C h a p t e r

2 THE ECONOMIC
PROBLEM

39
40 CHAPTER 4

 Production Possibilities and Topic: Production Possibilities Frontier

Opportunity Cost Skill: Analytical
5) Jane produces only corn and cloth. Taking
Topic: Production Possibilities Frontier account of her preferences for corn and cloth
Skill: Recognition
A) makes her production possibilities frontier
1) The production possibilities frontier straighter.
A) refers to the technology used in such goods as B) makes her production possibilities frontier
computers and military aircraft. steeper.
B) once applied to U.S. technology but now C) makes her production possibilities frontier
refers to Japanese technology. flatter.
C) marks the boundary between attainable D) does not affect her production possibilities
combinations of goods and services and frontier.
unattainable combinations. Answer: D
D) is also called the supply curve.
Answer: C Topic: Production Possibilities Frontier
Skill: Recognition
Topic: Production Possibilities Frontier 6) On the vertical axis, the production
Skill: Analytical possibilities frontier shows ____; on the
2) A production possibilities frontier does NOT horizontal axis, the production possibilities
illustrate frontier shows ____.
A) the limits on production imposed by our A) the quantity of a good; the number of workers
limited resources and technology. employed to produce the good
B) the exchange of one good or service for B) the quantity of a good; the price of the good
another. C) the quantity of a good; a weighted average of
C) opportunity cost. resources used to produce the good
D) attainable and unattainable points. D) the quantity of one good; the quantity of
Answer: B
another good
Topic: Production Possibilities Frontier Answer: D
Skill: Analytical
Topic: Production Efficiency
3) Any production point outside the production Skill: Analytical
possibilities frontier 7) A point inside a production possibilities
A) is unattainable. frontier
B) is associated with unused resources. A) could indicate that some resources are
C) is attainable only if prices fall. unemployed.
D) is attainable only if prices rise. B) is unattainable.
Answer: A
C) is more efficient than points on the
Topic: Production Possibilities Frontier production possibilities frontier.
Skill: Analytical D) implies that too much capital and not enough
4) Which of the following statements regarding labor are being used.
the production possibilities frontier is true? Answer: A
A) Points outside the frontier are attainable.
B) Points inside the frontier are attainable.
C) Points on the frontier are less efficient than
points inside the frontier.
D) None of the above because all of the above
statements are false.
Answer: B
THE ECONOMIC PROBLEM 41

Topic: Production Efficiency Topic: Production Efficiency

Skill: Analytical Skill: Analytical
8) A point inside a production possibilities 12) Production points inside the production
frontier possibilities frontier
A) could indicate that resources are misallocated. A) are unattainable.
B) is more efficient than a point on the B) are attainable only with the full utilization of
production possibilities frontier. all resources.
C) reflects the fact that more technology needs to C) are associated with unused or misallocated
be developed to fully employ all resources. resources.
D) implies that too much labor and not enough D) result in more rapid growth.
capital is being used. Answer: C
Answer: A

Topic: Production Efficiency

Skill: Analytical
9) When resources are assigned to inappropriate
tasks, that is, tasks for which they are not the
best match, the result will be producing at a
point
A) where the slope of the PPF is positive.
B) where the slope of the PPF is zero.
C) inside the PPF.
D) outside the PPF.
Answer: C

Topic: Production Efficiency

Skill: Analytical
10) Sam’s production possibilities frontier has
good A on the horizontal axis and good B on
the vertical axis. If Sam is producing at a point
inside his frontier, then he Topic: Production Efficiency
Skill: Analytical
A) can increase production of both goods with no
13) Refer to the production possibilities frontier in
increase in resources.
the figure above. Which point indicates that
B) is fully using all his resources.
resources are NOT fully utilized or are
C) values good A more than good B.
misallocated?
D) values good B more than good A.
Answer: A A) Point a.
B) Point b.
Topic: Production Efficiency C) Point c.
Skill: Analytical D) Point e.
11) A situation in which some resources are NOT Answer: C
fully utilized is represented in a production
possibilities frontier diagram by Topic: Production Possibilities Frontier
Skill: Analytical
A) any point on either the horizontal or the
14) Refer to the production possibilities frontier in
vertical axis.
the figure above. Which point is unattainable?
B) the midpoint of the production possibilities
A) Point a.
frontier.
B) Point b.
C) a point outside the production possibilities
C) Point c.
frontier.
D) Point e.
D) a point inside the production possibilities
Answer: D
frontier.
Answer: D
42 CHAPTER 2

