chickens to rise and the population of cows to fall.
b.
the population of cows to rise and the population of chickens to fall.
c.
the populations of both chickens and cows to increase.
d.
both chickens and cows to become extinct in Australia unless the government places the
animals on the endangered species list.
75. Production possibilities curve are usually bowed outward. This is because
a.
the more resources a society uses to produce one good, the fewer resources it has available
to produce another good.
b.
it reflects the fact that the opportunity cost of producing a good decreases as more and
more of that good is produced.
c.
of the effects of technological change.
d.
resources are specialized, that is, some are better at producing particular goods rather than
other goods.
76. The reason that the production possibilities curve is usually a bow-shaped curve instead of a straight
line is that
a.
it makes it easier to illustrate the concepts of scarcity and prices with a bow-shaped curve
than it is with a straight line
b.
early economists began drawing them in this way and the convention has continued
throughout the years
c.
output eventually reaches a maximum and then declines
d.
resources are not perfectly adaptable to the production of all goods
77. When the production possibilities curve is bowed out, resources are
a.
equally well-suited to production of both goods.
b.
not being used efficiently.
c.
not equally suited to the production of both goods.
d.
available in larger and larger quantities as more of one good is produced.
78. Which of the following most accurately indicates the implications of an economy's production
possibilities curve?
a.
If all the resources of an economy are being used efficiently, more of one good can be
produced only if less of another good is produced.
b.
If all the resources of an economy are being used efficiently, it is generally possible to
produce more of one good without having to sacrifice the production of other goods.
c.
Over time, it is generally impossible for a country to expand its production of goods.
d.
An economy will automatically move toward a point that lies outside of the production
possibilities curve unless proper government policy constrains production.
79. The production possibilities curve illustrates the basic principle that
a.
an economy's capacity to produce is unrelated to its population.
b.
if all the resources of an economy are being used efficiently, more of one good can be
produced only if more of another good is produced.
c.
an economy will automatically move toward a point at which all of its resources are being
used inefficiently.
d.
if all the resources of an economy are being used efficiently, more of one good can be
produced only if less of another good is produced.
80. A production possibilities curve indicates that when resources are being used efficiently,
a.
you can only produce more of one good only if you lower its price.
b.
you can only produce more of one good only if you produce more of another good.
c.
you can only produce more of one good only if you produce less of another good.
d.
it is impossible to expand the total output of goods over time.
81. Increasing opportunity costs of producing goods imply that the production possibilities curve will be
a.
downward sloping.
b.
upward sloping.
c.
bowed inward.
d.
bowed outward.
82. As a general rule, technological progress
a.
shifts the production possibilities curve outward, away from the origin.
b.
reduces the slope of the production possibilities curve, making it flatter.
c.
increases the slope of the production possibilities curve, making it steeper.
d.
shifts the production possibilities curve inward, toward the origin.
83. Which of the following is true of a production possibilities curve?
a.
It reveals the maximum amount of any two goods that can be produced from a fixed
quantity of resources.
b.
It reveals the ideal level of technology for a country.
c.
It assumes that the prices of the two products are equal.
d.
For a country that could produce many different goods, it shows which two goods are
most important to produce.
84. If the resources of an economy are being used inefficiently, it would be
a.
possible to increase production of all goods simultaneously.
b.
possible to increase production of one good only if production decreased for the other
goods.
c.
not possible to increase production of any good.
d.
not possible to increase economic growth.
e.
possible to increase production with no effort.
85. Abigail wishes to spend more time this week studying for her classes. Using the idea of a production
possibilities curve, and assuming Abigail is currently spending all of her time efficiently, Abigail can
spend more time studying this week only if
a.
she also spends more time doing other things.
b.
she spends less time doing other things.
c.
Daylight Savings Time begins this week, so everyone moves their clocks ahead one hour.
d.
none of the above.
86. A point outside the production possibilities curve represents a combination of goods that is
a.
inefficient.
b.
efficient.
c.
unattainable.
d.
attainable.
87. A point inside the production possibilities curve represents a combination of goods that is
a.
inefficient.
b.
efficient.
c.
unattainable.
d.
attainable.
88. A point on the production possibilities curve represents a combination of goods that is
a.
inefficient.
b.
efficient.
c.
unattainable.
d.
attainable.
89. If an economy operates at a point within its production possibilities curve,
a.
it lacks the resources necessary to reach the curve.
b.
it is utilizing all of its resources efficiently.
c.
it does not confront the problem of scarce goods relative to unlimited wants.
d.
it is not efficiently using all of its resources.
90. If an economy uses its resources inefficiently, this situation would be illustrated on a production
possibilities diagram as
a.
an inward shift of the production possibilities curve.
b.
an outward shift of the production possibilities curve.
c.
operating at a point outside the production possibilities curve.
d.
operating at a point inside the production possibilities curve.
91. A production possibilities curve graphically represents the maximum quantities of two products
produced when all resources in the economy are efficiently utilized. An economy that operates inside
this production possibilities curve
a.
is using its resources inefficiently.
b.
lacks the necessary technology to produce efficiently.
c.
lacks the resources to produce goods efficiently.
d.
is utilizing its available resources as efficiently as possible.
92. Which of the following will be most likely to cause the production possibilities curve for a country to
shift inward?
a.
an increase in the labor force
b.
an increase in unemployment
c.
development of an improved technological method of production
d.
a decrease in the stock of physical capital
93. In Europe during the 14th century, the Black Plague killed 24 million people or close to 37 percent of
the population. How would this affect the production possibilities curves for the countries of Europe at
that time?
a.
The production possibilities curves for these countries would have shifted outward.
b.
The production possibilities curves for these countries would have shifted inward.
c.
The production possibilities curves for these countries would have been unaffected.
d.
This would have been illustrated by a movement along the production possibilities curves
for these countries, but it would not have shifted them.
94. If the citizens of a country were to work harder and take less leisure time, it would
a.
shift the production possibilities curve outward.
b.
cause an economy to operate inside its production possibilities curve.
c.
shift the production possibilities curve inward.
