The Economic Way of Thinking, 13e (Heyne)
Chapter 2 Efficiency, Exchange, and Comparative Advantage
1) In the economic way of thinking, the identification of wealth with material objects
A) is at the foundation of modern capitalism.
B) is good economics but antithetical to religious precepts.
C) is usually rejected by socialists.
D) must be rejected because it makes no sense.
2) Wealth consists ultimately of
A) gold.
B) land.
C) money.
D) whatever people value.
3) Which of the following constitutes wealth?
A) A baseball card collection
B) A 2014 Ford Focus
C) An Italian-made cello
D) Money deposited in a savings account
E) All of the above, as long as people value all of the goods listed above
4) Fill in the blank: Wealth, in the economic way of thinking, is ________.
A) whatever people value
B) owned financial assets
C) impossible to study scientifically
D) indefinable
E) any material thing
5) Bill Gates wants billions of dollars, and has them. Buddha wanted nothing, and had nothing.
What can an economist conclude?
A) Gates is wealthy, Buddha wasn’t.
B) Buddha was wealthy, Gates isn’t.
C) Gates is wealthy, and so was Buddha.
D) Nothing
6) In one northern town, the snowmobilers enjoy snow while non-snowmobilers hate it. When
the town gets two feet of fresh snow, which group is made wealthier?
A) Non-snowmobilers
B) Snowmobilers
C) Everybody
D) Nobody
7) Economic growth means people produce
A) money.
B) material things.
C) whatever people value.
D) only durable and high-quality goods.
8) According to your authors, “wealth = material things”
A) must be rejected.
B) makes sense to economists, but not non-economists.
C) is the correct definition of wealth.
D) helps us understand the foundations of what Adam Smith called the commercial society.
9) “Material” wealth cannot be distinguished in any useful way from wealth (with no modifying
adjective) because
A) all wealth consists finally of valued experiences.
B) material objects are not essential to the creation of wealth.
C) wealth includes anything a person can purchase with money, whether material or not.
D) wealth usually fluctuates in value while matter cannot be created or destroyed.
10) Economic growth entails an increase in the rate of production of
A) material goods.
B) services.
C) the money supply.
D) wealth.
11) A truly voluntary exchange
A) has nothing to do with values, only with things.
B) is always an exchange of equal values.
C) is not an exchange of equal values.
D) is usually an exchange of equal values.
12) In a voluntary exchange,
A) both parties tend to receive more in value than they give up.
B) people trade goods of equal value.
C) neither party can gain more than the other.
D) one trader’s gain must be the other’s loss.
13) Aristotle believed voluntary trade should be
A) an exchange of unequal values.
B) an exchange of equal values.
C) an exchange of equal material possessions.
D) an exchange of unequal material possessions.
14) Individuals tend to trade because
A) they place different values on their property.
B) they expect to gain more than they give up.
C) they expect to increase their own wealth as a result of the trade.
D) all the above are true.
15) Which of the following is the best example of a “free” good?
A) HIV/AIDS cocktails freely distributed to people in developing countries
B) The air you are currently breathing
C) Public roads
D) Public schooling in states where education is subsidized
16) According to your textbook, a “free” good is
A) a good paid for by someone else.
B) a stolen good.
C) a good given away by charities.
D) a good obtained without any sacrifice whatsoever.
17) Which of the following is a “free” good?
A) Elderly health care, which is covered by Medicare
B) Health care for the poor, which is covered by Medicaid
C) Higher education in Georgia, which is paid for by lottery revenue
D) All of the above.
E) None of the above.
18) Which of the following is probably the best example of a free good?
A) The air in your college classroom
B) A can full of garbage put out for trash collectors
C) Interstate highways
D) Free concert tickets, which were given to you by a friend
19) The famous saying, “There is no such thing as a free lunch” means
A) we do not live in a free country.
B) the value of our dollar keeps declining.
C) people face tradeoffs.
D) people do not care about others enough.
20) An event is productive as long as
A) it is incurred without any opportunity cost.
B) it increases wealth.
C) the value of the inputs exactly equals the value of the output.
D) it creates a new material object.