Topic: Production Possibilities Frontier Topic: Production Efficiency

Skill: Analytical* Skill: Conceptual
15) Refer to the production possibilities frontier in 19) Some time ago the government of China
the figure above. Point ____ represents an required many highly skilled technicians and
______ point. scientists to engage in unskilled agricultural
A) b; unattainable. labor in order to develop “proper social
B) c; unattainable. attitudes.” This policy probably caused China
C) e; inefficient. to produce
D) c; inefficient. A) at an inappropriate point along its production
Answer: D possibilities frontier.
B) outside its production possibilities frontier
Topic: Tradeoff
with respect to food, but inside with respect
Skill: Analytical
16) In the figure above, moving from point d to to high-technology goods.
point a requires C) outside its production possibilities frontier
with respect to food, but inside with respect
A) technological change.
to high-technology goods.
B) a decrease in unemployment.
D) inside its production possibilities frontier.
C) decreasing the output of consumer goods in Answer: D
order to boost the output of capital goods.
D) both capital accumulation and a decrease in Topic: Tradeoff
unemployment. Skill: Conceptual
Answer: C 20) A tradeoff is
A) represented by a point inside a PPF.
Topic: Opportunity Cost
B) represented by a point outside a PPF.
Skill: Analytical*
17) Refer to the production possibilities frontier in C) a constraint that requires giving up one thing
the figure above. Suppose a country is at point to get another.
a. A movement to point ____ means that the D) a transaction at a price either above or below
country ____. the equilibrium price.
Answer: C
A) d; must give up 20 million capital goods
B) e; is not operating efficiently Topic: Tradeoff
C) d; gives up 10 million consumer goods. Skill: Conceptual
D) b; is producing at an inefficient point. 21) A tradeoff is illustrated by
Answer: A A) a point inside the PPF.
B) a point outside the PPF.
Topic: Opportunity Cost
C) a change in the slope of the PPF.
Skill: Analytical*
18) Refer to the production possibilities frontier in D) the negative slope of the PPF.
Answer: D
the figure above. If the country moves from
point a to point c, the opportunity cost of the Topic: Opportunity Cost
move is Skill: Recognition
A) 30 million capital goods. 22) When we choose a particular option, we must
B) 20 million capital goods. give up alternative options. The highest-valued
C) 10 million capital goods. alternative forgone is the
D) 10 million consumption goods. A) opportunity cost of the option chosen.
Answer: B B) comparative advantage of the option chosen.
C) nonmonetary cost of the option chosen.
D) absolute advantage.
Answer: A
THE ECONOMIC PROBLEM
Topic: Opportunity Cost
Skill: Recognition
23) Ted can study for his economics exam or go to
a concert. He decides to study for his
economics exam instead of going to the
concert. The concert he will miss is Ted’s ____
of studying for the exam.
A) opportunity cost
B) explicit cost
C) implicit cost
D) discretionary cost
Answer: A
Topic: Opportunity Cost
Skill: Analytical
24) Most students attending college pay tuition and
are unable to hold a full-time job. For these
students, tuition is
A) part of the opportunity cost of going to
college. So are their forgone earnings from
not holding a full-time job.
B) part of the opportunity cost of going to
college. Their forgone earnings from not
holding a full-time job are not.
C) not part of the opportunity cost of going to
college, but their forgone earnings from not
holding a full-time job are.
D) not part of the opportunity cost of going to
college. Neither are their forgone earnings
from not holding a full-time job.
Answer: A
Topic: Opportunity Cost
Skill: Recognition
25) Opportunity cost is
A) the best choice that can be made.
B) the highest-valued alternative forgone.
C) the monetary cost.
D) the indirect cost.
Answer: B
Topic: Opportunity Cost
Skill: Analytical
26) On a diagram of a production possibilities
frontier, opportunity cost is represented by
A) a point on the horizontal axis.
B) a point on the vertical axis.
C) a ray through the origin.
D) the slope of the production possibilities
frontier, which indicates that to get more of
one good requires less of another.
Answer: D
43
Topic: Opportunity Cost
Skill: Analytical
27) If additional units of a good could be produced
at a constant opportunity cost, the production
possibilities frontier would be
A) bowed outward.
B) bowed inward.
C) positively sloped.
D) a straight line.
Answer: D
Topic: Opportunity Cost
Skill: Analytical
28) If Sam is producing at a point on his
production possibilities frontier, then he
A) cannot produce any more of either good.
B) can produce more of one good only by
producing less of the other.
C) will be unable to gain from trade.
D) is not subject to scarcity.
Answer: B
Topic: Opportunity Cost is a Ratio
Skill: Analytical
29) Jane produces only corn, measured in tons, and
cloth, measured in bolts. For her, the
opportunity cost of one more ton of corn is
A) the same as the opportunity cost of one more
bolt of cloth.
B) the inverse of the opportunity cost of one
more bolt of cloth.
C) the ratio of all the bolts of cloth she produces
to all the tons of corn she produces.
D) the ratio of the acres of land she uses to graze
sheep to the acres she uses to grow corn.
Answer: B
Topic: Increasing Opportunity Cost
Skill: Analytical*
30) The principle of increasing opportunity cost
leads to
A) a production possibilities frontier (PPF) that
is bowed inward from the origin.
B) a production possibilities frontier (PPF) that
is bowed outward from the origin.
C) an inward shift of the production possibilities
frontier (PPF).
D) an outward shift of the production
possibilities frontier (PPF).
Answer: B
44 CHAPTER 2

Topic: Increasing Opportunity Cost Topic: Increasing Opportunity Cost

Skill: Analytical Skill: Analytical
31) A PPF bows outward because 34) As we increase the production of computers,
A) not all resources are equally productive in all we find that we must give up larger and larger
activities. amounts of DVD players per computer.
B) consumers prefer about equal amounts of the A) This situation illustrates increasing
different goods. opportunity cost.
C) entrepreneurial talent is more abundant than B) As a result, we should specialize in the
human capital. production of DVD players.
D) resources are used inefficiently. C) The production possibilities frontier for
Answer: A computers and DVD players is a straight line.
D) DVD players will be more highly regarded by
consumers than computers.
Answer: A

Topic: Increasing Opportunity Cost

Skill: Analytical
32) A PPF, such as the one above, that bows
outward illustrates Topic: Increasing Opportunity Cost
A) decreasing opportunity cost. Skill: Analytical
B) increasing opportunity cost. 35) As output moves from point a to point b to
C) that technology is improving. point c along the PPF in the above figure, the
D) that productivity is falling. opportunity cost of one more unit of good X
Answer: B A) rises. The opportunity cost of one more unit
of good Y also rises.
Topic: Production Efficiency
B) rises. The opportunity cost of one more unit
Skill: Analytical
33) In the figure above, of good Y falls.
C) falls. The opportunity cost of one more unit
A) moving from point a to point b would require
of good Y rises.
new technology.
D) falls. The opportunity cost of one more unit
B) production at point b is efficient whereas
of good Y also falls.
production at point a is not efficient. Answer: B
C) some resources must be unemployed at point
c.
D) opportunity costs are decreasing.
Answer: B
THE ECONOMIC PROBLEM 45

