Question 1

Which fundamental economic question is most closely related to the issues of income distribution and poverty?

Accepted Answer

A)  The What to Produce question. 
B)  The Why to Produce question. 
C)  The How to Produce question. 
D)  The For Whom to Produce question. 
A)  The What to Produce question. 
B)  The Why to Produce question. 
C)  The How to Produce question. 
D)  The For Whom to Produce question.

Question 2

Exhibit 2-15 Production possibilities curve
 
In Exhibit 2-15, the economy will experience the most future economic growth if it chooses what point now?

Accepted Answer

A)  J. 
B)  K. 
C)  M. 
D)  N. 
A)  J. 
B)  K. 
C)  M. 
D)  N.

Question 3

Which of the following most accurately summarizes the implications of an economy's production possibilities curve?

Accepted Answer

A)  If all the resources of an economy are being used efficiently, more of one good can be produced only if less of another good is produced. 
B)  If all the resources of an economy are being used efficiently, it is generally possible to produce more of one good without having to sacrifice the production of other goods. 
C)  Over time, it is generally impossible for a country to expand its production of goods. 
D)  An economy will automatically move toward a point that lies outside of the production possibilities constraint unless proper government policy constrains production. 
A)  If all the resources of an economy are being used efficiently, more of one good can be produced only if less of another good is produced. 
B)  If all the resources of an economy are being used efficiently, it is generally possible to produce more of one good without having to sacrifice the production of other goods. 
C)  Over time, it is generally impossible for a country to expand its production of goods. 
D)  An economy will automatically move toward a point that lies outside of the production possibilities constraint unless proper government policy constrains production.

Question 4

Exhibit 2-1 Production possibilities curve data
    Consumption Goods   Capital Goods     10   0       9   1       7   2       4   3       0   4   
-In Exhibit 2-1, according to the information, the opportunity cost of producing 3 units of capital is:

Accepted Answer

A)  3 units of consumption goods. 
B)  4 units of consumption goods. 
C)  6 units of consumption goods. 
D)  7 units of consumption goods. 
A)  3 units of consumption goods. 
B)  4 units of consumption goods. 
C)  6 units of consumption goods. 
D)  7 units of consumption goods.

Question 5

Three basic decisions must be made by all economies. What are they?

Accepted Answer

A)  How much will be produced, when it will be produced, and how much it will cost. 
B)  What the price of each good will be, who will produce each good, and who will consume each good. 
C)  What will be produced, how goods will be produced, and for whom goods will be produced. 
D)  How the opportunity cost principle will be applied, if and how the law of comparative advantage will be utilized, and whether the production possibilities constraint will apply. 
A)  How much will be produced, when it will be produced, and how much it will cost. 
B)  What the price of each good will be, who will produce each good, and who will consume each good. 
C)  What will be produced, how goods will be produced, and for whom goods will be produced. 
D)  How the opportunity cost principle will be applied, if and how the law of comparative advantage will be utilized, and whether the production possibilities constraint will apply.

Question 6

Given the possible strategies listed below, design the best plan for increasing the country's future standard of living.
I. build new factories
Ii. print money
Iii. develop new production technology
Iv. sacrifice consumer goods for capital formation
Iv. tighten immigration policy
V. produce only enough capital goods to replenish depreciation.

Accepted Answer

A)  i, ii, and iii only 
B)  i, iii,  and iv only 
C)  ii, iv, and v only 
D)  i, ii, iii, iv, and v 
A)  i, ii, and iii only 
B)  i, iii,  and iv only 
C)  ii, iv, and v only 
D)  i, ii, iii, iv, and v

Question 7

A point outside the production possibilities curve represents a combination of goods that is:

Accepted Answer

A)  inefficient. 
B)  efficient. 
C)  unattainable. 
D)  attainable. 
A)  inefficient. 
B)  efficient. 
C)  unattainable. 
D)  attainable.

Question 8

Exhibit 2-13 Production possibilities curve
 
-In Exhibit 2-13, in terms of efficiency:

Accepted Answer

A)  point A is preferred to point B . 
B)  point A is preferred to point E . 
C)  point A is preferred to point D . 
D)  point B is preferred to point A . 
A)  point A is preferred to point B . 
B)  point A is preferred to point E . 
C)  point A is preferred to point D . 
D)  point B is preferred to point A .

Question 9

Which would be least likely to cause the production possibilities curve to shift to the right?

Accepted Answer

A)  an increase in the labor force 
B)  improved methods of production 
C)  an increase in the education and training of the labor force 
D)  a decrease in unemployment 
A)  an increase in the labor force 
B)  improved methods of production 
C)  an increase in the education and training of the labor force 
D)  a decrease in unemployment

Question 10

Answering the For Whom to Produce question means that:

Accepted Answer

A)  society is determining the size of the economic pie, 
B)  scarcity no longer restricts production. 
C)  society must have a method to decide who will be rich and who will be poor. 
D)  an economy is selecting among its resources for production. 
A)  society is determining the size of the economic pie, 
B)  scarcity no longer restricts production. 
C)  society must have a method to decide who will be rich and who will be poor. 
D)  an economy is selecting among its resources for production.