E) all of the above are true.
21) Jack trades his basketball for Jim’s baseball glove. This simple trade is
A) unproductive, because nothing new has been produced.
B) productive, because Jack and Jim expect to be better off by trading.
C) costless, because no money was involved in the deal.
D) a cost to the manufacturer because neither Jack nor Jim bought a new ball or glove.
E) not good for the overall economy, for reasons A and D above.
22) When a 13-year-old girl consents to babysit John’s children for $5 per hour, economists
assume
A) the girl was made worse off while John was made better off.
B) the girl was made better off while John was made worse off.
C) both parties were made worse off.
D) both parties were made better off.
23) When a man with a lawnmower in his trunk stops at Bill’s house and offers to mow Bill’s
yard, economists assume the man
A) expects to be made better off by mowing Bill’s yard for a fee.
B) is desperate.
C) is being exploited.
D) both A and B.
24) A mugger steals $25 from John Doe. What can an economist conclude?
A) Nobody gained in the “exchange.”
B) Both parties gained in the “exchange.”
C) Only the mugger’s wealth has increased.
D) Nothing, because economists study strictly voluntary exchanges.
25) Chelsea buys bottled water from the vending machine for $1.00. As long as the transaction
was voluntary,
A) Chelsea values the water more than $1.00.
B) the vendor values the water less than $1.00.
C) the vendor’s wealth has increased.
D) Chelsea’s wealth has increased.
E) All of the above.
26) Which statement most adequately describes the productivity of trade relative to the
productivity of agriculture and manufacturing?
A) Trade is essential in an economy once agriculture and manufacturing have developed, even
though it is not productive.
B) Trade is less productive than agriculture or manufacturing.
C) The word productive must be applied to agriculture or manufacturing in the same way it is
applied to trade.
D) Trade is productive only insofar as it distributes newly produced agricultural or manufactured
goods.
E) Trade is rarely productive because it almost never increases the quantity of goods in the
economy.
27) The economic efficiency of any process will be evaluated by
A) the proportion of marginal to non-marginal costs.
B) the ratio of work done to energy supplied.
C) comparing what is gained from what is sacrificed.
D) the relationship of supply to demand.
28) Technical efficiency
A) ignores the values of the chooser.
B) is a necessary precondition for the attainment of economic efficiency.
C) is always attained if economic efficiency is achieved.
D) is attained whenever the ratio of physical output to physical input is greater than unity.
E) is easier to achieve than economic efficiency.
29) Technological efficiency, defined in terms of completely objective relationships,
A) has no useful meaning.
B) influences the decisions of engineers but not of business executives.
C) influences the decisions of engineers but not of economists.
D) is more important in the long run than in the short run, where profitability tends to dominate
decisions.
30) Physical or technological facts are by themselves never sufficient to measure efficiency
because
A) what is efficient changes over time.
B) efficiency is a ratio between evaluations.
C) more complex technological processes are inevitably more efficient.
D) physical or technological data can never be known precisely.
E) we can never be sure we are using the most advanced technology.
31) Efficiency is best understood as a relationship between
A) ends and means.
B) energy created and energy destroyed.
C) energy output and energy input.
D) pleasure and pain.
32) Fill in the blank: When a chooser asks herself “Is it worth it?,” she is trying to evaluate the
________ of a particular project or plan of action.
A) technical efficiency
B) objective efficiency
C) economic efficiency
D) engineering efficiency
33) In light of higher gas prices, Skip Miles asks himself if it’s worth keeping his 10 cylinder
Chevy Suburban. His concern is ultimately about
A) engineering efficiency.
B) economic efficiency.
C) technical efficiency.
D) environmental efficiency.
34) Should I buy a new or a used copy of the textbook? According to the economic way of
thinking, the person is asking about
A) economic efficiency.
B) educational efficiency.
C) scholastic efficiency.
D) motivational efficiency.
E) academic efficiency.
35) Car A gets 12 miles per gallon. Car B gets 30 miles per gallon. Which is the most
economically efficient car?
A) Car A
B) Car B
C) They are equal in their economic efficiency.
D) It is impossible to determine without more information.