Topic: Increasing Opportunity Cost

Skill: Analytical
36) Refer to the production possibilities frontier in
the figure above. More of good X must be
given up per unit of good Y gained when
moving from point b to point a than when
moving from point c to point b. This fact
A) illustrates decreasing opportunity cost.
B) illustrates increasing opportunity cost.
C) indicates that good X is more capital intensive
than good Y.
D) indicates that good Y is more capital intensive
than good X.
Answer: B

Topic: Increasing Opportunity Cost

Skill: Analytical
37) When the production possibilities frontier bows
outward from the origin, Topic: Opportunity Cost
Skill: Analytical
A) some of society’s resources are unemployed.
40) The figure above illustrates Mary’s production
B) opportunity costs are constant.
possibilities frontier. If Mary wants to move
C) opportunity costs are increasing.
from point b to point c, she must
D) opportunity costs are decreasing.
Answer: C A) improve technology.
B) increase the accumulation of capital.
Topic: Increasing Opportunity Cost C) give up some of good Y in order to obtain
Skill: Conceptual more of good X.
38) The slope of a production possibilities frontier D) give up some of good X in order to obtain
that displays increasing opportunity cost is more of good Y.
A) positive and constant. Answer: C
B) negative and constant.
Topic: Opportunity Cost
C) steeper near the horizontal intercept than near
Skill: Analytical
the vertical intercept.
41) The above figure illustrates Mary’s production
D) steeper near the vertical intercept than near
possibilities frontier. If Mary wants to move
the horizontal intercept.
from point d to point c, she must
Answer: C
A) improve technology.
Topic: Increasing Opportunity Cost B) increase her accumulation of capital.
Skill: Conceptual C) give up some of good X in order to obtain
39) The fact that individual productive resources more of good Y.
are NOT equally useful in all activities D) give up some of good Y in order to obtain
A) implies that a production possibilities frontier more of good X.
will be bowed outward. Answer: C
B) implies that gain from specialization and
trade is unlikely.
C) follows from the law of demand.
D) implies a linear production possibilities
frontier.
Answer: A
46 CHAPTER 2

Topic: Increasing Opportunity Cost Production Production

Skill: Conceptual*
Point of X of Y
42) The above figure illustrates Mary’s production
a 0 40
possibilities frontier. Which of the following
b 4 36
movements show opportunity costs increasing?
c 8 28
A) point a to point b to point c.
d 12 16
B) point a to point f.
e 16 0
C) point f to point a.
D) point c to point f to point d. Topic: Production Possibilities Frontier
Skill: Analytical
Answer: A
45) Refer to the table above, which gives five
Topic: Increasing Opportunity Cost points on a nation’s PPF. The production of 7
Skill: Analytical units of X and 28 units of Y is
43) Refer to the production possibilities frontier A) impossible given the available resources.
figure above. Which of the following B) possible but leaves some resources less than
movements requires the largest opportunity fully used or misallocated.
cost, in terms of good X forgone, per extra unit C) on the production possibilities frontier
of good Y? between points c and d.
A) From point e to point d. D) on the production possibilities frontier
B) From point d to point c. between points b and c.
C) From point c to point b. Answer: B
D) From point b to point a.
Answer: D Topic: Production Possibilities Frontier
Skill: Analytical
Topic: Increasing Opportunity Cost 46) Refer to the table above, which describes a
Skill: Analytical nation’s PPF. What does point c mean?
44) Refer to the production possibilities frontier in A) If 8 units of X are produced, then 28 or more
the figure above. Which of the following units of Y can be produced.
movements requires the largest opportunity B) If 8 units of X are produced, then at most 28
cost, in terms of good Y forgone, per extra unit units of Y can be produced.
of good X? C) The opportunity cost of one more unit of X is
A) From point a to point b. 3.5 units of Y.
B) From point b to point c. D) The opportunity cost of one less unit of X is
C) From point c to point d. 3.5 units of Y.
D) From point d to point e. Answer: B
Answer: D
Topic: Opportunity Cost
Skill: Analytical
47) Refer to the table above, which gives five
points on a nation’s PPF. The opportunity cost
of increasing the production of X from 8 to 12
units is a total of
A) 1.33 units of Y.
B) 3.5 units of Y.
C) 8 units of Y.
D) 12 units of Y.
Answer: D
THE ECONOMIC PROBLEM 47

Topic: Opportunity Cost Topic: Increasing Opportunity Cost

Skill: Analytical Skill: Conceptual
48) Refer to the table above, which gives five 51) Tom Petty excels at producing rock videos.
points on a nation’s PPF. The opportunity cost Tom Clancy excels at writing military novels.
of increasing the production of Y from 16 to 36 The difference in their skills is one reason why
units is a total of the production possibilities frontier for videos
A) 4 units of X. and novels
B) 8 units of X. A) has a positive slope.
C) 10 units of X. B) has a constant slope.
D) 12 units of X. C) is shallower to the right.
Answer: B D) is steeper to the right.
Answer: D
Topic: Increasing Opportunity Cost
Skill: Analytical Topic: Increasing Opportunity Cost
49) Refer to the table above, which gives five Skill: Analytical
points on a nation’s PPF. As we increase the 52) Generally, opportunity costs increase and the
production of X, production possibilities frontier bows outward.
A) the output of Y increases. Why?
B) unemployment increases. A) Unemployment is inevitable.
C) the opportunity cost of each new unit of X B) Resources are not equally useful in all
increases. activities.
D) the opportunity cost of each new unit of X C) Technology is slow to change.
decreases. D) Labor is scarcer than capital.
Answer: C Answer: B

