Question 1

Use the information below to answer the following questions.
Fact 2.4.1
In an eight-hour day, Andy can produce either 24 loaves of bread or 8 kilograms of butter. In an eight-hour day, Rolfe can produce either 8 loaves of bread or 8 kilograms of butter.
-From Fact 2.4.1, we know that

Accepted Answer

A) Andy has the lower opportunity cost of producing bread, while Andy and Rolfe have equal opportunity costs of producing butter. 
B) Andy has the lower opportunity cost of producing both bread and butter. 
C) Andy has the lower opportunity cost of producing bread, while Rolfe has the lower opportunity cost of producing butter. 
D) Andy has the lower opportunity cost of producing butter, while Rolfe has the lower opportunity cost of producing bread. 
E) Andy has the higher opportunity cost of producing both bread and butter.

Question 2

Use the information below to answer the following questions.
Fact 2.4.1
In an eight-hour day, Andy can produce either 24 loaves of bread or 8 kilograms of butter. In an eight-hour day, Rolfe can produce either 8 loaves of bread or 8 kilograms of butter.
-Consider Fact 2.4.1. After specialization, total consumption will

Accepted Answer

A) depend on the preferences of Andy and Rolfe. 
B) be 8 loaves of bread and 24 kilograms of butter. 
C) be 32 loaves of bread and 16 kilograms of butter. 
D) be 8 loaves of bread and 8 kilograms of butter. 
E) be 24 loaves of bread and 8 kilograms of butter.

Question 3

Table 2.1.1
The following table gives points on the production possibilities frontier for goods X and Y.

-From the data in Table 2.1.1, the production of 7 units of X and 28 units of Y is

Accepted Answer

A) unattainable. 
B) attainable but leaves some resources unused or misallocated or both. 
C) on the PPF between points C and D. 
D) on the PPF between points B and C. 
E) outside the PPF.

Question 4

Use the figure below to answer the following questions.
Table 2.4.1
The planets of Vulcan and Romulus each produce goods X and Y.
The following table gives points on their production possibilities frontiers.
 
-Refer to Table 2.4.1. For Vulcan, the opportunity cost of producing an additional unit of Y is

Accepted Answer

A) 2/3 units of X. 
B) 1/2 units of X. 
C) 2 units of X. 
D) 3 units of X. 
E) 4 units of X.

Question 5

Individuals A and B can both produce good X. We say that A has a comparative advantage in the production of good X if

Accepted Answer

A) A has a lower opportunity cost of producing X than B. 
B) A has a higher opportunity cost of producing X than B. 
C) A can produce more units of X in a given time period than B. 
D) A can produce X using newer technology than B. 
E) A can produce less units of X in a given time period than B.

Question 6

Opportunity cost of an action is

Accepted Answer

A) the best choice that can be made. 
B) the highest-valued alternative forgone. 
C) the money cost. 
D) the comparative cost. 
E) the absolute cost.

Question 7

Use the figure below to answer the following questions.
  
Figure 2.2.1
-In Figure 2.2.1, the curve labeled B shows

Accepted Answer

A) the bottles of pop that people are willing to forgo to get another bicycle. 
B) the bicycles that people are willing to forgo to get another bottle of pop. 
C) the bottles of pop that people must forgo to get another bicycle. 
D) that the benefits from producing more bicycles is greater than the benefits from producing more pop. 
E) that the benefits from producing more pop is greater than the benefits from producing more bicycles.

Question 8

Suppose John and Joe each have different production possibility frontiers; John specializes in cloth and Joe specializes in corn. John's island unexpectedly has exceptionally good weather, and suddenly he is twice as productive in the production of both corn and cloth. Select the best statement.

Accepted Answer

A) This is an example of unemployed resources becoming employed. 
B) As a result, John will have an absolute advantage in both corn and cloth. 
C) As a result, it is possible that John and Joe will switch the goods in which they specialize. 
D) There will be no change to the goods in which John and Joe specialize, because John's comparative advantage has not changed. 
E) There will be a change to the goods in which John and Joe specialize, because John's opportunity cost of corn has decreased.

Question 9

Which one of the following would likely shift a production possibilities frontier inward?

Accepted Answer

A) technological change 
B) a drought 
C) a decrease in the price of natural resources 
D) an increase in human capital 
E) None of the above, because production possibilities frontiers do not shift inward.

Question 10

The slope of the production possibilities frontier curve indicates

Accepted Answer

A) opportunity cost. 
B) comparative advantage. 
C) absolute advantage. 
D) marginal benefit. 
E) preferences.