36) To say individuals seek an “economically efficient” course of action is another way of saying
they
A) waste precious resources.
B) are not concerned about the wellbeing of anybody else.
C) economize.
D) measure everything according to the bottom line: money.
37) The ultimate or absolute measure of value in the opportunity cost perspective
A) does not exist.
B) is the labor embodied in goods.
C) is the money price of the goods.
D) is the nonrenewable resources consumed in producing the goods.
38) Making bread at home would be more efficient than making it in commercial bakeries
A) for people who place a sufficiently high value on home baked bread.
B) if the ingredients used to make bread increased sufficiently in price.
C) if the price of bread made in commercial bakeries did not reflect the efficiency of bakeries.
D) if there were no labor costs in home baked bread.
39) Someone can become an inefficient producer of a particular good by becoming an extremely
potent producer of some other good
A) if efficiency and inefficiency are not calculated in terms of opportunity costs.
B) if efficiency is measured in terms of labor hours required to produce each good.
C) if a larger output of one good entails a smaller output of the other.
D) if the demand for one of the goods declines.
40) Which of the following would be likely to change the relative efficiency of trucks versus
trains in carrying freight?
A) Higher wages for truck drivers
B) More powerful locomotives
C) Tolls on interstate highways
D) All of the above.
41) Larry Lawnlover is trying to decide whether it would be more efficient to trim his lawn with
a hand-operated clipper or to buy and use an electrically operated weed-trimmer. Which of the
items below will help determine the more efficient choice for Larry?
A) Larry’s dislike for the noise created by power tools
B) Larry’s fear of being injured while using power tools
C) The sensitive skin on Larry’s hand, which causes him to develop, blisters easily
D) All of the above.
E) None of the above.
42) Land can be used to grow commercial Christmas trees or pulpwood. Which is the more
“economically efficient” use of the land?
A) Raising commercial Christmas trees
B) Raising pulpwood
C) Raising a mixed combination of commercial Christmas trees and pulpwood
D) It depends in part on the relative prices of Christmas trees and pulpwood.
43) Suppose shoppers typically pay twice as much for frozen “convenience” foods compared to
similar dinners they could prepare themselves. An economist would say
A) the purchase is inefficient because the consumer doesn’t really need to pay twice as much for
essentially the same dinner.
B) the purchase is inefficient because the frozen dinner is of even lower quality than the
homemade dinner, yet twice as expensive.
C) the purchase is efficient if the consumer feels the savings in preparation time justifies the
higher price.
D) the purchase is efficient, but the consumer is still probably behaving irrationally.
44) Bobby drives her car to work; Bill takes the bus. They are both behaving efficiently as long
as we assume
A) it costs the same for Bobby to drive the car as it does for Bill to take the bus.
B) both Bobby and Bill value their trips equally.
C) Bobby and Bill are traveling to different locations.
D) both Bobby and Bill voluntarily selected the forms of transportation they take to work.
45) The Williams’ household uses natural gas heat, the Reynolds’ use a wood stove. Whose
household heating system is most efficient?
A) Without more information, the question is meaningless.
B) Williams’
C) Reynolds’
D) It depends only on the BTU’s (the amount of heat produced) per unit of heat-source input.
46) What is the more efficient choice: sending one’s child to John Q. Public High School at zero
dollar tuition or to Purebred Prep School at several thousand dollars a year?
A) High school, because it’s much cheaper.
B) Prep school, because it’s much higher in quality of instruction.
C) Prep school, because what matters most is not what you know, but who you know.
D) It depends on the decision makers’ own evaluations of cost and benefit.
47) Which is the more efficient use of one’s tight budget: going to a first-run movie at $7.50 or
waiting for the video to be available through Netflix?
A) Going to the first-run movie
B) Waiting for the video
C) Doing neither, especially if one’s budget is tight.
D) It depends on the chooser’s own evaluations of costs and benefits.
48) This is a question about “economic” efficiency: Prior to the 1960s, Catholic masses were
officially conducted throughout the world only in the Latin language. Since the Vatican II
reforms, Catholic masses are now generally conducted in the language spoken and understood by
the local parishioners. What can an economist conclude?
