79) What does the slope of the production possibilities curve represent? Explain.
80) What does a production possibilities curve show?
81) How can the concepts of opportunity costs, scarcity and choice be illustrated by the
production possibilities curve?
2.3 The Economic Choices a Nation’s People Face
1) If the farmer is producing 5000 bushels of soybeans at point “b” in the above figure, we know
that
A) the farmer is not using his resources efficiently.
B) the farmer is using his land to produce a crop other than soybeans or corn.
C) the farmer must be using more land than was used in constructing the production possibilities
curve.
D) the farmer is using his resources efficiently.
2) In the above figure, which of the following points indicates the efficient use of resources?
A) a
B) f
C) g
D) h
3) Which of the following would NOT allow society to move to point “h” in the above figure?
A) an improvement in technology
B) more efficient use of current resources
C) an increase in quantity of labor
D) an increase in quantity of capital
4) The shape of the production possibilities curve in the above figure indicates that
A) production of corn is characterized by increasing costs while the production of cloth is
characterized by decreasing costs.
B) production of both corn and cloth is characterized by increasing costs.
C) production of both corn and cloth is characterized by constant costs.
D) production of corn is characterized by constant costs and the production of cloth is
characterized by increasing costs.
5) Between points “b” and “c” in the above figure, the opportunity cost of 250 more bushels of
corn is
A) 200 yards of cloth.
B) 250 yards of cloth.
C) 600 yards of cloth.
D) 800 yards of cloth.
6) If an economy is operating at a point inside the production possibilities curve, then
A) society’s resources are being inefficiently utilized.
B) the curve will move to the left.
C) society’s resources are being used to produce too many consumer goods.
D) economic policy must implemented to slow growth of the economy further.
7) A country operates inside its production possibilities curve; this may be caused by
A) unemployed resources.
B) total efficiency in industry.
C) a new resource being discovered.
D) a lack of modern products being produced.
8) The production possibilities curve bows out because
A) production is efficient.
B) of the law of increasing additional cost.
C) production is inefficient.
D) resources are not being fully utilized.
9) When deriving the production possibilities curve, it is assumed that
A) the amount of each good that is to be produced is fixed.
B) the prices of resources are fixed along the curve.
C) most resources can be used to produce only one good.
D) resources are efficiently used.
10) All points inside the production possibilities curve indicate
A) a lack of sufficient supply.
B) inefficiency in production.
C) the law of increasing relative cost.
D) the law of decreasing relative cost.
11) Refer to the above figure. If the farmer is growing 8,000 bushels of beans and 8,000 bushels
of wheat, then we know that
A) the farmer is not using resources efficiently.
B) the farmer is using more land for wheat than for beans.
C) the farmer should increase the amount of wheat grown and reduce the amount of beans.
D) the farmer cannot be using the amount of land that was used to construct the curve.
12) Refer to the above figure. If the farmer is producing 4,000 bushels of beans and 38,000
bushels of wheat, then we know the farmer
A) is using resources efficiently.
B) is producing too much wheat.
C) is inefficient because point a is the most efficient point on the curve.
D) must be using more resources than were assumed available in constructing the graph.
13) How does an economy represented by a straight-line production possibilities curve differ
from one represented by a traditional production possibilities curve with a bowed shape?
A) In the economy represented by a straight-line production possibilities curve, there is no
opportunity cost.
B) In the economy represented by a straight-line production possibilities curve, neither good is
scarce.
C) In the economy represented by a straight-line production possibilities curve, the law of
increasing relative cost does not apply.
D) In the economy represented by a straight-line production possibilities curve, changing the
amount of resources devoted to the production of each good will not alter the amount of each
good actually produced.
14) Look at the following production possibilities table for smartphones and tablets. The table
shows the maximum combination of smartphones and tablets of corn that can be produced, when
all resources are fully employed.
Production Possibilities
Good A B C D E
Based on the above information
A) there is no trade-off between smartphones and tablets.
B) the opportunity cost of producing 30 instead of 20 smartphones is 120 tablets.
C) the opportunity cost of producing 40 instead of 30 smartphones is 30 tablets.
D) the opportunity cost of producing 90 instead of 50 tablets is 50 smartphones.
15) A bowed Production Possibilities Curve (PPC) indicates
A) inefficient production.
B) that the trade-off between the 2 goods is not constant.
C) changing technology.
D) only 1 good is always being produced.
