61) In one hour John can produce 20 loaves of bread or 8 cakes. In one hour Phyllis can produce
30 loaves of bread or 15 cakes. Which of the following statements is true?
A) Phyllis has a comparative advantage in producing bread.
B) John has a comparative advantage in producing cakes.
C) Phyllis has an absolute advantage in both goods.
D) John has an absolute advantage in both goods.
E) Phyllis has a comparative advantage in producing both cakes and bread.
62) In one hour John can produce 20 loaves of bread or 16 cakes. In one hour Phyllis can
produce 30 loaves of bread or 15 cakes. Which of the following statements is true?
A) Phyllis has a comparative advantage in producing bread.
B) John has a comparative advantage in producing cakes.
C) Phyllis has an absolute advantage in both goods.
D) John has an absolute advantage in both goods.
E) Phyllis has a comparative advantage in producing both cakes and bread.
3.5 Chapter Figures
1) The figure above shows a production possibilities frontier. In the figure, which of the
following combinations of the two goods cannot be produced with the current resources and
technology?
A) 2 million cell phones and 13 million DVDs
B) 4 million cell phones and 4 million DVDs
C) 1 million cell phones and 14 million DVDs
D) 3 million cell phones and 5 million DVDs
E) 5 million cell phones and no DVDs
2) The figure above shows a production possibilities frontier. In the figure, which of the
following combinations of the two goods are efficient?
A) 2 million cell phones and 13 million DVDs
B) 5 million cell phones and 15 million DVDs
C) No cell phones and 15 million DVDs
D) 4 million cell phones and 4 million DVDs
E) None of these combinations is efficient.
3) The figure above shows a production possibilities frontier. In the figure, the economy faces a
tradeoff when ________ cell phones and ________ DVDs. are produced.
A) 3 million; 9 million
B) 2 million; 9 million
C) 3 million; 8 million
D) 4.5 million; no
E) 5 million; 15 million
4) The figure above shows a production possibilities frontier. In the figure, when the economy
moves from point E to point D, what is the opportunity cost of a DVD?
A) 0.25 cell phones
B) 0.5 cell phones
C) 1 cell phone
D) 4 cell phones
E) zero
5) The figure above shows a production possibilities frontier. In the figure, when the economy
moves from point D to point C, the opportunity cost of producing one more DVD ________, and
when it moves from point C to D, the opportunity cost of producing one more cell phone
________.
A) increases; increases
B) increases; decreases
C) decreases; decreases
D) decreases; increases
E) increases; remains the same
6) The figure above shows a production possibilities frontier. In the figure, when the economy
moves from point C to point B, what is the opportunity cost of a DVD?
A) 0.5 cell phones.
B) 2 cell phones.
C) 0.5 million cell phones.
D) 2 million cell phones.
E) zero.
7) The figure above shows how the PPF for cell phones and new cell-phone factories can
expand. In the figure, if the economy produced 4 million cell phones using the resources
efficiently, the PPF would
A) expand, but not as far as shown in the figure.
B) not expand.
C) expand farther than shown in the figure.
D) expand along the vertical axis and not along the horizontal axis.
E) expand evenly along both axes.
8) The figure above shows how the PPF for cell phones and new cell-phone factories can
expand. In the figure, if the economy chose the point on this year’s PPF that is above point K,
the next year’s PPF would
A) shift outward along the horizontal axis farther than the new PPF shown in the figure.
B) shift outward along the horizontal axis, but not as far as the new PPF shown in the figure.
C) shift outward along the vertical axis, not along the horizontal axis.
D) shift inward along the horizontal axis.
E) shift inward along the vertical axis.
9) The figure above shows how the PPF for cell phones and new cell-phone factories can
expand. In the figure, if the economy chose the point on this year’s PPF that is below point K,
the next year’s PPF would
A) shift outward along the horizontal axis farther than the new PPF shown in the figure.
B) shift outward along the horizontal axis, but not as far as the new PPF shown in the figure.
C) shift outward along the vertical axis, not along the horizontal axis.
D) shift inward along the horizontal axis.
E) shift inward along the vertical axis.
The figure above show Liz’s and Joe’s production possibilities for Salads and Smoothies.
10) Liz has a comparative advantage in ________ and an absolute advantage in ________.
A) smoothies only; both goods
B) smoothies only; smoothies only
C) both goods; both goods
D) salads only; both goods
E) salads only; salads only
11) Liz has a comparative advantage in ________ because ________.
A) smoothies; her opportunity cost of producing smoothies is lower than Joe’s
B) salads; her opportunity cost of producing salads is lower than Joe’s
C) smoothies; she can produce more smoothies per hour than Joe can
D) salads; she can produce more salads per hour than Joe can
E) both goods; she can produce more of both goods per hour than Joe can
12) Given the information in the figure above, Liz ________ benefit from trade with Joe because
________.
A) can; each of them has a comparative advantage in one of the goods
B) can; each of them has an absolute advantage in one of the goods
C) cannot; she has an absolute advantage in both goods
D) cannot; she has a comparative advantage in both goods
E) can; Joe is more productive in producing one of the goods
13) Given the information in the figure above, Joe can benefit from trade as far as the price at
which he buys Liz’s smoothies is
A) below 5 salads per smoothie.
B) not higher than 2 salads per smoothie.
C) not lower than 2 salads per smoothie.
D) not lower than 1 salad per smoothie.
E) not higher than 4 salads per smoothie.
14) Using the figure above, suppose with no trade Liz and Joe each produce at point A on their
respective PPFs. Then, Liz suggests that they specialize and trade. She would produces only
smoothies and Joe would produce only salads. Then she would sell 10 smoothies to Joe at a
price of 2.5 salads per smoothie. In this scenario,
A) Liz gains 10 smoothies and 5 salads, and Joe gains 5 smoothies.