Topic: Increasing Opportunity Cost

Skill: Analytical
50) Refer to the table above, which gives five
points on a nation’s PPF. The numbers in the
table demonstrate that
A) the economy illustrated has a comparative
advantage in Y.
B) the economy illustrated has a comparative
advantage in X.
C) the opportunity cost of producing an
additional unit of Y increases as the
production of Y increases.
D) the opportunity cost of producing an
additional unit of Y decreases as the
production of Y increases.
Answer: C
 Using Resources Efficiently
Topic: Marginal Cost
Skill: Recognition
53) Marginal cost is the opportunity cost
A) that your activity imposes on someone else.
B) that arises from producing one more unit of a
good or service.
C) of a good or service that exceeds its benefit.
D) of a good or service divided by the number of
units produced.
Answer: B
48 CHAPTER 2

Topic: Marginal Cost

Skill: Recognition
57) Marginal cost curves generally slope
A) upward because of increasing opportunity
cost.
B) upward because of decreasing opportunity
cost.
C) downward because of increasing opportunity
cost.
D) downward because of decreasing opportunity
cost.
Answer: A

Topic: Marginal Benefit

Skill: Recognition
58) Marginal benefit is the benefit
A) that your activity provides to someone else.
B) of producing a good or service when the total
Topic: Marginal Cost
benefit from the good or service exceeds its
Skill: Analytical
total cost.
54) In the figure above, the marginal cost of
C) that is received from consuming one more
producing a computer
unit of a good or service.
A) rises as more computers are produced.
D) of consuming another good or service divided
B) stays the same as more computers are
by the total number of goods or services
produced.
produced.
C) falls as more computers are produced. Answer: C
D) is the same as the marginal cost of producing
a television set. Topic: Marginal Benefit
Answer: A Skill: Recognition
59) The marginal benefit from a good is the
Topic: Marginal Cost maximum amount a person is willing to pay for
Skill: Analytical
A) all of the good the person consumes.
55) In the figure above, the marginal cost of the
B) one more unit of the good.
second computer is
C) all of the units of the good the person
A) 2 television sets.
consumes divided by the number of units he
B) 3 television sets.
or she purchases.
C) 5 television sets.
D) one more unit of the good divided by the
D) 30 television sets.
number of units purchased.
Answer: B
Answer: B
Topic: Marginal Cost
Topic: Marginal Benefit
Skill: Analytical
Skill: Conceptual
56) In the figure above, the marginal cost of the
60) Marginal benefit curves generally slope
fifth computer is
A) upward because of increasing opportunity
A) 0 television sets.
cost.
B) 4 television sets.
B) upward, but not because of increasing
C) 20 television sets.
opportunity cost.
D) 35 television sets.
C) downward because of increasing opportunity
Answer: C
cost.
D) downward, but not because of increasing
opportunity cost.
Answer: D
THE ECONOMIC PROBLEM 49

Topic: Marginal Benefit Topic: Efficient Use of Resources

Skill: Recognition Skill: Conceptual
61) Marginal benefit curves slope 65) If the marginal benefit of a good exceeds its
A) upward and so do marginal cost curves. marginal cost
B) upward, but marginal cost curves slope A) we’ve achieved efficient resource use.
downward. B) we should produce more.
C) downward and so do marginal cost curves. C) we should produce less.
D) downward, but marginal cost curves slope D) we cannot tell if more or less should be
upward. produced.
Answer: D Answer: B

Television sets Willingness to pay

(millions per (computers per television
year) set)
1 2.5
2 2.0
3 1.5
4 1.0
5 0.5
Topic: Marginal Benefit
Skill: Analytical
62) In the table above, the marginal benefit of the 4
millionth television set is
A) negative 0.5 computers per television set.
B) 0.25 computers per television set.
C) 0.5 computers per television set.
D) 1.0 computer per television set.
Answer: D
Topic: Efficient Use of Resources
Topic: Efficient Use of Resources Skill: Analytical
Skill: Recognition 66) In the above figure, if 2 million computers are
63) Resource use is efficient when produced per year then the
A) we produce the goods with the highest A) marginal cost of a computer exceeds the
opportunity cost. marginal benefit of a computer, so more
B) we produce the goods with the lowest computers should be produced.
opportunity cost. B) marginal cost of a computer exceeds the
C) we cannot produce more goods and services. marginal benefit of a computer, so fewer
D) we produce the goods we value most highly. computers should be produced.
Answer: D C) marginal benefit of a computer exceeds the
marginal cost of a computer, so more
Topic: Efficient Use of Resources
Skill: Recognition*
computers should be produced.
64) When we cannot produce more of any good D) marginal benefit of a computer exceeds the
without giving up some other good that we marginal cost of a computer, so fewer
value more highly, we have achieved computers should be produced.
Answer: C
A) production.
B) equity.
C) allocative efficiency.
D) economic growth.
Answer: C
50 CHAPTER 2

