Microeconomics, 4e – Testbank 2 (Hubbard)
Chapter 2 Trade-offs, Comparative Advantage, and the Market System
2.1 Production Possibilities Frontiers and Opportunity Costs
1) ________ exists because unlimited wants exceed the limited resources available to fulfill
those wants.
A) Scarcity
B) Productive efficiency
C) The command economy
D) Economic growth
2) To compete in the automobile market, BMW must make many strategic decisions such as
whether to introduce a new car model, whether to produce alternative-fuel vehicles, and where to
advertise. At BMW’s Spartanburg, South Carolina plant, managers must decide on the monthly
production quantities of their X3, X5 ,and X6 models. In making this decision, the managers
A) face no trade-off because the Spartanburg plant only produces these three models of the many
BMW models produced worldwide.
B) face a trade-off, because producing more of one model means producing less of the others.
C) will choose to only produce the quantity of X3, X5, and X6 models where marginal cost
equals zero.
D) will always decide on production quantities in which revenues are maximized.
3) The principle of ________ is that the economic cost of using a factor of production is the
alternative use of that factor that is given up.
A) marginal cost
B) opportunity cost
C) normative economics
D) entrepreneurship
4) The production possibilities frontier shows
A) the various products that can be produced now and in the future.
B) the maximum attainable combinations of two products that may be produced in a particular
time period with available resources.
C) what an equitable distribution of products among citizens would be.
D) what people want firms to produce in a particular time period.
5) ________ shows that if all resources are fully and efficiently utilized, more of one good can
be produced only by producing less of another good.
A) Comparative advantage
B) Absolute advantage
C) The mixed market system
D) The production possibilities frontier model
6) The production possibilities frontier model assumes all of the following except
A) labor, capital, land and natural resources are fixed in quantity.
B) the economy produces only two products.
C) any level of the two products that the economy produces is currently possible.
D) the level of technology is fixed and unchanging.
7) The ________ production points on a production possibility curve are the points along and
inside the production possibility frontier.
A) attainable
B) unattainable
C) productively efficient
D) allocatively efficient
8) The unattainable points in a production possibilities diagram are
A) the points within the production possibilities frontier.
B) the points along the production possibilities frontier.
C) the points of the horizontal and vertical intercepts.
D) the points outside the production possibilities frontier.
Figure 2-1
9) Refer to Figure 2-1. ________ is (are) inefficient in that not all resources are being used.
A) Point A
B) Point B
C) Point C
D) Points A and C
10) Refer to Figure 2-1. ________ is (are) technically efficient.
A) Point A
B) Point B
C) Point C
D) Points B and C
11) Refer to Figure 2-1. ________ is (are) unattainable with current resources.
A) Point A
B) Point B
C) Point C
D) Points A and C
12) In a production possibilities frontier model, a point inside the frontier is
A) allocatively efficient.
B) productively efficient
C) allocatively inefficient.
D) productively inefficient.
13) Carmelita can perform either a combination of 35 manicures and 70 pedicures or a
combination of 50 manicures and 45 pedicures. If she now performs 35 manicures and 70
pedicures, what is the opportunity cost of performing an additional 15 manicures?
A) 5 pedicures
B) 20 pedicures
C) 25 pedicures
D) 45 pedicures
14) If the production possibilities frontier is linear, then
A) opportunity costs are decreasing as more of one good is produced.
B) it is easy to efficiently produce output.
C) opportunity costs are increasing as more of one good is produced.
D) opportunity costs are constant as more of one good is produced.
Figure 2-2
Figure 2-2 above shows the production possibilities frontier for Vidalia, a nation that produces
two goods, roses and orchids.
15) Refer to Figure 2-2. What is the opportunity cost of one dozen orchids?
A) 0.4 dozen roses
B) 2.5 dozen roses
C) 7.25 dozen roses
D) 16 dozen roses
16) Refer to Figure 2-2. What is the opportunity cost of one dozen roses?
A) 0.4 dozen orchids
B) 2.5 dozen orchids
C) 7.25 dozen orchids
D) 16 dozen orchids
17) Refer to Figure 2-2. Suppose Vidalia is currently producing 20 dozen orchids per period.