Question 11

In economics, investment refers to the process of accumulating:

Accepted Answer

A)  capital goods. 
B)  consumer goods. 
C)  money. 
D)  stocks and bonds. 
A)  capital goods. 
B)  consumer goods. 
C)  money. 
D)  stocks and bonds.

Question 12

If an economy is producing at full employment, it means that:

Accepted Answer

A)  there are idle resources in this economy. 
B)  the economy is producing along its production possibilities curve. 
C)  the economy is producing at a point that is to the left of the production possibilities curve. 
D)  the economy is producing at a point that is to the right of the production possibilities curve. 
A)  there are idle resources in this economy. 
B)  the economy is producing along its production possibilities curve. 
C)  the economy is producing at a point that is to the left of the production possibilities curve. 
D)  the economy is producing at a point that is to the right of the production possibilities curve.

Question 13

Exhibit 2-1 Production possibilities curve data
    Consumption Goods   Capital Goods     10   0       9   1       7   2       4   3       0   4   
-In Exhibit 2-1, why is the opportunity cost of producing the fourth unit of capital 4 units of consumption goods but the opportunity cost of producing 4 units of capital is 10 units of consumption goods?

Accepted Answer

A)  It isn't. The opportunity cost of the fourth unit and the opportunity cost of four units is the same. 
B)  Because consumption goods are more valuable than capital goods. 
C)  Because the opportunity cost of capital goods is constant while the opportunity cost of consumption goods is decreasing as this economy moves from more consumption goods to more capital goods. 
D)  Because the opportunity cost of the fourth unit of capital is the consumption goods that must be given up for this economy to move from three units of capital to four units of capital, but the opportunity cots of four units of capital is the amount of consumption goods that must be given up to go from zero units of capital to four units of capital. 
A)  It isn't. The opportunity cost of the fourth unit and the opportunity cost of four units is the same. 
B)  Because consumption goods are more valuable than capital goods. 
C)  Because the opportunity cost of capital goods is constant while the opportunity cost of consumption goods is decreasing as this economy moves from more consumption goods to more capital goods. 
D)  Because the opportunity cost of the fourth unit of capital is the consumption goods that must be given up for this economy to move from three units of capital to four units of capital, but the opportunity cots of four units of capital is the amount of consumption goods that must be given up to go from zero units of capital to four units of capital.

Question 14

The process through which an economy's production possibilities curve shifts outward is:

Accepted Answer

A)  full-employment management. 
B)  investment. 
C)  resource renewal. 
D)  out-resourcing. 
A)  full-employment management. 
B)  investment. 
C)  resource renewal. 
D)  out-resourcing.

Question 15

Exhibit 2-4 Production possibilities curve data
      A   B   C   D   E    Capital goods      0     10     20   30   40    Consumer goods  200   180   140   80     0   
In Exhibit 2-4, if the economy chooses production possibility D rather than production possibility B, it can expect

Accepted Answer

A)  less growth in the future because it will use up its consumer goods. 
B)  more growth in the future because of the accumulation of capital. 
C)  the same amount of growth in the future but with a lower standard of living. 
D)  the same amount of growth in the future but with a higher standard of living. 
A)  less growth in the future because it will use up its consumer goods. 
B)  more growth in the future because of the accumulation of capital. 
C)  the same amount of growth in the future but with a lower standard of living. 
D)  the same amount of growth in the future but with a higher standard of living.

Question 16

Three of the four following questions are indicative of the three fundamental economic questions. Leaving out the irrelevant question, rearrange the three relevant questions in the order an economy must answer them. 
 - Should electricity be produced from oil, solar, or nuclear power?
 - Should corn be produced in the North or in the South?
 - Who drives a Mercedes?
 - Should more hybrid cars and fewer SUVs be produced?

Accepted Answer

A)  1. Should more hybrid cars and fewer SUVs be produced? 2. Should corn be produced in the North or in the South? 3. Should electricity be produced from oil, solar, or nuclear power? 
B)  1. Who drives a Mercedes? 2. Should more hybrid cars and fewer SUVs be produced? 3. Should corn be produced in the North or in the South? 
C)  1. Should more hybrid cars and fewer SUVs be produced? 2. Should electricity be produced from oil, solar, or nuclear power? 3. Who drives a Mercedes? 
D)  1. Should electricity be produced from oil, solar, or nuclear power? 2. Should more hybrid cars and fewer SUVs be produced? 3. Should corn be produced in the North or in the South? 
A)  1. Should more hybrid cars and fewer SUVs be produced? 2. Should corn be produced in the North or in the South? 3. Should electricity be produced from oil, solar, or nuclear power? 
B)  1. Who drives a Mercedes? 2. Should more hybrid cars and fewer SUVs be produced? 3. Should corn be produced in the North or in the South? 
C)  1. Should more hybrid cars and fewer SUVs be produced? 2. Should electricity be produced from oil, solar, or nuclear power? 3. Who drives a Mercedes? 
D)  1. Should electricity be produced from oil, solar, or nuclear power? 2. Should more hybrid cars and fewer SUVs be produced? 3. Should corn be produced in the North or in the South?