Question 11

The production possibilities frontier is

Accepted Answer

A) upward sloping and illustrates a tradeoff in production of the good measured on the x-axis and the good measured on the y-axis. 
B) downward sloping and illustrates a tradeoff in production of the good measured on the x-axis and the good measured on the y-axis. 
C) upward sloping and a movement along the PPF illustrates a free lunch. 
D) downward sloping and a movement along the PPF illustrates a free lunch. 
E) downward sloping and illustrates the marginal benefit from increasing production of the good measured on the x-axis.

Question 12

Which one of the following would cause a production possibilities frontier to shift outward?

Accepted Answer

A) an increase in the stock of capital 
B) an increase in the production of consumption goods 
C) bad weather 
D) a decision to fully utilize unemployed resources 
E) a decrease in the population

Question 13

If individuals A and B can both produce only goods X and Y, and A does not have a comparative advantage in the production of either X or Y, then we know

Accepted Answer

A) B has an absolute advantage in the production of X and Y. 
B) A and B have the same opportunity costs for X and for Y. 
C) B has a comparative advantage in the production of both X and Y. 
D) the gains from trade will be large but only in one direction. 
E) A must have lower opportunity costs of production for both goods.

Question 14

Use the information below to answer the following questions.
Fact 2.4.1
In an eight-hour day, Andy can produce either 24 loaves of bread or 8 kilograms of butter. In an eight-hour day, Rolfe can produce either 8 loaves of bread or 8 kilograms of butter.
-Refer to Fact 2.4.1. The opportunity cost of producing 1 kilogram of butter is

Accepted Answer

A) 20 minutes (1/3 hour)for Andy and 1 hour for Rolfe. 
B) 1 hour for Andy and 1 hour for Rolfe. 
C) 3 loaves of bread for Andy and 1/3 loaf of bread for Rolfe. 
D) 3 loaves of bread for Andy and 1 loaf of bread for Rolfe. 
E) 8 loaves of bread for Rolfe and 24 loaves of bread for Andy.

Question 15

A medical clinic has 10 workers. Each worker can produce a maximum of either 2 units of medical services or 5 units of secretarial services a day. The production possibilities frontier of this firm would show

Accepted Answer

A) increasing opportunity cost. 
B) decreasing opportunity cost. 
C) constant opportunity cost. 
D) zero opportunity cost. 
E) infinite opportunity cost.

Question 16

Use the information below to answer the following questions.
Fact 2.4.2
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.
-Given Fact 2.4.2, the opportunity cost of producing a unit of X is

Accepted Answer

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. 
E) 1 hour for Agnes and 1/4 hour for Brenda.

Question 17

Use the figure below to answer the following questions.
Table 2.4.1
The planets of Vulcan and Romulus each produce goods X and Y.
The following table gives points on their production possibilities frontiers.
 
-Refer to Table 2.4.1. For Vulcan, the opportunity cost of producing an additional unit of X is

Accepted Answer

A) 4 units of Y. 
B) 2 units of Y. 
C) 2/3 units of Y. 
D) 1 unit of Y. 
E) dependent upon how many units of X are already produced.

Question 18

The bowed-out (concave)shape of a production possibilities frontier

Accepted Answer

A) is due to the equal usefulness of resources in all activities. 
B) is due to capital accumulation. 
C) is due to technological change. 
D) reflects the existence of increasing opportunity cost. 
E) reflects the existence of decreasing opportunity cost.

Question 19

Suppose a hurricane causes extensive devastation, destroying houses, roads, schools and factories. What would be the effect of this hurricane on a production possibilities frontier consisting of consumption goods and capital goods?

Accepted Answer

A) It would shift outward at all points. 
B) It would shift inward at all points. 
C) There would be a movement along the existing production possibilities frontier towards a less capital-intensive point. 
D) There would be a movement along the existing production possibilities frontier towards a more capital-intensive point. 
E) There would be a movement from the existing production possibilities frontier inwards towards a point with unused or misallocated resources.

Question 20

As we increase the production of X, we find we must give up larger and larger amounts of Y per unit of X. Select the best statement.

Accepted Answer

A) This illustrates increasing opportunity cost. 
B) As a result, we should not specialize in the production of X. 
C) The production possibilities frontier for X and Y is a straight line. 
D) Good Y will be more highly regarded by consumers than good X. 
E) We must be producing inside the production possibilities frontier.

Exam 2: The Economic Problem

Use the information below to answer the following questions. Fact 2.4.1 In an eight-hour day, Andy can produce either 24 loaves of bread or 8 kilograms of butter. In an eight-hour day, Rolfe can produce either 8 loaves of bread or 8 kilograms of butter. -From Fact 2.4.1, we know that

Table 2.1.1 The following table gives points on the production possibilities frontier for goods X and Y. -From the data in Table 2.1.1, the production of 7 units of X and 28 units of Y is