48) Suppose your expenses for this term are as follows: tuition: $5,000, room and board: $3,000,
books and other educational supplies: $500. Further, during the term, you can only work part-
time and earn $4,000 instead of your full-time salary of $10,000. What is the opportunity cost of
going to college this term, assuming that your room and board expenses would be the same even
if you did not go to college?
A) $5,500
B) $8,500
C) $11,500
D) $14,500
49) The opportunity cost of taking an on-line history class is
A) the knowledge and enjoyment you receive from taking the class.
B) the value of the time spent on line.
C) equal to the highest value of an alternative use of the time and money spent on the class.
D) zero because there is no classroom time involved if you are enrolled in the course.
E) the cost of tuition and fees only.
Figure 2-6
General Motors recently approved for production the Cadillac Converj, an electric car based on
its Chevy Volt. The Converj will feature a “Generation 1.5 Voltec” powertrain, with a hybrid
engine that runs on a combination of electricity and gasoline. Suppose GM chooses to produce
both a coupe version and an SUV version of this hybrid-engine vehicle for its Cadillac brand.
Figure 2-6 shows changes to its production possibilities frontier in response to new
developments and different strategic production decisions.
50) Refer to Figure 2-6. Suppose worker productivity increases so that the total number of
vehicles produced increases as the company adds more machinery, workers and changes the
layout of the factory. This is best represented by the
A) movement from E to F in Graph A.
B) movement from G to H in Graph B.
C) movement from K to L in Graph C.
D) movement from J to H in Graph B.
51) Refer to Figure 2-6. In response to changing consumer demands, Cadillac cuts back on the
production of SUVs and increases its production of coupes. This strategy is best represented by
A) movement from E to F in Graph A.
B) movement from G to H in Graph B.
C) movement from K to L in Graph C.
D) movement from H to J in Graph B.
52) Refer to Figure 2-6. Suppose Cadillac has to shut down a portion of its facility as it works
on remodeling the facility to merge two of its separate assembly lines in preparation for the
production of the new, hybrid models. The production decision to shut down temporarily will
result in a
A) movement from E to F in Graph A.
B) movement from G to H in Graph B.
C) movement from K to L in Graph C.
D) movement from J to H in Graph B.
53) If the price of a good or service rises, households have to choose whether to buy less of that
good or service or spend less on other goods and services. Studies have shown that when the
price of health care rises,
A) people cut back on their spending of medical services.
B) people continue to consume the same amount of medical services and reduce spending on
other goods and services, because medical services are viewed as a necessity.
C) people consume more medical services because these services are viewed as being more
valuable, and they significantly reduce spending on other goods and services.
D) there is no correlation between the rising prices of medical services and the quantity of these
services consumed.
54) An increase in the unemployment rate may be represented as a movement from a point on
the production possibilities frontier to a point inside the frontier.
55) If a country is producing efficiently and is on the production possibilities frontier, the only
way to produce more of one good is with an advance in technology.
56) Consider a country that produces only two goods: pineapples and tractors. Suppose it is
possible for this country to increase its production of pineapples without producing fewer
tractors. In this case, its current output combination is inefficient.
57) Any output combination inside a production possibility frontier is associated with unused or
underutilized resources.
58) An increase in population shifts the production possibility frontier inwards over time.
59) If additional units of a good could be produced at a constant opportunity cost, the production
possibility frontier would be linear.
60) On a diagram of a production possibility frontier, opportunity cost is represented by the slope
of the production possibility frontier
61) To increase gas mileage, automobile manufacturers make cars small and light. Large cars
absorb more of the impact of an accident than small cars but yield lower gas mileage. These facts
suggest that a positive relationship exists between safety and gas mileage.
62) How are efficiency and inefficiency represented on a production possibilities frontier?
63) What does the term “increasing marginal opportunity cost” mean? How are increasing
marginal opportunity costs represented on a bowed out production possibilities frontier?
64) a. Draw a production possibilities frontier for a country that produces two goods, wine and
cheese. Assume that resources are not equally suited to both tasks.
b. Define opportunity costs.
c. Use your production possibilities frontier graph to demonstrate the principle of opportunity
costs.