16) A production point that lies outside the Production Possibilities Curve (PPC)
A) denotes inefficiency.
B) indicates unemployment.
C) is currently not attainable.
D) can never be reached, even in future periods.
17) Which of the following will most likely happen when better technology is used in
production?
A) an upward movement along the production possibilities curve
B) an outward shift of the production possibilities curve
C) an inward shift of the production possibilities curve
D) a downward movement along the production possibilities curve
18) One of the assumptions underlying the production possibilities curve is that
A) at least one of the factors of production is a free good.
B) the quantity of the resources available for the production of economic goods is fixed over a
given time period.
C) there is at least one factor of production that is employed inefficiently.
D) some of the factors of production are not being used.
19) Which of the following statements is NOT an assumption underlying the production
possibilities curve?
A) Resources are fully and efficiently employed.
B) Technology is fixed.
C) Production occurs over some specified time period.
D) The amount of resources available for production can be changed quickly.
20) A production possibilities curve with quantities of clothing and food on the axes shows
which of the following?
I. A society cannot have an unlimited amount of each good.
II. For an efficient society, an increase in clothing production will necessitate a decrease in food
production.
III. A society will always produce the maximum amount of both clothing and food.
A) I only
B) II only
C) III only
D) Both I and II
21) It is correct to state that a society which is on its production possibilities curve is
A) underutilizing is resources.
B) technologically inefficient.
C) consuming too much output.
D) fully utilizing its productive resources.
22) Technology is best defined as
A) society’s stock of applied knowledge concerning the production of goods and services.
B) the maximum output that can be obtained from a stock of physical capital.
C) output inside the production possibilities curve.
D) movement along the production possibilities curve.
23) A technological improvement can cause the production possibilities curve to shift outward
because
A) it increases costs and contributes to lower production rates.
B) maximum feasible outputs of both goods increase.
C) production will fall, but jobs will be saved.
D) it causes increases in unemployment.
24) Suppose the current unemployment rate is 15 percent. If it rises to 20 percent
A) the economy will move up along the production possibilities curve.
B) the economy will move closer to the production possibilities curve.
C) the production possibilities curve will shift inward.
D) the economy will operate farther inside the production possibilities curve.
25) Which of the following would cause an economy to produce at a point inside its production
possibilities curve?
A) the efficient allocation of all factors of production
B) population growth
C) unemployment and an inefficient use of available resources
D) capital accumulation
26) In the above figure, the combination of computers and televisions shown by point x
A) is not attainable at the point in time for which the graph is drawn.
B) can be attained only if some of society’s resources are unemployed.
C) suggests that the law of increasing relative costs does not hold.
D) results only because society allocates its resources inefficiently.
27) In the above figure, the combination of personal computers and televisions shown by point w
A) is an efficient use of society’s resources because it is below the production possibilities curve.
B) is more desirable than point x because producing at point w does not put a strain on society’s
resources.
C) is attainable but involves the inefficient use of some of society’s resources.
D) is beyond the capacity of society to produce.
28) In the above figure, points u, v, y, and z show
A) an inefficient allocation of society’s scarce resources.
B) possible combinations of televisions and personal computers.
C) a constant trade-off between televisions and personal computers.
D) that society prefers more televisions than computers.
29) The president of the United States promises that the nation’s economy will simultaneously
produce more defense goods without any decreases in the production of other goods. Under
which of the following conditions could such a promise be valid?
A) if the United States were producing at a point on its production possibilities curve
B) if the United States were producing inside its production possibilities curve
C) if the United States were producing to the right of its production possibilities curve
D) None of the above; the production possibilities curve must shift to the right.
30) A point outside a society’s production possibilities curve is one that is
A) unattainable given the resources of the society.
B) technologically inefficient.
C) undesirable given the implied underemployment of resources.
D) desirable since it satisfies the desires of the population.
31) A point inside a society’s production possibilities curve represents
A) an unattainable combination of outputs.
B) an output combination that satisfies the needs of the population.
C) an underutilization of productive resources.
D) a technically superior output combination.
32) A point outside a production possibilities curve indicates
A) that resources are not being used efficiently.
B) an output combination that society cannot attain given its current level of resources and
technology.
C) that resources are being used very efficiently.
D) that both goods are characterized by increasing costs.
33) Efficiency can correctly be defined as
A) producing outside the production possibilities boundary.
B) maximizing opportunity cost.
C) producing the most output with given technology and resources.