A) Catholic church authorities didn’t like Latin anymore.
B) Catholic church authorities once thought the use of Latin was efficient; during Vatican II the
authorities in power decided it was inefficient.
C) Catholic church parishoners didn’t like Latin anymore.
D) Nothing, because decisions related to religion are non-economic.
49) A large and diverse community has suffered a two-month drought. In attempting to deal with
the crisis, four identifiable groups emerge: one decides to pray, a second decides to engage in a
rain dance, a third decides to use modern meteorological principles and “seed” the clouds, and a
fourth decides to do nothing. From the standpoint of economic theory,
A) individuals in the first and second groups are acting irrationally and inefficiently.
B) individuals in each group are acting efficiently, given their own values and understanding of
ends and means.
C) the third group is the smartest.
D) the fourth group is the most selfish.
50) What is an efficient way to study for an economics exam?
A) Attend every lecture and take copious notes.
B) Read the assigned material once before each class and once after.
C) Form study sessions with others in class.
D) Put off everything and instead cram the night before the exam.
E) Any of the above might be efficient, depending on one’s perceived costs and benefits.
51) Instead of studying for his calculus exam, Dicky Cribsheets decides to cheat. In the
economic way of thinking, Dicky’s decision is
A) inefficient and wrong.
B) inefficient and desirable.
C) efficient and desirable
D) not necessarily any of the above.
52) Using the economic way of thinking, what is the least efficient use of water?
A) Drinking
B) Bathing
C) Filling balloons
D) It depends on the water user’s estimate of cost and benefit.
53) Car A gets 20 miles per gallon, and sells for $17,000. Car B gets 40 miles per gallon, and
sells for $34,000. In the economic way of thinking, which car is more efficient?
A) Car A
B) Car B
C) Both are equally efficient.
D) It depends on the car buyer’s estimate of cost and benefit.
E) It depends on a number of statistical tests done by economists, the results of which are not
stated in the question.
54) A college bookstore offers both new and used Physics 101 textbooks. Vicki pays $120 for a
new copy, Darrel pays $85 for a used copy. Who made an economically efficient choice?
A) Vicki
B) Darrel
C) Both Vicki and Darrel
D) Neither one of them—they could have found a better deal on the Internet.
55) Is it more efficient for a group of musicians to perform a show “unplugged” (with acoustic
instruments) or with state-of-the-art electric instruments?
A) Unplugged is more efficient because the instruments are considerably less expensive to
operate.
B) It depends on what the musicians are trying to accomplish.
C) The use of electric instruments is more efficient because acoustic instruments have become
more expensive in recent years.
D) It depends exclusively on the relative ratios of energy output to energy input in each
instrument class.
56) What’s the most efficient way to get from New York to L.A.?
A) By plane
B) By train
C) By automobile
D) By foot
E) Any of the above might be, depending on one’s circumstances.
57) Coal-fired steam locomotives become more efficient for railroads relative to oil-burning
diesel locomotives as
A) the price of coal increases.
B) the price of oil increases.
C) coal-fired steam locomotives become larger.
D) railroad freight rates increase.
58) New airplanes, which normally consume less fuel per passenger-mile, become less efficient
for commercial airlines to purchase and use as
A) average flight distances lengthen.
B) fewer non-stop flights are scheduled.
C) fuel prices fall.
D) the demand for airline travel increases.
E) the price of new airplanes falls.
59) The most accurate procedure for finding out whether it is more efficient for a commercial
airline to use 727s or 757s for its domestic flights is to
A) compare the fuel efficiency of 727s and 757s.
B) compare the fuel efficiency and operating cost of 727s and 757s.
C) compare the acquisition cost, operating cost, and fuel efficiency of 727s and 757s.
D) compare the acquisition cost, operating cost, and fuel efficiency per passenger seat of 727s
and 757s.
E) see whether the airline has chosen to use 727s or 757s.
60) If the government keeps the price of bread low through subsidies, and farmers consequently
buy bread to feed to their pigs, we can infer that
A) pigs are more valuable than people.
B) pork is more valuable than people.