Topic: Efficient Use of Resources  Economic Growth

Skill: Analytical
67) In the figure above, if 4 million computers are Topic: Economic Growth
Skill: Recognition
produced per year then the
71) An expansion of the production possibilities
A) marginal cost of a computer exceeds the
frontier is
marginal benefit of a computer, so more
A) called economic growth.
computers should be produced.
B) proof that scarcity is not a binding constraint.
B) marginal cost of a computer exceeds the
C) a free gift of nature.
marginal benefit of a computer, so fewer
D) something that has occurred only rarely in
computers should be produced.
history.
C) marginal benefit of a computer exceeds the
Answer: A
marginal cost of a computer, so more
computers should be produced. Topic: Economic Growth
D) marginal benefit of a computer exceeds the Skill: Analytical
marginal cost of a computer, so fewer 72) After Hurricane Mitch devastated part of
computers should be produced. Central America in October 1998, we can be
Answer: B reasonably sure that the production possibilities
frontier for that area temporarily
Topic: Efficient Use of Resources
Skill: Analytical A) shifted inward, toward the origin.
68) In the figure above, the efficient output of B) shifted outward, away from the origin.
computers is C) became flatter.
D) became steeper.
A) 2 million per year.
Answer: A
B) 3 million per year.
C) 4 million per year. Topic: Economic Growth
D) the largest amount possible. Skill: Recognition*
Answer: B 73) Economic growth is enhanced by all of the
following except
Topic: Efficient Use of Resources
Skill: Analytical A) technological change.
69) In the figure above, at the efficient level of B) capital accumulation.
computer production consumers are willing to C) opportunity cost.
give up D) investment in human capital.
Answer: C
A) 0 televisions per computer.
B) between 0 and 3 televisions per computer. Topic: Economic Growth
C) 3 televisions per computer. Skill: Recognition
D) more than 3 televisions per computer. 74) Technological progress makes the production
Answer: C possibilities frontier
A) shift inward toward the origin.
Topic: Efficient Use of Resources
Skill: Analytical B) become more linear and less bowed.
70) In the figure above, at the efficient level of C) shift outward from the origin.
computer production the marginal cost of D) become less linear and more bowed.
Answer: C
producing a computer is
A) 0 televisions per computer.
B) between 0 and 3 televisions per computer.
C) 3 televisions per computer.
D) more than 3 televisions per computer.
Answer: C
THE ECONOMIC PROBLEM 51

Topic: Economic Growth

Skill: Analytical
75) Consider a production possibilities frontier
with corn on the vertical axis and cars on the
horizontal. Unusually good weather for
growing corn shifts
A) the horizontal intercept rightward and the
vertical intercept upward.
B) the horizontal intercept rightward but does
not shift the vertical intercept.
C) the vertical intercept upward but does not
shift the horizontal intercept.
D) neither the horizontal intercept nor the
vertical intercept.
Answer: C

Topic: Economic Growth

Skill: Analytical
76) Capital accumulation Topic: The Cost of Economic Growth
Skill: Analytical
A) has no impact on the production possibilities
78) The production possibilities frontier in
frontier.
illustrated in the figure above will shift
B) shifts the production possibilities frontier
outward the most rapidly if point
inward.
A) A is selected.
C) makes the production possibilities frontier
B) B is selected.
steeper.
C) C is selected.
D) shifts the production possibilities frontier
D) D is selected.
outward.
Answer: C
Answer: D
Topic: The Cost of Economic Growth
Topic: Economic Growth
Skill: Analytical
Skill: Conceptual
79) The figure above shows the production
77) The production possibilities frontier shifts as
possibilities frontiers for four nations that have
A) tastes and preferences change.
identical production possibilities frontiers in
B) the money supply grows or shrinks.
the present. The one that will grow most
C) technology changes.
rapidly in the future is most likely to be at
D) the unemployment rate changes.
point
Answer: C
A) A.
B) B.
C) C.
D) D.
Answer: C
52
 Gains from Trade
Topic: Comparative Advantage
Skill: Recognition
80) Because of the existence of comparative
advantage, the total output of goods is higher
when each producer
A) produces several different goods.
B) produces at the midpoint of its PPF.
C) specializes in the production of a particular
good.
D) makes both intermediate and final goods.
Answer: C
Topic: Comparative Advantage
Skill: Recognition
81) A person has a comparative advantage in
producing a particular good if that person
A) has higher productivity in producing it than
anyone else has.
B) can produce it at lower opportunity cost than
anyone else can.
C) has less desire to consume that good than
anyone else has.
D) has more human capital related to that good
than anyone else has.
Answer: B
Topic: Comparative Advantage
Skill: Analytical
82) Possessing a comparative advantage in the
production of a particular good
A) tends to discourage specialization.
B) encourages self-sufficiency.
C) means that its opportunity cost is higher than
that of other goods.
D) permits gains from trade.
Answer: D
CHAPTER 2
Topic: Comparative Advantage
Skill: Recognition
83) Individuals A and B both produce good X. We
say that A has a comparative advantage in the
production of good X if A
A) has a lower opportunity cost of producing
good X than has B.
B) has a lower opportunity cost of producing
good X than of producing good Y.
C) can produce more units of X in a given time
period than can B.
D) can produce X using newer technology than
can B.
Answer: A
Topic: Comparative Advantage
Skill: Analytical
84) In an eight-hour day, Andy can produce either
24 loaves of bread or 8 pounds of butter. In an
eight-hour day, Bob can produce either 8
loaves of bread or 8 pounds of butter. We know
that Andy has a comparative advantage in the
production of
A) bread, while Bob has a comparative
advantage in the production of butter.
B) butter, while Bob has a comparative
advantage in the production of bread.
C) bread and neither has a comparative
advantage in the production of butter.
D) both bread and butter.
Answer: A
THE ECONOMIC PROBLEM 53

