Question 1

Using the figure above,suppose with no trade Liz and Joe each produce at point A on their respective PPFs.Then,Joe suggests that they specialize and trade.He would produces only salads and Liz would produce only smoothies.Then,Joe says,he would buy 16 smoothies from Liz at a price of 1.5 salads per smoothie.Liz should

Accepted Answer

A)  accept Joe's offer since she will gain 4 smoothies and 4 salads. 
B)  accept Joe's offer as she will be as well off as with no trade. 
C)  not accept Joe's offer as the price he offers is too low for her to gain from trade. 
D)  not accept Joe's offer since she would lose 2 smoothies and 2 salads. 
E)  accept Joe's offer since she will gain 4 salads.

Question 2

-The above figure shows the production possibility frontier for an economy.The point or points that are not attainable are

Accepted Answer

A)  points B and C. 
B)  points A, B, and C. 
C)  point E. 
D)  points A, B, C, and D. 
E)  points A and D.

Question 3

The United States is one of the richest nations in the world,

Accepted Answer

A)  so it does not need to trade with poor nations in order to achieve any gains from trade. 
B)  so it might not have a comparative advantage in producing any goods. 
C)  but it can still benefit from specialization and trade. 
D)  so it must have a comparative advantage in the production of all goods. 
E)  so it must have an absolute advantage in the production of all goods.

Question 4

-Jean can either type her term paper or create Web pages during the limited time she has available.The table above shows her PPF.
a.Can Jean type 90 pages and create 2 Web pages?
b.Use the above numbers to calculate the opportunity cost of a typed page as she increases her time typing and decreases time creating a Web page.

Accepted Answer

The answer of 
-Jean can either type her term paper...

Question 5

-The figure above shows a production possibilities frontier.In the figure,when the economy moves from point D to point C,the opportunity cost of producing one more DVD ________,and when it moves from point C to D,the opportunity cost of producing one more cell phone ________.

Accepted Answer

A)  increases; increases 
B)  increases; decreases 
C)  decreases; decreases 
D)  decreases; increases 
E)  increases; remains the same

Question 6

-The figure above shows Prakash's and Gail's production possibilities frontiers for writing books and magazine articles.
a.What is Prakash's opportunity cost of a book? What is Gail's opportunity cost? Who has the comparative advantage in writing books?
b.Who has the comparative advantage in writing magazine articles?
c.According to their comparative advantages,who should write books and who should write magazine articles?

Accepted Answer

The answer of 
-The figure above shows Prakash's and Gail's...

Question 7

How is economic growth shown in a production possibilities frontier graph?

Accepted Answer

The answer of How is economic growth shown in a...

Question 8

Which of the following correctly describes the relationship between productivity growth,unemployment,and the economy's production possibilities frontier?

Accepted Answer

A)  An increase in productivity moves the economy from inside the production possibilities set to its frontier. 
B)  An increase in productivity shifts the economy from the production possibilities frontier to a point outside the production possibilities set. 
C)  An increase in unemployment shifts the economy further inside its production possibilities set. 
D)  An increase in unemployment shifts the economy from a point outside the production set back to the production possibilities frontier. 
E)  A reduction in unemployment shifts the entire production possibilities frontier outward.

Question 9

-Gabriel operates a ranch in Idaho where he raises cattle and grows potatoes.The figure above illustrates his production possibilities frontier.What is Gabriel's opportunity cost of raising another 100 cows?

Accepted Answer

A)  1.25 tons of potatoes 
B)  5.0 tons of potatoes 
C)  3.0 tons of potatoes 
D)  1.0 ton of potatoes 
E)  100 cows

Question 10

-The figure above shows the production possibilities frontier for a country.A combination of 3 million gallons of milk and 3 million gallons of ice cream is

Accepted Answer

A)  unattainable. 
B)  attainable and production efficient. 
C)  attainable and production inefficient. 
D)  unattainable and production efficient. 
E)  More information is needed to determine if the point is attainable or not.

Question 11

-The figure above illustrates a small country's production possibilities frontier.Moving from point A to point B,the per unit opportunity cost of a tablet is ________ per tablet.

Accepted Answer

A)  2 computers 
B)  4/3 of a computer 
C)  100 computers 
D)  1/2 of a computer 
E)  1 tablet

Question 12

When economists state that the opportunity cost of a product increases as more of it is produced,what do they mean? For instance,what is the opportunity cost? And,where in a PPF diagram does this statement apply and where does it not apply?

Accepted Answer

The answer of When economists state that the opportunity cost...

Question 13

When Mik has an absolute advantage in the production of two goods over Tommy,Mik

Accepted Answer

A)  is less productive than Tommy. 
B)  is better off if he does not engage in specialization and trade with Tommy. 
C)  is more productive in producing both goods than Tommy. 
D)  always has a comparative advantage over Tommy in the production of both goods. 
E)  cannot gain from trade with Tommy.

Question 14

When drawing a production possibilities frontier,which of the following is held constant?

Accepted Answer

A)  the amount of money in the economy 
B)  the available factors of production and the state of technology 
C)  the prices of goods and services 
D)  the quantity of the goods and services that are produced 
E)  None of the above because nothing is held constant when drawing the production possibilities frontier.

Question 15

Why does a nation experience increasing opportunity cost?

Accepted Answer

A)  As the nation moves from a production point within the PPF to one on the PPF, opportunity costs increase. 
B)  As the nation moves from a production point within the PPF to another point also within the PPF, opportunity costs increase. 
C)  When the amount of resources increases, the opportunity cost of all goods and services increases. 
D)  Resources are not equally productive in producing different kinds of goods and services. 
E)  Because the nation cannot produce at the unattainable production points that lie beyond the PPF.

Question 16

-Suppose that Germany,France,Estonia,and India all have the same production possibilities,illustrated in the figure above.Based on the production points in the figure,which country is most likely to expand its PPF to PPF??

Accepted Answer

A)  France and Germany equally 
B)  India 
C)  Estonia 
D)  France 
E)  Germany

Question 17

A bowed out PPF reflects which of the following ideas?
i.Increasing opportunity cost
ii.Resources are not equally productive in all activities.
iii.Prices of goods increase over time.

Accepted Answer

A)  i only 
B)  i and ii 
C)  i and iii 
D)  ii and iii 
E)  i, ii, and iii

Question 18

-The table above shows the production possibilities for an economy.The opportunity cost of a loaf of bread is ________ when moving from possibility B to possibility C.

Accepted Answer

A)  1/2 of a book 
B)  2 books 
C)  200 books 
D)  100 loaves of bread 
E)  1 loaf of bread

Question 19

Consider the United States' production of soy beans and running shoes.If the United States has an absolute advantage in the production of both goods compared to China,

Accepted Answer

A)  both countries can gain from trade. 
B)  only the United States can gain from trade. 
C)  only China can gain from trade. 
D)  each country will be able to produce at a point beyond its PPF. 
E)  only the United States will be able to operate beyond its PPF.

Question 20

Which of the following statements is correct?

Accepted Answer

A)  If capital is idle, the economy is producing at its full potential. 
B)  The production possibilities frontier shows that there are no limits to production. 
C)  A tradeoff is a limit that forces an exchange or a substitution of one thing for something else. 
D)  Any point on or within the PPF is production efficient. 
E)  None of the above answers is correct.

Exam 3: The Economic Problem