Question 1

If marginal benefit is greater than marginal cost for the production of cars, to reach the allocative efficient quantity of cars, the production of cars must be increased.

Accepted Answer

A) True 
 B)False

Question 2

Suppose that the government is trying to decide between allocating its resources to build more dams or to build more freeways. In terms of forgone dams, as more freeways ________are constructed, the marginal benefit of additional freeways and the marginal cost of additional freeways________

Accepted Answer

A)  increases; increases 
B)  decreases; decreases 
C)  increases; decreases 
D)  decreases; increases

Question 3

$$\begin{array} { | l | l | l | } 
\hline \text { Point } & \begin{array} { l } 
\text { Production } \
\text { chocolate } \
\text { bars }
\end{array} & \begin{array} { l } 
\text { Production } \
\text { cans of cola }
\end{array} \
\hline \text { A } & 0 & 100 \
\hline \text { B } & 10 & 90 \
\hline \text { C } & 20 & 70 \
\hline \text { D } & 30 & 40 \
\hline \text { E } & 40 & 0 \
\hline
\end{array}$$
-The above table shows production points on Sweet-Tooth Land?s production possibilities frontier. What is the opportunity cost of one can of cola if Sweet-tooth Land moves from point C to point B?

Accepted Answer

A)  2 chocolate bars per can of cola 
B)  20 chocolate bars per can of cola 
C)  10 chocolate bars per can of cola 
D)  1/2 chocolate bars per can of cola

Question 4

-Refer to the production possibilities frontier in the figure above. Suppose a country is producing at point a. A movement to point___________  means that the country___________ .

Accepted Answer

A)  d; must give up 20 million capital goods 
B)  b; is producing at an inefficient point. 
C)  e; is not operating efficiently 
D)  d; gives up 10 million consumer goods.

Question 5

The kitchen manager at an Italian restaurant is deciding what assignments he should give to his two cooks, John and David. John can make 25 pizzas or 40 servings of pasta per hour and David can make 20 pizzas or 30 servings of pasta. Which of the following should be the managerʹs choice?

Accepted Answer

A)  David will make pizza because he has comparative advantage in making pizza. 
B)  John and David both will spend half their time making pizza and half their time making pasta because each has a comparative advantage in making pizza. 
C)  John will make pizza because he has comparative advantage in making pizza. 
D)  Fire David because he is not as productive as John. John will do both jobs.

Question 6

$$\begin{array} { | l | c | c | } 
\hline & \begin{array} { c } 
\text { U.S. production } \
\text { possibilities }
\end{array} & \begin{array} { l } 
\text { France's production } \
\text { possibilities }
\end{array} \
\hline \text { Steel } & 100 & 25 \
\hline \text { Concrete } & 200 & 100 \
\hline
\end{array}$$
-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

Accepted Answer

A)  1 unit of X per unit of Y for Agnes and 1/2 unit of X per unit of Y for Brenda. 
B)  1 unit of X per unit of Y for Agnes and 2 units of X per 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.

Question 7

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

Accepted Answer

A)  higher wages for producers of pop culture. 
B)  lower wages for producers of pop culture. 
C)  a comparative advantage in producing pop culture. 
D)  an absolute advantage in producing pop culture.

Question 8

Employees at Bank of America are good at providing banking services and workers at Ben & Jerryʹs are good at making ice cream. If some bankers are moved to making ice cream, we get a small increase in the amount of ice cream produced and a large decrease in the amount of banking services provided. If the PPF has banking services on the vertical axis and ice cream on the horizontal axis, the effect of the change reflects

Accepted Answer

A)  a shift to a flatter PPF. 
B)  a bowed out PPF for banking services and ice cream. 
C)  decreasing opportunity costs. 
D)  production efficiency.

Question 9

Comparative advantage is

Accepted Answer

A)  the ability to perform an activity at a lower opportunity cost than anyone else. 
B)  another name for absolute advantage. 
C)  the ability to perform an activity at a zero opportunity cost. 
D)  the ability to perform an activity at a higher opportunity cost than anyone else.

Question 10

Harry produces 2 balloon rides and 4 boat rides an hour. Harry could produce more balloon rides but to do so he must produce fewer boat rides. Harry is ____________ his production possibilities frontier.

Accepted Answer

A)  producing outside 
B)  producing on 
C)  producing either inside or on 
D)  producing inside

Question 11

-The opportunity cost of moving from point a to point b in the above figure is .

Accepted Answer

A)  2 sweaters 
B)  3 pairs of socks 
C)  zero 
D)  3/2 pairs of socks per sweater

Question 12

Economic growth can be pictured in a production possibilities frontier diagram by

Accepted Answer

A)  shifting the production possibilities frontier outward. 
B)  shifting the production possibilities frontier inward. 
C)  making the production possibilities frontier more bowed out. 
D)  making the production possibilities frontier less bowed out.

Question 13

In order to societies to reap the gains from trade, it is necessary to

Accepted Answer

A)  distribute resources equally. 
B)  achieve productive efficiency. 
C)  foster economic growth. 
D)  define and enforce property rights.

Question 14

If the marginal benefit of consuming another unit of a good is positive, then to reach the allocatively efficient level of output more of the good should be produced and consumed

Accepted Answer

A)  if the total benefit of the good is greater than its total cost. 
B)  no matter what.. 
C)  as long as the consumer can afford to pay for it. 
D)  if the marginal benefit of the good is greater than its marginal cost.

Question 15

-Employees at Bank of America are good at providing banking services and workers at Ben & Jerryʹs are good at making ice cream. The figure above shows the marginal cost and marginal benefit curves for ice cream. A movement from point a to point b reflects

Accepted Answer

A)  a decrease in the tradeoff between ice cream and banking services. 
B)  a leftward shift in the marginal benefit curve. 
C)  the economy must give up banking services to get extra gallons of ice cream. 
D)  the opportunity cost of banking services increases.

Question 16

-In the figure above, if Mac and Izzie both completely specialized and traded with one another, their joint output would be

Accepted Answer

A)  24 computers and 24 TV sets per month. 
B)  6 computers and 6 TV sets per month. 
C)  12 computers and 12 TV sets per month. 
D)  3 computers and 3 TV sets per month.

Question 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

Accepted Answer

A)  where the slope of the PPF is zero. 
B)  where the slope of the PPF is positive. 
C)  inside the PPF. 
D)  outside the PPF.

Question 18

Using the production possibilities frontier model, unemployment is described as producing at a point

Accepted Answer

A)  outside the PPF curve. 
B)  inside the PPF curve. 
C)  on either end of the PPF curve. 
D)  on the exact middle of the PPF curve.

Question 19

The principle of decreasing marginal benefit implies that the

Accepted Answer

A)  additional benefit from obtaining one more of a good or service increases as more is consumed. 
B)  total benefit from obtaining more of a good or service decreases as more is consumed. 
C)  additional benefit from obtaining one more of a good or service decreases as more is consumed. 
D)  total benefit from obtaining more of a good or service remains the same as more is consumed.

Question 20

A marginal benefit curve shows

Accepted Answer

A)  the efficient use of resources. 
B)  there are increasing opportunity costs. 
C)  the quantity of one good that people are willing to forgo to get another unit of another good. 
D)  the quantity of one good that must be forgone to get more of another good.

Exam 2: The Economic Problem