Country A Country B Topic: Comparative Advantage

Skill: Analytical
Good X Good Y Good X Good Y
(units of (units of Y) (units of (units of Y) 88) In the table above, country B is producing 4
X) X) units of X and 6 units of Y. For country B, the
opportunity cost of producing an additional
0 16 0 12
unit of Y is
2 12 2 9
A) 1/2 unit of X.
4 8 4 6
B) 2/3 unit of X.
6 4 6 3
C) 2 units of X.
8 0 8 0
D) 3 units of X.
Topic: Comparative Advantage Answer: B
Skill: Analytical
85) In the table above, country A is producing 4 Topic: Comparative Advantage
units of X and 8 units of Y and country B is Skill: Recognition
producing 4 units of X and 6 units of Y. The 89) Both Mergatroid and the Geebocks produce
opportunity cost of producing more of only gizmos and widgets. It is possible for
A) good X is the same for both countries. Mergatroid to have
B) good Y is the same for both countries. A) an absolute and a comparative advantage in
C) good X is lower in country A. both products.
D) good Y is lower in country A. B) an absolute but not a comparative advantage
Answer: D in both products.
C) a comparative but not an absolute advantage
Topic: Comparative Advantage
in both products.
Skill: Analytical
D) neither a comparative nor an absolute
86) In the table above, country A is producing 4
advantage in both products.
units of X and 8 units of Y and country B is
Answer: B
producing 4 units of X and 6 units of Y.
Regarding the production of good X Topic: Achieving the Gains From Trade
A) country A has an absolute advantage. Skill: Conceptual
B) country B has an absolute advantage. 90) One of the largest categories of exports from
C) country A has a comparative advantage. the United States is now pop culture: movies,
D) country B has a comparative advantage. music, TV programming, and videos. A direct
Answer: D conclusion from this information is that,
compared to other countries, the United States
Topic: Comparative Advantage has
Skill: Analytical
A) lower wages for producers of pop culture.
87) In the table above, country B is producing 4
B) higher wages for producers of pop culture.
units of X and 6 units of Y. For country B, the
C) an absolute advantage in producing pop
opportunity cost of producing an additional
culture.
unit of X is
D) a comparative advantage in producing pop
A) 4 units of Y.
culture.
B) 2 units of Y. Answer: D
C) 3/2 units of Y.
D) 1 unit of Y
Answer: C
54 CHAPTER 2

Topic: Achieving the Gains From Trade
Skill: Conceptual
91) One of the largest categories of exports from
the United States is now pop culture: movies,
music, TV programming, and videos. A direct
conclusion from this information is that,
compared to other countries, the United States
has
A) lower wages for producers of pop culture.
B) higher wages for producers of pop culture.
C) a higher opportunity cost of producing pop
culture.
D) a lower opportunity cost of producing pop
culture.
Answer: D
Topic: Achieving the Gains From Trade
Skill: Conceptual
95) Jane produces only corn and cloth. The land
that she allocates to corn
A) may have a comparative advantage for cloth,
but nonetheless has an absolute advantage for
corn.
B) may have an absolute advantage for cloth, but
nonetheless has a comparative advantage for
corn.
C) must have both an absolute and a comparative
advantage for corn.
D) may have neither an absolute nor a
comparative advantage for corn.
Answer: B

Topic: Achieving the Gains From Trade

Skill: Analytical
92) George and Michael can gain from exchange
A) unless one has an absolute advantage in all
goods.
B) if each specializes in the production of the
good for which he has the higher opportunity
cost.
C) if each specializes in the production of the
good for which he has the lower opportunity
cost.
D) unless they have different opportunity costs.
Answer: C