D) providing for the immediate needs of the greatest proportion of the population.
34) When an economy is operating efficiently, which is TRUE?
A) All resources are fully employed.
B) It would be possible to increase the output of 1 good without decreasing the output of the
other.
C) Resources are not fully employed or current technology is not being fully utilized.
D) This economy is operating to the right of its production possibilities curve (PPC).
35) Typically, the greater the specialization of resources
A) the less production that takes place.
B) the greater the bow of the production possibilities curve.
C) the poorer the country becomes.
D) the greater the unemployment in the country.
36) The production possibilities curve bows outward because
A) opportunity costs are decreasing as the production of a good increases.
B) opportunity costs are increasing as the production of a good increases.
C) opportunity costs are fixed as the production of a good increases.
D) resources are of uniform quality.
The above table shows the daily production possibilities for a nation.
37) When the economy moves from point A to B in the above table, the opportunity cost of a
portable device in terms of televisions is
A) 10.
B) 2.5.
C) 2.
D) 0.5.
38) According to the above table, the opportunity cost of each additional portable device in terms
of televisions
A) remains constant.
B) falls as more computers are produced.
C) increases as more computers are produced.
D) is meaningless because the cost of computers cannot be expressed in terms of televisions.
39) Given the production possibilities schedule in the above table, a combination of 60
televisions and 40 portable devices
A) is attainable but involves an inefficient use of society’s resources.
B) would be attainable only if a new technology of producing televisions or portable devices
were introduced.
C) is not attainable because it is not listed in the schedule.
D) is not attainable because society does not have enough resources to produce this combination.
40) Given the production possibilities schedule in the above table, a combination of 75
televisions and 75 portable devices
A) is attainable but involves the unemployment of some of society’s resources.
B) clearly illustrates the trade-off between televisions and computers.
C) cannot be produced by society, given its current level of resources and production technology.
D) can be produced only if society is willing to have some of its resources used inefficiently.
41) A bowed production possibilities curve is consistent with
A) a decreasing opportunity cost.
B) a technologically inefficient society.
C) the overutilization of productive resources.
D) highly specialized resources.
42) A bowed outward production possibilities curve occurs when
A) opportunity costs are constant.
B) resources are not scarce.
C) additional units of output of one good necessitate greater reductions in the other good.
D) there are surpluses in the goods being produced.
43) The law of increasing additional costs is due to
A) government regulations.
B) technological improvements.
C) the fact that it is more difficult to use resources efficiently the more society produces.
D) the fact that resources are not perfectly adaptable for alternative uses.
44) The law of increasing opportunity cost implies that
A) producing additional units of one good results in proportionately smaller reductions in output
of the other good.
B) producing additional units of one good results in increasing amounts of lost output of the
other good.
C) the production possibilities curve will be a straight line.
D) the society will be producing on its production possibilities curve.
45) Which of the following is NOT an assumption used in deriving a production possibilities
curve?
A) The labor force is growing at a constant rate.
B) Resources are fully employed.
C) Technology is constant.
D) The quantity of resources is constant.
46) When determining the production possibilities curve
A) the trade-off between the goods in the economy remains constant.
B) the amount of productive resources remains constant.
C) the prices of the goods are used.
D) the prices of resources are used.
47) Which of the following is an assumption used in deriving a production possibilities curve?
A) Poverty always exists in society.
B) The wages in an industry increase constantly.
C) Prices will continue to increase.
D) The amount of resources is fixed.
48) All of society’s applied knowledge on how to produce goods and services is
A) held by university professors.
B) called technology.
C) opportunity cost.
D) efficiency.
49) Economists define technology as
A) machines such as computers.
B) entrepreneurship.
C) absolute advantage.
D) society’s knowledge concerning the production of goods.
50) A point outside a production possibilities curve indicates
A) that resources are not being used efficiently.
B) that resources are being used very efficiently.
C) opportunity costs are constant.
D) an output combination that is unobtainable with the current resource and technology levels.
51) A point inside a production possibilities curve indicates
A) resources are not being used efficiently.
B) resources are being used very efficiently.
C) opportunity costs are constant.
D) an output combination that is unobtainable with the current resource and technology levels
52) A point on a production possibilities curve indicates
A) resources are not being used efficiently.
B) resources are being used efficiently.
C) opportunity costs are constant.
D) an output combination that can be attained only if society gets more resources or there is
technological change.