Question 17

What can a nation do to increase its economic growth? Why is economic growth among the major national economic goals of all countries?

Accepted Answer

A nation must increase its production po

Question 18

With time, which one of the following strategies would most likely result in an outward shift in the production possibilities curve of an economy?

Accepted Answer

A)  passage of legislation reducing the workweek to 30 hours. 
B)  instituting a tax policy encouraging consumption at the expense of investment. 
C)  instituting a tax policy encouraging investment at the expense of consumption. 
D)  an increase in the marginal income tax rate, which would reduce the work effort of individuals. 
A)  passage of legislation reducing the workweek to 30 hours. 
B)  instituting a tax policy encouraging consumption at the expense of investment. 
C)  instituting a tax policy encouraging investment at the expense of consumption. 
D)  an increase in the marginal income tax rate, which would reduce the work effort of individuals.

Question 19

Exhibit 2-11 Production possibilities curves
 
In Exhibit 2-11, which of the following could have caused the production possibilities curve to shift from the one labeled B to the one labeled A?

Accepted Answer

A)  A major natural disaster. 
B)  An increase in resources. 
C)  An advance in technology. 
D)  A decrease in unemployment. 
A)  A major natural disaster. 
B)  An increase in resources. 
C)  An advance in technology. 
D)  A decrease in unemployment.

Question 20

Which of the following causes the production possibilities curve to shift to the right?

Accepted Answer

A)  a famine 
B)  a war 
C)  the depletion of oil reserves 
D)  the development of a new technology that improves productivity 
A)  a famine 
B)  a war 
C)  the depletion of oil reserves 
D)  the development of a new technology that improves productivity

	A	B	C	D	E
Capital goods	0	10	20	30	40
Consumer goods	200	180	140	80	0

Exam 2: Production Possibilities Opportunity Cost and Economic Growth

Which fundamental economic question is most closely related to the issues of income distribution and poverty?

Exhibit 2-15 Production possibilities curve In Exhibit 2-15, the economy will experience the most future economic growth if it chooses what point now?

Which of the following most accurately summarizes the implications of an economy's production possibilities curve?

Exhibit 2-1 Production possibilities curve data Consumption Goods Capital Goods 10 0 9 1 7 2 4 3 0 4 -In Exhibit 2-1, according to the information, the opportunity cost of producing 3 units of capital is:

Three basic decisions must be made by all economies. What are they?

A point outside the production possibilities curve represents a combination of goods that is:

Exhibit 2-13 Production possibilities curve -In Exhibit 2-13, in terms of efficiency:

Which would be least likely to cause the production possibilities curve to shift to the right?

Answering the For Whom to Produce question means that:

In economics, investment refers to the process of accumulating:

If an economy is producing at full employment, it means that:

The process through which an economy's production possibilities curve shifts outward is:

Exhibit 2-4 Production possibilities curve data A B C D E Capital goods 0 10 20 30 40 Consumer goods 200 180 140 80 0 In Exhibit 2-4, if the economy chooses production possibility D rather than production possibility B, it can expect

What can a nation do to increase its economic growth? Why is economic growth among the major national economic goals of all countries?

With time, which one of the following strategies would most likely result in an outward shift in the production possibilities curve of an economy?

Exhibit 2-11 Production possibilities curves In Exhibit 2-11, which of the following could have caused the production possibilities curve to shift from the one labeled B to the one labeled A?

Which of the following causes the production possibilities curve to shift to the right?

Introducing the Economic Way of Thinking

Market Demand and Supply

Markets in Action

Price Elasticity of Demand and Supply

Consumer Choice Theory

Production Costs

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Labor Markets

Income Distribution Poverty and Discrimination

Antitrust and Regulation

Environmental Economics

Gross Domestic Product

Business Cycles and Unemployment

Inflation

The Keynesian Model

The Keynesian Model in Action

Aggregate Demand and Supply

Fiscal Policy

The Public Sector

Federal Deficits Surpluses and the National Debt

Money and the Federal Reserve System

Money Creation

Monetary Policy

The Phillips Curve and Expectations Theory

International Trade and Finance

Economies in Transition

Growth and the Less Developed Countries

Understanding Direct and Inverse Relationships between Variables

Filters

Exhibit 2-1 Production possibilities curve data

Consumption
Goods

Capital
Goods

10

0

9

1

7

2

4

3

0

4

-In Exhibit 2-1, according to the information, the opportunity cost of producing 3 units of capital is:

Exhibit 2-4 Production possibilities curve data

A

B

C

D

E

Capital goods
0

10

20

30

40

Consumer goods
200

180

140

80

0

In Exhibit 2-4, if the economy chooses production possibility D rather than production possibility B, it can expect