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Sample Test

Foundations of Macroeconomics, 7e (Bade/Parkin)

Chapter 3   The Economic Problem

 

3.1   Production Possibilities

 

1) The United States produced approximately ________ worth of goods and services in 2011.

1.    A) $15 trillion

2.    B) $15 billion

3.    C) $150 trillion

4.    D) $150 billion

5.    E) $1,500 trillion

Answer:  A

Topic:  Production possibilities

Skill:  Level 1: Definition

Section:  Checkpoint 3.1

Status:  Old

AACSB:  Reflective thinking

 

2) Which of the following is an assumption used when drawing a production possibilities frontier?

1.    Human wants and desires are limited to what is available.

2.    Only two goods are considered.

iii.            The level of technology is fixed and unchanging.

1.    A) i only

2.    B) ii only

3.    C) i and iii

4.    D) ii and iii

5.    E) i, ii, and iii

Answer:  D

Topic:  Production possibilities frontier

Skill:  Level 2: Using definitions

Section:  Checkpoint 3.1

Status:  Old

AACSB:  Reflective thinking

 

3) In the production possibilities model, the vertical axis measures ________ and the horizontal axis measures ________.

1.    A) the quantity of a good or service; the quantity of another good or service

2.    B) the price of a good or service; the quantity of the good or service

3.    C) the price of a good or service; the price of another good or service

4.    D) the quantity of a good or service; time

5.    E) people’s wants; the quantity of a good or service

Answer:  A

Topic:  Production possibilities frontier

Skill:  Level 2: Using definitions

Section:  Checkpoint 3.1

Status:  Old

AACSB:  Reflective thinking

4) The production possibilities frontier illustrates the

1.    A) maximum combinations of goods and services that can be produced.

2.    B) resources the economy possess, but not its level of technology.

3.    C) goods and services that people want.

4.    D) limits to people’s wants.

5.    E) amount of each good that people want to buy.

Answer:  A

Topic:  Production possibilities frontier

Skill:  Level 1: Definition

Section:  Checkpoint 3.1

Status:  Old

AACSB:  Reflective thinking

 

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

1.    A) the amount of money in the economy

2.    B) the available factors of production and the state of technology

3.    C) the prices of goods and services

4.    D) the quantity of the goods and services that are produced

5.    E) None of the above because nothing is held constant when drawing the production possibilities frontier.

Answer:  B

Topic:  Production possibilities frontier

Skill:  Level 1: Definition

Section:  Checkpoint 3.1

Status:  Old

AACSB:  Reflective thinking

 

6) A production possibilities frontier shows

1.    A) the various combinations of output a nation can produce a certain time, given its available resources and technology.

2.    B) the limits to future growth of a nation.

3.    C) how money can be allocated among two kinds of goods.

4.    D) that if price of one good decreases, the price of the other has to increase.

5.    E) that it is impossible to produce inefficiently.

Answer:  A

Topic:  Production possibilities frontier

Skill:  Level 1: Definition

Section:  Checkpoint 3.1

Status:  Old

AACSB:  Reflective thinking

 

7) The production possibilities frontier is the

1.    A) maximum output that can be produced at an opportunity cost of zero.

2.    B) minimum output that can be produced when resources are used inefficiently.

3.    C) boundary between the combinations of goods and services that can be produced and the combinations that cannot be produced, given the available factors of production and the state of technology.

4.    D) boundary between the combinations of goods and services that can be produced and the combinations that cannot be produced when technology is changing.