Table 2-2
Possible Output
Combinations
Cashews
(thousands of
pounds)
Almonds
(thousands of
pounds)
A
35
0
B
30
20
C
25
35
D
20
47
E
15
57
F
10
64
G
5
68
H
0
70
65) Refer to Table 2-2. The Nut House produces only cashews and almonds. The table above
shows the maximum possible output combinations of the two nuts using all resources and
currently available technology.
a. Graph The Nut House’s production possibilities frontier. Put almonds on the horizontal axis
and cashews on the vertical axis. Be sure to identify the output combination points on your
diagram.
b. Suppose The Nut House is currently producing at point C. What is the opportunity cost of
producing an additional 12,000 pounds of almonds?
c. Suppose The Nut House is currently producing at point C. What happens to the opportunity
cost of producing more and more almonds? Does it increase, decrease or remain constant?
Explain your answer.
d. Suppose The Nut House is currently producing at point F. What happens to the opportunity
cost of producing more and more cashews? Does it increase, decrease or remain constant?
Explain your answer.
e. Suppose The Nut House is plagued by a variety of white root-rot disease, which destroys
cashew trees but not almond trees. Show in a graph what happens to its PPF.
29
2.2 Comparative Advantage and Trade
1) If you can produce more of something than others with the same resources, you have
A) a comparative advantage.
B) an absolute advantage.
C) an efficient production system.
D) a free-market economy.
Table 2-3
Jack
Lawns
Mowed
6
Gardens
Cultivated
4
Table 2-3 shows the output per day of two gardeners, George and Jack. They can either devote
their time to mowing lawns or cultivating gardens.
2) Refer to Table 2-3. Which of the following statements is true?
A) Jack has an absolute advantage in both tasks.
B) George has an absolute advantage in both tasks.
C) Jack has an absolute advantage in lawn mowing and George in garden cultivating.
D) Jack has an absolute advantage in garden cultivating and George in lawn mowing.
3) Refer to Table 2-3. What is Jack’s opportunity cost of mowing a lawn?
A) half a garden cultivated
B) two lawns mowed
C) two-thirds of a garden cultivated
D) one and a half lawns mowed
4) Refer to Table 2-3. What is Jack’s opportunity cost of cultivating a garden?
A) half a garden cultivated
B) two lawns mowed
C) two-thirds of a garden cultivated.
D) one and a half lawns mowed
5) Refer to Table 2-3. What is George’s opportunity cost of mowing a lawn?
A) half a garden cultivated
B) two lawns mowed
C) two-thirds of a garden cultivated.
D) one and a half lawns mowed
6) Refer to Table 2-3. What is George’s opportunity cost of cultivating a garden?
A) half a garden cultivated
B) two lawns mowed
C) two-thirds of a garden cultivated
D) one and a half lawns mowed
7) Refer to Table 2-3. Which of the following statements is true?
A) Jack has a comparative advantage in both tasks.
B) George has a comparative advantage in both tasks.
C) Jack has a comparative advantage in lawn mowing and George in garden cultivating.
D) Jack has a comparative advantage in garden cultivating and George in lawn mowing.
8) Comparative advantage means
A) the ability to produce more of a product with the same amount of resources than any other
producer.
B) the ability to produce a good or service at a lower opportunity cost than any other producer.
C) the ability to produce a good or service at a higher opportunity cost than any other producer.
D) compared to others you are better at producing a product.
9) Specializing in the production of a good or service in which one has a comparative advantage
enables a country to do which of the following?
A) never have to engage in trade with other nations
B) increase the variety of products that it can produce with a decrease in resources
C) consume a combination of goods that lies outside its own production possibilities frontier
D) produce a combination of goods that lies outside its own production possibilities frontier
10) For each watch that Switzerland produces, it gives up the opportunity to make 50 pounds of
chocolate. Germany can produce 1 watch for every 100 pounds of chocolate it produces. Which
of the following is true about the comparative advantage between the two countries?
A) Switzerland has the comparative advantage in chocolate.
B) Switzerland has the comparative advantage in watches.
C) Germany has the comparative advantage in watches and chocolate.
D) Germany has the comparative advantage in watches.
Figure 2-7
Figure 2-7 shows the production possibilities frontiers for Costa Rica and Guatemala. Each
country produces two goods, pineapples and coconuts.
11) Refer to Figure 2-7. What is the opportunity cost of producing 1 ton of coconuts in Costa
Rica?
A) 3/8 of a ton of pineapples
B) 2/3 of a ton of pineapples
C) 1 1/2 tons of pineapples
D) 100 tons of pineapples
12) Refer to Figure 2-7. What is the opportunity cost of producing 1 ton of coconuts in
Guatemala?