C) the farmers find it efficient to feed bread to pigs.
D) the market system is not working.
E) waste is occurring because marginal benefit is less than marginal cost.
61) It makes sense to measure relative costs in terms of leisure time
A) because leisure time is of equal value to everyone.
B) because leisure time is the ultimate good.
C) only if leisure time is of equal value to everyone.
D) only in societies with labor-saving technologies.
62) When airlines overbook a flight and passengers are paid to take a later flight, which category
of passenger is most likely to give up their reservations?
A) Passengers not in a hurry
B) Poor passengers
C) Selfish passengers
D) Unselfish passengers
E) Wealthy passengers
63) Which of the following might make it inefficient for a farmer to continue growing crops on a
particular piece of farmland?
A) A fall in crop prices
B) A rise in the price developers are willing to pay for the land
C) Erosion of the top soil
D) Rezoning of the land by the county government
E) Any of the above could do it.
64) There are very few gasoline stations in the downtown areas of large cities basically because
A) it would be too dangerous.
B) it would be an inefficient use of land for the land’s owners.
C) most people don’t want to buy gasoline while they are downtown.
D) zoning laws prohibit it.
65) A woman who decides to drive to work rather than take the bus
A) is wasting scarce resources.
B) is behaving inefficiently.
C) thinks driving is more economically efficient for her.
D) is probably paying attention to personal comfort and convenience rather than economic
efficiency.
66) A man who thinks he would save money by driving to work rather than taking the bus, but
who nonetheless elects to take the bus because driving in rush-hour traffic frightens him, is
A) behaving inefficiently.
B) choosing what is for him the most efficient way to commute.
C) rejecting economic efficiency for personal reasons.
D) wasting scarce resources.
67) Is cutting down a tree in two hours with an ax more efficient than cutting it down in ten
minutes with a gasoline-powered chain saw?
A) No, because time is valuable.
B) Yes, because hand tools conserve nonrenewable energy resources.
C) It could be, if the person cutting down the tree places a high enough value on the exercise.
D) There is no way to answer the question.
68) A pumped storage reservoir used regularly by an electrical utility is efficient for the utility to
operate
A) even if it takes twice as much electricity to operate as it generates.
B) only if it generates more electricity in the long run than it uses up.
C) only if it generates more electricity in the short run than it uses up.
D) only if the second law of thermodynamics ceases to hold.
E) only when the utility ignores sunk costs.
69) According to your text, disagreements about the relative efficiency of particular projects are
usually disagreements about
A) the best way to conserve energy.
B) the best way to conserve non-renewable resources of all kinds.
C) scientific facts or technical processes.
D) the relative value of particular goods to different people.
E) who is entitled to make money from one project or another.
70) The question, “What is really more efficient?” could usefully be translated into the question:
A) “What is the best long-term solution?”
B) “What will best promote social welfare?”
C) “What will produce the most economic value?”
D) “Who should have the right to decide?”
E) “What will produce the most rapid rate of economic growth?”
71) People who disagree vehemently about whether or not it is efficient to clear-cut forests or
strip-mine for coal are basically disagreeing about
A) the importance of material wealth.
B) the importance of the economy.
C) the proper relationship of human beings to the natural world.
D) who should have which rights.
72) A social system in which rights are clearly defined and participants are free to exchange as
they choose will tend to allocate resources to
A) their most efficient uses.
B) their most highly valued uses.
C) uses on which the highest monetary value is placed.
D) uses which maximize social welfare.
E) uses which produce the greatest good for the greatest member.
73) “Opportunity cost” is
A) any lost opportunity.
B) the next-best opportunity one sacrifices when making a choice.
C) equal to the ratio between an opportunity gained and an opportunity sacrificed.
D) measured only by monetary payments for a scarce good or service.
74) Fill in the blank: An opportunity cost is the ________ opportunity a person sacrifices when
making a choice.
A) every
B) least desirable
C) next-best
D) strictly financial
75) Fill in the blank: ________ cost refers to the next-best option a person gives up when making
a choice.