How many roses is it also producing, assuming that resources are fully utilized?
A) 30 dozen roses
B) 50 dozen roses
C) 100 dozen roses
D) 150 dozen roses
18) Refer to Figure 2-2. The linear production possibilities frontier in the figure indicates that
A) Vidalia has a comparative advantage in the production of orchids.
B) Vidalia has a comparative disadvantage in the production of roses.
C) the tradeoff between roses and orchids is constant.
D) it is progressively more expensive to produce orchids.
19) A production possibilities frontier with a ________ shape indicates increasing opportunity
costs as more and more of one good is produced.
A) linear
B) bowed inward
C) bowed outward
D) perfectly horizontal
20) Increasing opportunity cost along a bowed out production possibilities frontier occurs
because
A) of inefficient production.
B) of ineffective management by entrepreneurs.
C) some factors of production are not equally suited to producing both goods or services.
D) of the scarcity of factors of production.
21) The slope of a production possibilities frontier measures the ________ of producing one
more unit of a good.
A) marginal revenue
B) total revenue
C) marginal cost
D) opportunity cost
22) Increasing marginal opportunity cost implies that
A) the more resources already devoted to any activity, the payoff from allocating yet more
resources to that activity increases by progressively smaller amounts.
B) the more resources already devoted to any activity, the benefits from allocating yet more
resources to that activity decreases by progressively larger amounts.
C) that rising opportunity costs makes it inefficient to produce beyond a certain quantity.
D) the law of scarcity.
23) If opportunity costs are ________, the production possibilities frontier would be graphed as
a negatively sloped straight line.
A) decreasing
B) increasing
C) negative
D) constant
Figure 2-3
24) Refer to Figure 2-3. Carlos Vanya grows tomatoes and strawberries on his land. His land is
equally suited for growing either fruit. Which of the graphs in Figure 2-3 represents his
production possibilities frontier?
A) Graph A
B) Graph B
C) Graph C
D) either Graph A or Graph B
E) either Graph B or Graph C
25) Refer to Figure 2-3. Carlos Vanya grows tomatoes and strawberries on his land. A portion
of his land is more suitable for growing tomatoes and the other portion is better suited for
strawberry cultivation. Which of the graphs in Figure 2-3 represent his production possibilities
frontier?
A) Graph A
B) Graph B
C) Graph C
D) either Graph A or Graph B
E) either Graph B or Graph C
Table 2-1
Production Choices for Dina’s Diner
Choice
Quantity of
Sliders
Produced
Quantity of
Hot Wings
Produced
A
80
0
B
60
25
C
40
50
D
20
75
E
0
100
26) Refer to Table 2-1. Assume Dina’s Diner only produces sliders and hot wings. A
combination of 40 sliders and 50 hot wings would appear
A) along Dina’s production possibilities frontier.
B) inside Dina’s production possibilities frontier.
C) outside Dina’s production possibilities frontier.
D) at the vertical intercept of Dina’s production possibilities frontier.
27) Refer to Table 2-1. Assume Dina’s Diner only produces sliders and hot wings. A
combination of 40 sliders and 25 hot wings would appear
A) along Dina’s production possibilities frontier.
B) inside Dina’s production possibilities frontier.
C) outside Dina’s production possibilities frontier.
D) at the vertical intercept of Dina’s production possibilities frontier.
28) Refer to Table 2-1. Assume Dina’s Diner only produces sliders and hot wings. A
combination of 60 sliders and 50 hot wings would appear
A) along Dina’s production possibilities frontier.
B) inside Dina’s production possibilities frontier.
C) outside Dina’s production possibilities frontier.
D) at the vertical intercept of Dina’s production possibilities frontier.
29) Refer to Table 2-1. Dina faces ________ opportunity costs in the production of sliders and
hot wings.
A) increasing
B) decreasing
C) constant
D) negative
30) An outward shift of a nation’s production possibilities frontier can occur due to
A) a reduction in unemployment.
B) a natural disaster like a hurricane or bad earthquake.
C) a change in the amounts of one good desired.
D) an increase in the labor force.
31) ________ a nation’s production possibilities frontier represents economic growth.