5.    E) maximum opportunity cost combinations of goods and services.

Answer:  C

Topic:  Production possibilities frontier

Skill:  Level 1: Definition

Section:  Checkpoint 3.1

Status:  Old

AACSB:  Reflective thinking

 

8) The production possibilities frontier is the boundary between the

1.    A) goods and services that the economy can produce.

2.    B) attainable and unattainable combinations of goods and services.

3.    C) wanted and unwanted combinations of goods and services.

4.    D) rational and irrational choices facing a society.

5.    E) affordable and unaffordable combinations of production.

Answer:  B

Topic:  Production possibilities frontier

Skill:  Level 3: Using models

Section:  Checkpoint 3.1

Status:  Old

AACSB:  Reflective thinking

 

9) Consider a production possibility frontier with jeans on the vertical axis and shoes on the horizontal axis. As the country moves along the frontier closer to the horizontal axis,

1.    A) more jeans are produced.

2.    B) the country eventually chooses an unattainable point.

3.    C) free lunches occur.

4.    D) more tradeoffs occur.

5.    E) more shoes are produced.

Answer:  E

Topic:  Production possibilities frontier

Skill:  Level 4: Applying models

Section:  Checkpoint 3.1

Status:  Old

AACSB:  Analytical thinking

 

10) While moving along a production possibilities frontier, the amount of labor ________, the amount of capital ________, and the level of technology ________.

1.    A) is fixed; is fixed; varies

2.    B) varies; is fixed; varies

3.    C) varies; is fixed; is fixed

4.    D) is fixed; is fixed; is fixed

5.    E) varies; varies; varies

Answer:  D

Topic:  Production possibilities frontier

Skill:  Level 3: Using models

Section:  Checkpoint 3.1

Status:  Old

AACSB:  Reflective thinking

 

 

 

11) The table above gives four production possibilities for airplanes and cruise ships. In possibility A, how many resources are devoted to the production of airplanes?

1.    A) 0

2.    B) few

3.    C) most

4.    D) all

5.    E) It is impossible to tell without more information about the prices of airplanes and cruise ships.

Answer:  D

Topic:  Production possibilities frontier

Skill:  Level 3: Using models

Section:  Checkpoint 3.1

Status:  Old

AACSB:  Analytical thinking

 

12) The table above gives four production possibilities for airplanes and cruise ships. In possibility A, how many resources are devoted to the production of cruise ships?

1.    A) 0

2.    B) few

3.    C) most

4.    D) all

5.    E) It is impossible to tell without more information about the prices of airplanes and cruise ships.

Answer:  A

Topic:  Production possibilities frontier

Skill:  Level 3: Using models

Section:  Checkpoint 3.1

Status:  Old

AACSB:  Analytical thinking

13) Moving from one point to another on a production possibilities frontier implies

1.    A) increasing the production of both goods.

2.    B) decreasing the production of both goods.

3.    C) increasing the production of one good and decreasing the production of another.

4.    D) holding the production levels of both goods constant.

5.    E) changing the amount of factors of production that are employed.

Answer:  C

Topic:  Production possibilities frontier

Skill:  Level 3: Using models

Section:  Checkpoint 3.1

Status:  Old

AACSB:  Reflective thinking

 

14) Assume that an association of young workers has lobbied Congress to require that all workers retire once they reach the age of fifty. What impact would this law have on the nation’s production possibilities frontier?

1.    A) no impact at all

2.    B) The level of unemployment would decrease so the production possibilities frontier would shift outward.

3.    C) The nation would move to a new position on its production possibilities frontier but the frontier itself would not shift.

4.    D) The production possibilities frontier would shift inward.

5.    E) The number of young workers would increase so the production possibilities frontier would shift outward.

Answer:  D

Topic:  Production possibilities frontier

Skill:  Level 4: Applying models

Section:  Checkpoint 3.1

Status:  Old

AACSB:  Analytical thinking

 

15) A major earthquake occurs in the central part of the United States. What impact would this have on the nation’s production possibilities frontier and why?

1.    A) It would shift outward because unemployment would be reduced.

2.    B) Nothing would happen because the nation would still have the same capabilities.

3.    C) A tradeoff would occur to replace the resources and goods destroyed.

4.    D) It would shift inward because some of the nation’s resources, such as capital and labor, would be destroyed.

5.    E) It would not shift because people would get to work to replace any capital that was destroyed.

Answer:  D

Topic:  Production possibilities frontier

Skill:  Level 4: Applying models

Section:  Checkpoint 3.1

Status:  Old

AACSB:  Analytical thinking

 

16) When all of the available factors of production are being efficiently employed, the