B) Liz gains 5 smoothies, and Joe gains 10 smoothies.
C) Liz gains 10 smoothies, and Joe loses 5 smoothies.
D) Liz gains 5 smoothies and 5 salads, and Joe loses 5 salads.
E) None of the individuals gain from trade.
15) Using the figure above, suppose with no trade Liz and Joe each produce at point A on their
respective PPFs. Then, Joe suggests that they specialize and trade. He would produces only
salads and Liz would produce only smoothies. Then, Joe says, he would buy 16 smoothies from
Liz at a price of 1.5 salads per smoothie. Liz should
A) accept Joe’s offer since she will gain 4 smoothies and 4 salads.
B) accept Joe’s offer as she will be as well off as with no trade.
C) not accept Joe’s offer as the price he offers is too low for her to gain from trade.
D) not accept Joe’s offer since she would lose 2 smoothies and 2 salads.
E) accept Joe’s offer since she will gain 4 salads.
3.6 Integrative Questions
1) As technology advances,
A) all opportunity costs decrease.
B) the PPF shifts outward.
C) a country moves toward the midpoint along its PPF and can produce more of both goods.
D) all opportunity costs increase.
E) the PPF shifts inward because unemployment occurs.
2) If a country is operating at a point of production efficiency,
A) it enjoys a free lunch when increasing production.
B) it produces on its production possibilities frontier.
C) it must specialize in the production of a good.
D) it operates on its trade line.
E) it cannot be producing at its point of comparative advantage.
3) Relative to Al, Joe has ________ if Joe can produce a good at a lower opportunity cost than
Al.
A) a comparative advantage
B) more production efficiency
C) a comparative benefit
D) a marginal benefit
E) a free lunch
4) Suppose that after specializing according to comparative advantage, a country is trading with
another nation that also specializes according to its comparative advantage. Which of the
following statements are true for the first country?
i) It enjoys gains from trade.
ii) It must have an absolute advantage in the production of the good it produces.
iii) It is producing at a point beyond its PPF.
A) i only.
B) i and ii.
C) i and iii.
D) ii and iii.
E) i, ii, and iii.
5) The table above gives the production possibilities frontier for two countries, Anaconda and
Bear. This table shows that
A) when Anaconda and Bear specialize and trade, Anaconda should specialize in the production
of shoes .
B) when Anaconda and Bear specialize and trade, Anaconda should produce at its production
point E.
C) Anaconda has an absolute advantage in the production of corn and shoes.
D) Bear can consume no more than 2 bushels of corn and 700 pairs of shoes.
E) Bear is unable to gain from trade with Anaconda.
6) The table above gives the production possibilities frontier for two countries, Anaconda and
Bear. The table shows that
A) Bear achieves production efficiency only at its production point A.
B) Anaconda achieves production efficiency only at its production point A.
C) Anaconda has a comparative advantage in the production of corn.
D) Bear has an absolute advantage in the production of both goods.
E) Both answers A and B are correct.
7) The table above gives the production possibilities frontier for two countries, Anaconda and
Bear. The opportunity cost of moving from production point B to production point C for
Anaconda equals ________ and for Bear equals ________.
A) 1 ton of corn; 1 ton of corn
B) 650 pairs of shoes; 900 pairs of shoes
C) 550 pairs of shoes; 700 pairs of shoes
D) 100 pairs of shoes; 200 pairs of shoes
E) 50 pairs of shoes; 100 pairs of shoes
8) The table above gives the production possibilities frontier for two countries, Anaconda and
Bear. The opportunity cost of moving from ________ is greater for ________.
A) point A to point B; Anaconda
B) point B to point A; Bear
C) point D to point E; Bear
D) point E to point D; Bear
E) any point to any other point; Bear
9) The figure above shows the PPFs for Jack and Jill. Jack’s PPF
A) is also his marginal benefit curve.
B) is also his marginal cost curve.
C) shows the tradeoffs Jack faces between gallons of soda and gallons of bottled water.
D) becomes the line labeled A after Jack trades with Jill.
E) becomes non-existent after Jack trades with Jill.
3.7 Essay: Production Possibilities
1) What does the vertical intercept of a production possibilities frontier represent?
2) What economic concepts are represented in the production possibilities model?
3) How can a combination of goods be unattainable?
4) A production point beyond the production possibilities frontier represents what?
5) “If Mexico is currently operating at a point beyond its production possibilities frontier, then
there are unemployed or misallocated resources in Mexico.” Is this statement true or false?
Briefly explain your answer.
6) “If Mexico is currently operating at a point inside its production possibilities frontier, then
there are unemployed or misallocated resources in Mexico.” Is this statement true or false?
Briefly explain your answer.
7) Are all points inside the production possibilities frontier unattainable?
8) In the movie Cast Away, Tom Hanks plays a FedEx efficiency expert stranded on a deserted
island. While on the island, he divides his time between catching fish, gathering coconuts,
painting, and building a raft. Suppose that these were Mr. Hanks’ only activities. Did he face an
opportunity cost from pursuing any of these activities? Why or why not?
9) What does it mean when a “free lunch” is available? Relate your answer to the production
possibilities frontier.
10) Describe the differences between tradeoffs and free lunches in terms of a PPF.
11) On a production possibilities frontier diagram, where are production points that have
tradeoffs? Where are production points with a free lunch?
12) Explain why a movement from a point inside a production possibilities frontier to the
production possibilities frontier is described as a free lunch and a movement along a production
possibilities frontier is described as a tradeoff.
13) Draw a production possibilities frontier between beans and peas. Label the unattainable
points, the attainable points with fully employed resources, and the attainable points with
unemployed resources.