A) An outward shift of
B) An inward shift of
C) Moving up along
D) Moving down along
32) Economic growth is represented on a production possibilities frontier model by the
production possibility frontier
A) shifting outward.
B) shifting inward.
C) becoming steeper.
D) becoming flatter.
33) Without technological advancement, how can a nation achieve economic growth?
A) by producing more high-value goods and fewer low-value goods
B) through an increase in supplies of factors of production
C) by producing more low-value goods and fewer high-value goods
D) by decreasing the size of the labor force
34) Which of the following would shift a nation’s production possibilities frontier inward?
A) discovering a cheap way to convert sunshine into electricity
B) producing more capital equipment
C) an increase in the unemployment rate
D) a law requiring workers to retire at age 50
Figure 2-4
Figure 2-4 shows various points on three different production possibilities frontiers for a nation.
35) Refer to Figure 2-4. A movement from ________ could occur because of an influx of
immigrant labor.
A) X to W
B) X to Y
C) W to V
D) W to X
36) Refer to Figure 2-4. A movement from ________ is the result of advancements in plastic
production technology.
A) V to X
B) W to X
C) Z to W
D) Y to Z
37) Refer to Figure 2-4. Consider the following events:
a. an increase in the unemployment rate
b. a decrease in a nation’s money supply
c. a war that kills a significant portion of a nation’s population
Which of the events listed above could cause a movement from Z to X ?
A) a, b and c
B) a and b only
C) a and c only
D) a only
E) c only
38) Refer to Figure 2-4. Consider the following movements:
a. from point V to point W
b. from point W to point Y
c. from point Y to point Z
Which of the movements listed above represents advancements in technology with respect to
both plastic production and food production?
A) a, b, and c
B) b and c only
C) b only
D) c only
39) Refer to Figure 2-4. Consider the following events:
a. a decrease in the unemployment rate
b. general technological advancement
c. an increase in consumer wealth
Which of the events listed above could cause a movement from V to X ?
A) a only
B) a and b only
C) b and c only
D) a, b, and c
40) Refer to Figure 2-4. Consider the following events:
a. a reduction in the patent protection period to no more than 2 years
b. a war that destroys a substantial portion of a nation’s capital stock
c. the lack of secure and enforceable property rights system
Which of the events listed above could cause a movement from W to V?
A) a only
B) a and b only
C) a and c only
D) b and c only
E) a, b, and c
41) The recession of 2007-2009 would most likely be represented in a production possibilities
frontier graph by
A) a point inside the frontier.
B) a point outside the frontier.
C) a point on the frontier.
D) an intercept on either the vertical or the horizontal axis.
42) Suppose there is some unemployment in the economy and society decides that it wants more
of one good. Which of the following statements is true?
A) It is not possible to achieve this unless technology advances.
B) It can increase output without giving up another good by employing more resources.
C) It will have to increase resource supplies.
D) It will have to give up production and consumption of some other good.
43) If society decides it wants more of one good and ________, then it has to give up some of
another good and incur some opportunity costs.
A) technology advances
B) resources are underutilized
C) all resources are fully utilized
D) new resources are discovered
44) According to the production possibility model, if more resources are allocated to the
production of physical and human capital, then all of the following are likely to happen except
A) fewer goods will be produced for consumption today.
B) the production possibilities frontier will be shift outward in the future
C) future economic growth is enhanced.
D) the country’s total production will fall.
Figure 2-5
45) Refer to Figure 2-5. If the economy is currently producing at point Y, what is the
opportunity cost of moving to point X?
A) 5 million tons of steel
B) 9 million tons of paper
C) 5 million tons of paper
D) 19 million tons of steel
46) Refer to Figure 2-5. If the economy is currently producing at point X, what is the
opportunity cost of moving to point W?
A) 3 million tons of steel
B) 19 million tons of steel
C) 5 million tons of paper
D) 9 million tons of paper
47) A student comments to his roommate that the only way he will be able to pass his final
exams is to not sleep for the next three days. This statement suggests that
A) students are more concerned about good grades than good health.
B) society should value sleep more highly than good grades.
C) there is a trade-off between studying and sleep.
D) society should value good grades more highly than sleep because students can catch up on
their sleep once final exams are over.