A) Accounting
B) Objective
C) Efficient
D) Opportunity
E) Regrettable
76) “Opportunity cost” is
A) the monetary cost of one’s actions.
B) the objective cost of one’s actions.
C) the regret one feels when making a sacrifice.
D) the value one places on the item, project, or plan he has chosen to pursue.
E) none of the above.
77) Samantha is at a friend’s house for dinner. Her friend says “I can re-heat either the lasagna or
the fried rice.” Samantha likes them both, but chooses the fried rice. Does Samantha’s choice
entail a cost?
A) No—as long as her friend didn’t charge Samantha for the meal.
B) Yes—Samantha sacrificed the opportunity to eat lasagna.
C) Yes—as long as Samantha reimburses her friend for the cost of re-heating the meal.
D) Both A and C above.
78) George was assigned to read a chapter in economics tonight, but he has a math exam
tomorrow. He chooses to study for the math exam and postpone his economics studies until after
the exam. What is the opportunity cost of George’s decision?
A) The lower math grade he would have received had he not studied for the math exam
B) The economics knowledge he sacrificed by not reading the assigned chapter
C) Both A and B above
D) Without information regarding the price of the textbook and the value to George of the math
exam, George’s opportunity cost cannot be determined.
79) Henry David Thoreau faced a choice: Stay in the village of Concord or move out to Walden
Pond. He decided to move to Walden. What was his” opportunity cost”?
A) There was no opportunity cost if he didn’t pay rent for his cabin on Walden Pond.
B) The satisfaction he would have enjoyed were he to stay in Concord
C) The sweat and toil of building his own cabin and living off the land at Walden Pond
D) There was no opportunity cost, because he made a free and voluntary decision to live the way
he preferred to live.
80) There is no opportunity cost of obtaining
A) a free good.
B) a scarce good.
C) any good a person acquires, as long as they value it highly enough.
D) any good a person acquires, as long a they think it is worth the effort.
81) Suppose a consumer is torn between buying a Chevy Tahoe or a Ford Expedition, each
selling for $30,000. He eventually decides on the Tahoe. What’s his opportunity cost?
A) $30,000
B) $30,000 plus taxes, tags, insurance, etc.
C) The satisfaction he would have experienced owning the Ford Expedition
D) The frustration he will face owning the Chevy Tahoe
E) B, C, and D above.
82) Who among the following faced an opportunity cost?
A) The fiancée
B) The recently married bride
C) The cheating spouse
D) The divorcee
E) All of the above.
83) “Dad said he’d pay for my education whether I go to State or to Ivy College. So I chose Ivy
College, even though it’ll cost him $15,000 more in tuition each year!” Pick the correct
statement:
A) Her opportunity cost is $15,000 each year.
B) Her opportunity cost is the satisfaction she would have experienced at State.
C) Whether she realizes it or not, her opportunity cost is infinite, just like her dad’s love is
infinite.
D) She has no opportunity cost, because her dad will pay for her education.
84) The Skinned Knee Corporation can produce either 300 skateboards each week or 500
snowboards each week. What is their opportunity cost of producing 300 skateboards each week?
A) 300 skateboards
B) 200 snowboards
C) 500 snowboards
D) 800 snowboards
85) Lu Thier is an accomplished violin and viola maker. He can make either 6 violins or 6 violas
each year, or a combination such as 3 violins and 3 violas. Which statement below is true?
A) The opportunity cost of producing 1 violin is 1 viola.
B) The opportunity cost of producing 1 violin is 3 violas.
C) The opportunity cost of producing 1 violin is 6 violas.
D) The opportunity cost of producing 1 violin is 9 violas.
86) Lu Thier is an accomplished violin and viola maker. He can make either 6 violins or 6 violas
each year, or a combination such as 3 violins and 3 violas. Which statement below is true?
A) The opportunity cost of producing 1 viola is 6 violins.
B) The opportunity cost of producing 1 viola is 3 violins.
C) The opportunity cost of producing 1 viola is 1 violin.
D) George has a comparative advantage in violin production.
