Chapter THE ECONOMIC PROBLEM

1 C h a p t e r 2 THE ECONOMIC . PROBLEM . Topic: production possibilities Frontier production possibilities and Skill: Recognition Opportunity Cost 4) The production possibilities frontier is A) upward sloping and reflects unlimited choices. Topic: production possibilities Frontier Skill: Recognition B) upward sloping and reflects tradeoffs in choices. 1) The production possibilities frontier C) downward sloping and reflects unlimited choices. A) refers to the technology used in such goods as D) downward sloping and reflects tradeoffs in computers and military aircraft.

2 Choices. B) once applied to technology but now refers Answer: D. to Japanese technology. C) marks the boundary between attainable combi- Topic: production possibilities Frontier nations of goods and services and unattainable Skill: Recognition combinations. 5) The production possibilities frontier D) is also called the supply curve. A) depicts the boundary between those combina- Answer: C tions of goods and services that can be produced and those that cannot given resources and the Topic: production possibilities Frontier Skill: Recognition* current state of technology.

3 2) The production possibilities frontier is the bound- B) shows how many goods and services are con- ary between sumed by each person in a country. C) is a model that assumes there is no scarcity and A) those combinations of goods and services that no opportunity cost. can be produced and those that can be con- D) is a graph with price on the vertical axis and in- sumed. come on the horizontal axis. B) those resources that are limited and those that Answer: A. are unlimited. C) those combinations of goods and services that Topic: production possibilities Frontier can be produced and those that cannot.

4 Skill: Conceptual D) those wants that are limited and those that are 6) The production possibilities frontier illustrates unlimited. A) all goods that can be produced by an economy Answer: C B) the combination of goods and services that can be produced efficiently Topic: production possibilities Frontier Skill: Conceptual C) all goods and services that are desired but cannot 3) The production possibilities frontier is the bound- be produced due to scarce resources. ary between those combination of goods and ser- D) all possible production of capital goods Answer: B.

5 Vices that can be A) produced and those that can be consumed. B) consumed domestically and those that can be consumed by foreigners. C) produced and those that cannot be produced. D) consumed and those that cannot be produced. Answer: C. 49. 50 Chapter 2. Topic: production possibilities Frontier Topic: production possibilities Frontier Skill: Recognition Skill: Analytical 7) The production possibilities frontier represents 11) Jane produces only corn and cloth. Taking ac- A) the maximum amount of resources available at count of her preferences for corn and cloth any given time.

6 A) makes her production possibilities frontier B) combinations of goods and services that do not straighter. fully use available resources. B) makes her production possibilities frontier C) the maximum rate of growth of output possible steeper. for an economy. C) makes her production possibilities frontier flat- D) the maximum levels of production that can be ter. attained. D) does not affect her production possibilities fron- Answer: D tier. Answer: D. Topic: production possibilities Frontier Skill: Analytical Topic: production possibilities Frontier 8) A production possibilities frontier does NOT Skill: Recognition illustrate 12) On the vertical axis, the production possibilities A) the limits on production imposed by our limited frontier shows ____; on the horizontal axis, the resources and technology.

7 production possibilities frontier shows ____. B) the exchange of one good or service for another. A) the quantity of a good; the number of workers C) opportunity cost. employed to produce the good D) attainable and unattainable points. B) the quantity of a good; the price of the good Answer: B C) the quantity of a good; a weighted average of re- sources used to produce the good Topic: production possibilities Frontier D) the quantity of one good; the quantity of an- Skill: Analytical other good 9) Any production point outside the production Answer: D. possibilities frontier A) is unattainable.

8 Topic: production possibilities Frontier B) is associated with unused resources. Skill: Conceptual C) is attainable only if prices fall. 13) scarcity is represented on the production possi- D) is attainable only if prices rise. bilities frontier by Answer: A A) the amount of the good on the horizontal axis forgone. Topic: production possibilities Frontier B) the fact that there are only two goods in the dia- Skill: Analytical gram. 10) Which of the following statements regarding the C) technological progress. production possibilities frontier is true? D) the fact there are attainable and unattainable A) Points outside the frontier are attainable.

9 Points. B) Points inside the frontier are attainable. Answer: D. 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 51. Topic: production Efficiency Skill: Analytical 16) A point inside a production possibilities frontier A) could indicate that resources are misallocated. B) is more efficient than a point on the production possibilities frontier. C) reflects the fact that more technology needs to be developed to fully employ all resources.

10 D) implies that too much labor and not enough capital is being used. Answer: A. Topic: production Efficiency Skill: Analytical 17) 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. Topic production possibilities Skill: Analytical B) where the slope of the PPF is zero. 14) The above figure illustrates that if this country C) inside the PPF. wishes to move from its current production point D) outside the PPF. Answer: C.