Topic: Achieving the Gains From Trade

Skill: Analytical
93) To obtain the gains available from comparative
advantage, individuals or countries must do
Topic: Gains From Trade
more than specialize; they must also
Skill: Conceptual
A) save. 96) In the figure above, suppose that Mac and Izzie
B) invest. trade and reach point c. Then
C) engage in research and development.
A) Mac produces outside his production
D) trade.
possibilities frontier.
Answer: D
B) Izzie produces outside her production
Topic: Achieving the Gains From Trade possibilities frontier.
Skill: Analytical* C) Mac and Izzie both produce outside their
94) By specialization and trade, two individuals production possibilities frontiers.
can D) neither Mac nor Izzie produce outside their
A) consume at a point beyond their individual production possibilities frontiers.
production possibilities frontiers. Answer: D
B) increase their comparative advantage.
C) increase their absolute advantage.
D) shift their individual production possibilities
frontiers outward.
Answer: A
THE ECONOMIC PROBLEM
Topic: Gains From Trade
Skill: Analytical
97) In the figure above, suppose that Mac and Izzie
trade and reach point c. Then
A) Mac and Izzie should both produce at point a.
B) Mac should produce at point b and Izzie
should produce at point d.
C) Mac should produce at point d and Izzie
should produce at point b.
D) Mac and Izzie should both produce at point c.
Answer: B
Topic: Gains From Trade
Skill: Analytical
98) In the figure above, if Mac and Izzie both
completely specialized and traded with one
another, their joint output would be
A) 3 computers and 3 TV sets per month.
B) 6 computers and 6 TV sets per month.
C) 12 computers and 12 TV sets per month.
D) 24 computers and 24 TV sets per month.
Answer: C
Topic: Gains From Trade
Skill: Analytical
99) In the figure above, suppose that Mac and Izzie
specialize and trade to reach point c. Mac
sends Izzie
A) 12 computers in exchange for 12 TVs.
B) 12 computers in exchange for 6 TVs.
C) 6 computers in exchange for 12 TVs.
D) 6 computers in exchange for 6 TVs.
Answer: D
Topic: Absolute Advantage
Skill: Recognition
100) A person who has an absolute advantage in the
production of all goods will
A) also have a comparative advantage in the
production of all goods.
B) not be able to gain from specialization and
exchange.
C) have a production possibilities frontier with a
constant slope.
D) have a comparative advantage only in the
production of some goods but not for others.
Answer: D
55
Topic: Absolute Advantage
Skill: Analytical
101) Whenever a person can produce more of all
goods than anyone else, that person
A) should specialize in everything.
B) has a comparative advantage in everything.
C) should be self-sufficient.
D) has an absolute advantage.
Answer: D
Topic: Absolute Advantage
Skill: Conceptual
102) A person who has an absolute advantage will
A) not have a comparative advantage in
everything.
B) have a comparative advantage in everything.
C) not specialize.
D) not trade.
Answer: A
Topic: Absolute Advantage
Skill: Conceptual
103) If a person can produce more of all goods than
anyone else, that person
A) has an absolute advantage.
B) has a comparative advantage in the
production of all goods.
C) will be unable to gain from specialization and
exchange.
D) is no longer affected by scarcity.
Answer: A
Topic: Comparative Advantage
Skill: Analytical*
104) Homer and Teddy are stranded on a desert
island. To feed themselves each day they can
either catch fish or pick fruit. In a day, Teddy
could pick 60 pieces of fruit or catch 20 fish.
Homer could pick 100 pieces of fruit or catch
150 fish. Which of the following is correct?
A) Homer has a comparative advantage in
catching fish and Teddy has a comparative
advantage in picking fruit.
B) Homer has a comparative advantage in
picking fruit and Teddy has a comparative
advantage in catching fish.
C) Homer has a comparative advantage in both
catching fish and picking fruit.
D) Teddy has a comparative advantage in both
catching fish and picking fruit.
Answer: A
56
Topic: Absolute Advantage
Skill: Analytical*
105) Homer and Teddy are stranded on a desert
island. To feed themselves each day they can
either catch fish or pick fruit. In a day, Teddy
could pick 60 pieces of fruit or catch 20 fish.
Homer could pick 100 pieces of fruit or catch
150 fish. Which of the following statements is
correct?
A) Homer has an absolute advantage in catching
fish and Teddy has an absolute advantage in
picking fruit.
B) Homer has an absolute advantage in picking
fruit and Teddy has an absolute advantage in
catching fish.
C) Homer has an absolute advantage in both
catching fish and picking fruit.
D) Teddy has an absolute advantage in both
catching fish and picking fruit.
Answer: C
Topic: Comparative Advantage
Skill: Analytical
106) Agnes can produce either 1 unit of X or 1 unit
of Y in an hour, while Brenda can produce
either 2 units of X or 4 units of Y in an hour.
The opportunity cost of producing a unit of X is
A) 1 unit of Y for Agnes and 2 units of Y for
Brenda.
B) 1 unit of Y for Agnes and 1/2 unit of Y for
Brenda.
C) 1 hour for Agnes and 1/2 hour for Brenda.
D) 1 hour for Agnes and 2 hours for Brenda.
Answer: A
Topic: Comparative Advantage
Skill: Analytical
107) Agnes can produce either 1 unit of X or 1 unit
of Y in an hour, while Brenda can produce
either 2 units of X or 4 units of Y in an hour.
The opportunity cost of producing a unit of Y is
A) 1 unit of X for Agnes and 2 units of X for
Brenda.
B) 1 unit of X for Agnes and 1/2 unit of X for
Brenda.
C) 1 hour for Agnes and 1/2 hour for Brenda.
D) 1 hour for Agnes and 2 hours for Brenda.
Answer: B
CHAPTER 2
Topic: Achieving the Gains From Trade
Skill: Analytical
108) Agnes can produce either 1 unit of X or 1 unit
of Y in an hour, while Brenda can produce
either 2 units of X or 4 units of Y in an hour.
There can be gains from exchange
A) if Agnes specializes in the production of X
and Brenda in Y.
B) if Agnes specializes in the production of Y
and Brenda in X.
C) only if Agnes becomes faster at producing X.
D) only if Brenda becomes faster at producing X
or Y.
Answer: A
Topic: Absolute Advantage
Skill: Analytical
109) Agnes can produce either 1 unit of X or 1 unit
of Y in an hour, while Brenda can produce
either 2 units of X or 4 units of Y in an hour.
A) Brenda has an absolute advantage over
Agnes.
B) Agnes has a comparative advantage in the
production of Y.
C) Brenda has a comparative advantage in the
production of X.
D) Brenda cannot gain from trade.
Answer: A
Topic: Dynamic Comparative Advantage
Skill: Recognition*
110) Dynamic comparative advantage arises from
A) absolute advantage.
B) learning-by-doing.
C) increasing opportunity cost.
D) decreasing marginal benefit.
Answer: B
Topic: Dynamic Comparative Advantage
Skill: Recognition
111) Learning-by-doing is a basis for
A) absolute comparative advantage.
B) eliminating opportunity cost.
C) reducing the gains from trade over time.
D) dynamic comparative advantage.
Answer: D
THE ECONOMIC PROBLEM 57

 The Market Economy Topic: Markets

Skill: Recognition
Topic: Property Rights 116) The term “market” refers to
Skill: Analytical
A) physical structures only.
112) The social arrangements that govern the
B) locations where buyers and sellers physically
ownership, use, and disposal of property are
meet.
referred to as
C) any arrangement that enables buyers and
A) the double coincidence of wants. sellers to get information and trade with one
B) capitalism. another.
C) private enterprise. D) trading arrangements that have been approved
D) property rights. by the government.
Answer: D
Answer: C
Topic: Property Rights
Topic: Circular Flows
Skill: Recognition
Skill: Recognition
113) Intellectual property 117) In goods markets
A) is protected by common law rather than by A) households sell to firms. In factor markets
written laws. firms sell to households.
B) is protected by people’s sense of decency B) firms sell to households. In factor markets
rather than by written laws. households sell to firms.
C) belongs to everyone with the necessary C) and in factor markets households sell to firms.
human capital to use it. D) and in factor markets firms sell to households.
D) is often protected by copyrights and patents. Answer: B
Answer: D
Topic: Coordinating Decisions
Topic: Property Rights Skill: Recognition
Skill: Recognition
118) Individual economic decisions are coordinated
114) In a world lacking property rights, it would be by
A) easier to realize the gains from trade and A) markets through adjustments in sales levels.
there would be less specialization. B) markets through adjustments in prices.
B) easier to realize the gains from trade and C) government through adjustments in sales
there would be more specialization. taxes.
C) harder to realize the gains from trade and D) government through adjustments in income
there would be less specialization. taxes.
D) harder to realize the gains from trade and Answer: B
there would be more specialization.
Answer: C
 Study Guide Questions
Topic: Property Rights
Skill: Analytical Topic: Study Guide Question, Production Possibilities
115) A computer software program is most strongly Frontier
an example of Skill: Analytical
119) If the United States can produce more
A) real property.
automobiles only by producing less of
B) fiat property.
something else, then the United States
C) intellectual property.
D) vicarious property. A) must be producing at a point within its PPF.
Answer: C B) must be producing at a point on its PPF.
C) has solved the problem of scarcity.
D) must be producing at a point outside its PPF.
Answer: B
58 CHAPTER 2