87) When we look at a production possibilities curve, the opportunity cost can be understood as
A) The point of maximum production of one good
B) The amount of the other good that must be given up for one more unit of production
C) The total cost of producing the good
D) The price people will pay for the additional amount produced
88) Suppose the economy of Georgia can produce pecans and peanuts. Suppose the economy can
either produce 10,000 pecans or 15,000 peanuts if full specialization in one good were to occur.
What is the opportunity cost of increasing pecan production from 5,000 to 10,000 pecans?
A) 1,000 peanuts
B) 5,000 peanuts
C) 7,500 peanuts
D) 10,000 peanuts
89) Jones can brew 10 gallons of lager or 5 gallons of stout every three months, or any linear
combination in between. Which statement below is true?
A) It costs Jones 5 gallons of stout for every 10 gallons of lager brewed.
B) It costs Jones 1 gallon of stout for every 2 gallons of lager brewed.
C) It costs Jones 1/2 gallon of stout for every 1 gallon of lager brewed.
D) All of the above are true.
90) Brown can brew 4 gallons of stout or 3 gallons of lager every three months, or any linear
combination in between. Which statement is true?
A) Brown sacrifices 3/4 gallons of lager for every gallon of stout brewed.
B) Brown sacrifices 1 1/3 gallons of stout for every gallon of lager brewed.
C) Both of the above are true.
D) None of the above is true.
91) A single production possibilities frontier assumes
A) a given set of resources.
B) only one good can be produced from a given set of resources.
C) resources are free.
D) there are no opportunity costs of production.
E) all of the above.
92) With a good on each axis, the production possibilities frontier is downward-sloping, which
suggests
A) there is no limit to the amount of each good that can be produced.
B) the production of one good ultimately means sacrificing production of the other.
C) there are no opportunity costs of producing either of the goods.
D) All of the above are true.
93) If one is producing well within a production possibilities frontier, they are
A) using resources to the best of their ability.
B) using resources at the lowest opportunity cost.
C) using resources in an inefficient way.
D) using resources in a way that maximizes their comparative advantage.
94) An outward rotation of the production possibilities frontier occurs when
A) traders specialize in and exchange the products of their comparative advantage.
B) one trader steals from the other.
C) traders produce goods at exactly the same levels of opportunity cost.
D) one trader begins to produce both goods at a higher level of opportunity cost compared to the
other.
95) The production possibilities frontier is used by economists to depict
A) the strictly financial costs of production.
B) the opportunity costs of production.
C) the strictly financial benefits of production.
D) the opportunity benefits of production.
96) The production possibilities frontier illustrates
A) the maximum amount of inputs used to produce a particular output.
B) the minimum amount of inputs used to produce a particular output.
C) the maximum combination of two goods that can be produced with a given set of resources.
D) the minimum combination of two goods that can be produced with a given set of resources.
E) none of the above.
97) Any combination of two goods that lies beyond the production possibilities frontier
A) is currently impossible to produce.
B) is currently possible to produce, but not worth trying.
C) represents economic waste.
D) represents a more efficient combination of output than anything lying on the frontier.
98) Any combination of two goods that lies within the production possibilities frontier
A) is currently impossible to produce.
B) is currently possible to produce.
C) represents a more efficient combination of output than anything lying beyond the frontier.
D) represents a more efficient combination of output than anything lying on the frontier.
99) Fill in the blank: a combination of two goods that lies beyond the production possibilities
frontier ________.
A) can be produced with the current set of resources
B) cannot be produced with the current set of resources
C) can never be produced with any set of resources
D) can be produced but only if the producer becomes more greedy
100) Commercial society provides incentives to specialize by
A) following one’s comparative disadvantage.
B) pursuing one’s comparative advantage.
C) producing somewhere outside the production possibilities frontier.
D) producing a narrowly defined good without an interest in the wealth it generates to the
producer.
101) For Adam Smith, commercial society is characterized by
A) private property rights.
B) specialization in production.
C) voluntary exchange.
D) all of the above.
102) According to the Law of Comparative Advantage,
A) production should be based on who can produce a product lowest opportunity cost.
B) production should be based on who can produce more of a good.
C) production should take into account strategic interests, such as national security.
D) production should be for the people instead of for profit.