Foundations of Microeconomics, 5e (Bade/Parkin)
Chapter 3 The Economic Problem
3.1 Production Possibilities
1) The United States produced approximately ________ worth of goods and services in 2007.
A) $14 trillion
B) $14 billion
C) $140 trillion
D) $140 billion
E) $1,400 trillion
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 fixed and unchanging.
A) i only
B) ii only
C) i and iii
D) ii and iii
E) i, ii, and iii
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
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.
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.
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 inefficiently.
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 inefficiently.
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.
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) affordable and unaffordable combinations of production.
9) While moving along a production possibilities frontier, the amount of labor ________, the
amount of capital ________, and the level of technology ________.
A) is fixed; is fixed; varies
B) varies; is fixed; varies
C) varies; is fixed; is fixed
D) is fixed; is fixed; is fixed
E) varies; varies; varies
10) 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.
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 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.
12) 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.
E) changing the amount of factors of production that are employed.
13) Assume that an association of young workers has lobbied Congress to require that all
workers retire once they reach the age of fifty. 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.
14) 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 tradeoff 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.
15) When all of the available factors of production are being efficiently 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 infinite.
16) 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.
17) 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.
18) Production efficiency 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
19) 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 efficiency
B) minimum marginal cost
C) PPF efficiency
D) production efficiency
E) maximum marginal benefit
20) Production efficiency 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.
21) When production efficiency does NOT occur,
i. an economy is producing at a point within its PPF.
ii. there are unemployed resources.
iii. allocative efficiency can not occur.
A) i only
B) i and ii
C) iii only
D) i and iii
E) i, ii, and iii
22) 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.
23) If a society moves from a period of time with significant 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.
24) A point on the production possibilities frontier reflects 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 are correct.
25) The table above shows a production possibilities frontier for an economy. Which of the
following combinations is unattainable?
A) 0 loaves of bread and 800 books
B) 100 loaves of bread and 800 books
C) 200 loaves of bread and 800 books
D) 300 loaves of bread and 200 books
E) 0 loaves of bread and 0 books
26) The table above shows a production possibilities frontier for an economy. If the economy
tried to produce a combination of 250 loaves of bread and 800 books,
A) there is some unemployment.
B) there is full employment.
C) the tradeoff between bread and books is inefficient.
D) it cannot produce this combination because it lacks enough resources or technology.
E) it is enjoying a free lunch.
27) The figure above shows the production possibilities frontier for a country. A combination of
4 million gallons of milk and 4 million gallons of ice cream is
A) unattainable.
B) attainable and production efficient.
C) attainable and production inefficient.
D) unattainable and production efficient.
E) More information is needed to determine if the point is attainable or not.
28) The figure above shows the production possibilities frontier for a country. A combination of
3 million gallons of milk and 3 million gallons of ice cream is
A) unattainable.
B) attainable and production efficient.
C) attainable and production inefficient.
D) unattainable and production efficient.
E) More information is needed to determine if the point is attainable or not.
29) The figure above shows the production possibilities frontier for a country. A combination of
2 million gallons of milk and 2 million gallons of ice cream is
A) unattainable.
B) attainable and production efficient.
C) attainable and production inefficient.
D) attainable but more than production efficient.
E) More information is needed to determine if the point is attainable or not.
30) Point D in the above PPF figure is
A) an attainable production combination with unemployed resources.
B) a tradeoff.
C) an unattainable production combination.
D) a production combination that can be attained once resources are fully employed.
E) More information is needed to determine which of the above answers is correct.
31) Which point in the figure above is an attainable combination that would have unemployed
resources?
A) point A
B) point B
C) point C
D) point D
E) point A and point B
32) The figure above shows a nation’s production possibilities frontier. In the figure, point A
shows
A) the maximum quantity of pizza that can be produced.
B) the minimum quantity of pizza that the society must produce.
C) an unattainable point.
D) an attainable point with unemployed resources.
E) More information is needed to determine which of the above answers is correct.
33) The figure above shows a nation’s production possibilities frontier. In the figure, point B
shows
A) an unattainable point.