A) 1/2 of a ton of pineapples
B) 1 1/3 tons of pineapples
C) 2 tons of pineapples
D) 90 tons of pineapples
13) Refer to Figure 2-7. What is the opportunity cost of producing 1 ton of pineapples in Costa
Rica?
A) 3/8 of a ton of coconuts
B) 2/3 of a ton of coconuts
C) 1 1/2 tons of coconuts
D) 100 tons of coconuts
14) Refer to Figure 2-7. What is the opportunity cost of producing 1 ton of pineapples in
Guatemala?
A) 1/2 of a ton of coconuts
B) 1 1/3 tons of coconuts
C) 2 tons of coconuts
D) 180 tons of coconuts
15) Refer to Figure 2-7. Which country has a comparative advantage in the production of
coconuts?
A) Guatemala
B) They have equal productive abilities.
C) Costa Rica
D) neither country
16) Refer to Figure 2-7. Which country has a comparative advantage in the production of
pineapples?
A) Guatemala
B) They have equal productive abilities.
C) Costa Rica
D) neither country
17) Refer to Figure 2-7. If the two countries have the same amount of resources and the same
technological knowledge, which country has an absolute advantage in the production of both
pineapples and coconuts?
A) Guatemala
B) neither country
C) Costa Rica
D) cannot be determined
18) Individuals who have never been the best at doing anything
A) cannot have a comparative advantage in producing any product.
B) can still have a comparative advantage in producing some product.
C) perform all tasks at a higher opportunity cost than others.
D) must have an absolute advantage in at least ones task.
Table 2-4
One Cell Phone
Lumber (per
board foot)
Estonia
40 hours
8 hours
Finland
16 hours
4 hours
Table 2-4 shows the number of labor hours required to produce a cell phone and a board foot of
lumber in Estonia and Finland.
19) Refer to Table 2-4. Does either Estonia or Finland have an absolute advantage and if so, in
what product?
A) Finland has an absolute advantage in lumber.
B) Estonia has an absolute advantage in lumber.
C) Finland has an absolute advantage in both products.
D) Estonia has an absolute advantage in cell phones.
20) Refer to Table 2-4. What is Estonia’s opportunity cost of producing one cell phone?
A) 0.2 board feet of lumber
B) 5 board feet of lumber
C) 8 board feet of lumber
D) 32 board feet of lumber
21) Refer to Table 2-4. What is Finland’s opportunity cost of producing one cell phone?
A) 0.25 board feet of lumber
B) 4 board feet of lumber
C) 12 board feet of lumber
D) 16 board feet of lumber
22) Refer to Table 2-4. What is Estonia’s opportunity cost of producing one board foot of
lumber?
A) 0.2 cell phones
B) 5 cell phones
C) 8 cell phones
D) 32 cell phones
23) Refer to Table 2-4. What is Finland’s opportunity cost of producing one board foot of
lumber?
A) 0.25 cell phones
B) 4 cell phones
C) 12 cell phones
D) 16 cell phones
24) Refer to Table 2-4. Estonia has a comparative advantage in the production of
A) both products.
B) lumber.
C) cell phones.
D) neither product.
25) Refer to Table 2-4. Finland has a comparative advantage in the production of
A) both products.
B) lumber.
C) cell phones.
D) neither product.
26) Refer to Table 2-4. If the two countries specialize and trade, who should export lumber?
A) There is no basis for trade between the two countries.
B) Estonia
C) Finland
D) They should both be exporting lumber.
27) Refer to Table 2-4. If the two countries specialize and trade, who should export cell phones?
A) There is no basis for trade between the two countries.
B) Estonia
C) Finland
D) They should both be importing cell phones.
28) If the best lawyer in town is also the best at operating a word processor, then according to
economic reasoning, this person should
A) split her time evenly between being a lawyer and a word processor.
B) specialize in being a lawyer because its opportunity cost is lower.
C) should pursue the activity she enjoys more.
D) specialize in being a work processor because it is more capital-intensive.
29) Izzy Amador is a highly talented tattoo artist. She has chosen to specialize in tattoo art
because of all of the following except
A) her tattoos are highly esteemed by tattoo lovers who are willing to pay very high prices.
B) for her, this is the most lucrative way to purchase the products that she wants to consume.
C) her opportunity cost of pursuing another career is very low.
D) she obviously has a comparative advantage in tattoo art.