Topic: Study Guide Question, Production Possibilities

Frontier
Skill: Analytical
120) Production points inside the PPF are
A) efficient but not attainable.
B) efficient and attainable.
C) inefficient and not attainable.
D) inefficient and attainable.
Answer: D

Topic: Study Guide Question, Production Possibilities

Frontier
Skill: Analytical
121) A nation can consume at a point outside its
PPF
A) when it trades with other nations.
B) when it produces inefficiently.
C) when its PPF is bowed out.
D) never. Topic: Study Guide Question, Opportunity Cost
Answer: A Skill: Analytical
124) In the above figure, at point a what is the
Topic: Study Guide Question, Production Efficiency opportunity cost of producing one more audio
Skill: Analytical tape?
122) A nation can produce at a point inside its PPF A) 1 video tape.
A) when it trades with other nations. B) 2 video tapes.
B) when it produces inefficiently. C) 14 video tapes.
C) when its PPF is bowed out. D) There is no opportunity cost.
D) never. Answer: A
Answer: B
Topic: Study Guide Question, Opportunity Cost
Topic: Study Guide Question, Economic Growth Skill: Analytical
Skill: Analytical 125) In the above figure, at point b what is the
123) An increase in the nation’s capital stock will opportunity cost of producing 2 more audio
A) shift the PPF outward. tapes?
B) cause a movement along the PPF up and to A) 1 video tape.
the left. B) 2 video tapes.
C) cause a movement along the PPF down and C) 12 video tapes.
to the right. D) There is no opportunity cost.
D) move the nation from producing within the Answer: A
PPF to producing at a point closer to the
PPF.
Answer: A
THE ECONOMIC PROBLEM 59

Topic: Study Guide Question, Comparative Advantage  Economics in Action Questions

Skill: Analytical
126) In one day, Brandon can either plow 10 acres
or plant 20 acres. In one day, Christopher can
either plow 14 acres or plant 14 acres. Which
of the following statements about comparative
advantage is correct?
A) Brandon has a comparative advantage in both
plowing and planting.
B) Brandon has a comparative advantage only in
plowing.
C) Brandon has a comparative advantage only in
planting.
D) Christopher has a comparative advantage in
both plowing and planting.
Answer: C

Topic: Study Guide Question, Comparative Advantage

Skill: Analytical
127) In one day, Brandon can either plow 10 acres
or plant 20 acres. In one day, Christopher can
either plow 14 acres or plant 14 acres. Brandon
and Christopher can
A) gain from exchange if Brandon specializes in
planting and Christopher in plowing.
B) gain from exchange if Brandon specializes in
plowing and Christopher in planting.
C) exchange, but only Brandon will gain from
the exchange.
D) exchange, but only Christopher will gain from
the exchange.
Answer: A
Topic: Parallel Economics in Action Questions,
Production Possibilities Frontier
Skill: Analytical
128) In the above figure, point A is ____, and point
B is ____.
A) attainable, attainable
B) attainable, unattainable
C) unattainable, attainable
D) unattainable, unattainable
Answer: A
Topic: Parallel Economics in Action Questions,
Opportunity Cost
Skill: Analytical
129) Abe can catch 15 pounds of fish an hour or
pick 30 pounds of fruit an hour. He works an 8-
hour day, spending 5 hours picking fruit and 3
hours catching fish. Calculate Abe’s
opportunity cost of a pound of fruit.
A) 6 minutes.
B) 3 hours a day.
C) 2 pounds of fish.
D) 0.5 pounds of fish.
Answer: D
60
Topic: Parallel Economics in Action Questions,
Opportunity Cost
Skill: Analytical
130) In the figure above, if the quantity of yogurt
produced increases from 2 gallons an hour to 3
gallons an hour, the opportunity cost of a
gallon of yogurt in terms of ice cream is
A) half a gallon.
B) 1 gallon.
C) 3 gallons.
D) 4 gallons.
Answer: B
Topic: Parallel Economics in Action Questions,
Opportunity Cost
Skill: Analytical
131) Claire and Dag are farmers who produce beef
and corn. In a year, Claire can produce 16 tons
of beef or 40 bushels of corn, while Dag can
produce 5 tons of beef or 25 bushels of corn.
The opportunity cost of producing a ton of beef
is
A) 10 bushels of corn for Dag and 8 bushels of
corn for Claire.
B) 5 bushels of corn for Dag and 2.5 bushels of
corn for Claire.
C) 20 bushels of corn for Dag and 50 bushels of
corn for Claire.
D) 36.5 days for Dag and 45.6 days for Claire.
Answer: B
CHAPTER 2
Topic: Parallel Economics in Action Questions,
Opportunity Cost
Skill: Analytical
132) Abe can catch 10 pounds of fish an hour or
pick 10 pounds of fruit. Zeb can catch 30
pounds of fish an hour or pick 20 pounds of
fruit. The opportunity cost of fish is ____ for
Abe than for Zeb, and the opportunity cost of
fruit is ____ for Abe than for Zeb.
A) higher, lower
B) lower, higher
C) higher, higher
D) lower, lower
Answer: A
Topic: Parallel Economics in Action Questions,
Achieving the Gains from Trade
Skill: Analytical
133) Refer to the above figure. Mario is self-
sufficient and so is Mia. Each produces 6
dishes of pasta and 4 pizzas. Mario and Mia
decide to specialize and trade. After they have
specialized and traded, compared to the initial
situation, Mia’s opportunity cost of pasta has
____ and Mario’s opportunity cost of a pizza
has ____.
A) decreased, decreased
B) decreased, increased
C) increased, increased
D) increased, decreased
Answer: C