B) an attainable point.
C) a point with a free lunch.
D) a point with no trade off.
E) a point at which there are unemployed resources.
34) The figure above shows the production possibilities frontier for a country. In order for it to
produce at point E, the
A) country would need to acquire more resources and/or more advanced technology.
B) production of compact cars would need to decrease.
C) production of SUVs would need to decrease.
D) country would need to use its resources more efficiently.
E) country would need to determine that compact cars and SUVs are equally important to it.
35) The figure above shows the production possibilities frontier for a country. If the country is
producing at point D, then the
A) resources are being used efficiently.
B) technology associated with producing SUVs and compact cars is advancing.
C) resources are not being used efficiently and/or are unemployed.
D) production of SUVs and compact cars is maximized.
E) None of the above answers are correct because it is not possible to produce at point D.
36) The above figure shows the production possibility frontier for an economy. The point or
points that are attainable and production efficient are
A) points B and C.
B) points A, B, and C.
C) point E.
D) points A, B, C, and D.
E) points A and D.
37) The above figure shows the production possibility frontier for an economy. The point or
points that are attainable are
A) points B and C.
B) points A, B, and C.
C) point E.
D) points A, B, C, and D.
E) points A and D.
38) The above figure shows the production possibility frontier for an economy. The point or
points that are not attainable are
A) points B and C.
B) points A, B, and C.
C) point E.
D) points A, B, C, and D.
E) points A and D.
39) In order for Ireland to grow more potatoes, wool production must decrease. This situation is
an example of
A) producing at a point that lies beyond the PPF.
B) zero opportunity cost.
C) opportunity benefit.
D) a free lunch.
E) a tradeoff.
40) As we move along the production possibilities frontier,
A) the production of one good increases as the production of the other good decreases.
B) the possibilities of tradeoffs diminish.
C) a tradeoff is not possible because nations need all goods.
D) more of both goods can be produced.
E) less of both goods can be produced.
41) Which of the following statements is correct?
A) If capital is idle, the economy is producing at its full potential.
B) The production possibilities frontier shows that there are no limits to production.
C) A tradeoff is a limit that forces an exchange or a substitution of one thing for something else.
D) Any point on or within the PPF is production efficient.
E) None of the above answers are correct.
42) When a nation is producing on its production possibilities frontier, if more resources are used
to produce one good, then the production of other goods
A) must increase.
B) must decrease.
C) must remain the same.
D) must change but they might increase or decrease.
E) might increase if the nation can produce more efficiently.
43) The negative slope of the production possibilities frontier represents the idea
A) that free lunches are possible.
B) of tradeoffs, that in order to produce more of one good, the nation must produce less of
another.
C) of unemployment.
D) of inefficient production.
E) that prices rise as less is produced.
44) A movement from one point on a production possibilities frontier to another represents
A) a tradeoff.
B) a free lunch.
C) full employment of labor but not capital.
D) unemployment.
E) an advance in technology.
45) The saying “There’s no such thing as a free lunch,” applies
A) when there is some unemployment.
B) on the production possibilities frontier.
C) to unattainable combinations of goods and services.
D) when more of one good can be produced without decreasing production of another.
E) at all points inside the PPF.
46) A free lunch (the absence of a tradeoff) when the production of a good is increased is
possible for the entire economy only if
A) less of some product is produced.
B) prices are decreased.
C) prices are increased.
D) resources are used inefficiently.
E) there is a movement along the PPF.
47) When a tradeoff does NOT exist between two goods, the situation is known as
A) opportunity cost.
B) scarcity.
C) a free lunch.
D) zero cost production.
E) efficient production.
48) A movement from a point inside the production possibilities frontier to a point on the
production possibilities frontier represents
A) a tradeoff.
B) a free lunch.
C) full employment of labor but not capital.
D) unemployment of labor but not capital.
E) an infinite opportunity cost.
49) A reason the production possibilities frontier exists is
A) unlimited resources and technology.
B) scarcity of resources.
C) scarcity of resources and unlimited technology.
D) unemployment.
E) that people’s wants are unlimited.