1.    A) economy is producing at a point within its PPF.

2.    B) economy is producing at a point on its PPF.

3.    C) economy is producing at a point beyond its PPF.

4.    D) PPF disappears.

5.    E) opportunity cost of changing production is infinite.

Answer:  B

Topic:  Attainable points

Skill:  Level 2: Using definitions

Section:  Checkpoint 3.1

Status:  Old

AACSB:  Reflective thinking

 

17) In a production possibilities frontier diagram, the attainable production points are shown as

1.    A) only the points on the production possibilities frontier.

2.    B) only the points beyond the production possibilities frontier.

3.    C) only the points inside the production possibilities frontier.

4.    D) the points inside and the points on the production possibilities frontier.

5.    E) any of the production points.

Answer:  D

Topic:  Attainable points

Skill:  Level 1: Definition

Section:  Checkpoint 3.1

Status:  Old

AACSB:  Reflective thinking

 

18) In the production possibilities frontier model, an unattainable point lies

1.    A) only on the production possibilities frontier itself.

2.    B) only inside the production possibilities frontier.

3.    C) only outside the production possibilities frontier.

4.    D) both on and outside the production possibilities frontier.

5.    E) There are no unattainable points in the production possibilities model.

Answer:  C

Topic:  Unattainable points

Skill:  Level 3: Using models

Section:  Checkpoint 3.1

Status:  Old

AACSB:  Reflective thinking

 

 

19) Production efficiency is represented by ________ a production possibilities frontier.

1.    A) all points on

2.    B) all points inside

3.    C) all points outside

4.    D) a movement along

5.    E) only one point on

Answer:  A

Topic:  Production efficiency

Skill:  Level 2: Using definitions

Section:  Checkpoint 3.1

Status:  Old

AACSB:  Reflective thinking

20) If an economy cannot produce more of one good without producing less of another good, this implies that which of the following has been achieved?

1.    A) allocative efficiency

2.    B) minimum marginal cost

3.    C) PPF efficiency

4.    D) production efficiency

5.    E) maximum marginal benefit

Answer:  D

Topic:  Production efficiency

Skill:  Level 2: Using definitions

Section:  Checkpoint 3.1

Status:  Old

AACSB:  Reflective thinking

 

21) Production efficiency occurs

1.    A) anywhere inside or on the production possibilities frontier.

2.    B) when the total cost of production is minimized.

3.    C) at all points on the production possibilities frontier.

4.    D) at only one point on the production possibilities frontier.

5.    E) at all points inside the production possibilities frontier.

Answer:  C

Topic:  Production efficiency

Skill:  Level 2: Using definitions

Section:  Checkpoint 3.1

Status:  Old

AACSB:  Reflective thinking

 

 

22) When production efficiency does NOT occur,

1.    an economy is producing at a point within its PPF.

2.    there are unemployed resources.

iii.            allocative efficiency cannot occur.

1.    A) i only

2.    B) i and ii

3.    C) iii only

4.    D) i and iii

5.    E) i, ii, and iii

Answer:  E

Topic:  Production efficiency

Skill:  Level 3: Using models

Section:  Checkpoint 3.1

Status:  Old

AACSB:  Reflective thinking

23) If there is unemployment in an economy, then the

1.    A) production possibilities frontier will shift inwards.

2.    B) economy is operating at an unattainable point.

3.    C) production possibilities frontier will shift outwards.

4.    D) economy is producing at a point inside the production possibilities frontier.

5.    E) production possibilities frontier must be bowed inward.

Answer:  D

Topic:  Attainable points, unemployment

Skill:  Level 1: Definition

Section:  Checkpoint 3.1

Status:  Old

AACSB:  Reflective thinking

 

24) If a society moves from a period of time with significant unemployment to a time with full employment, its production possibilities frontier will

1.    A) shift leftward.

2.    B) shift rightward.

3.    C) not shift because the society moves from one point on the frontier to a point inside the frontier.

4.    D) not shift because the society moves from a point inside the frontier to a point on the frontier.

5.    E) not shift because the society moves from one point on the frontier to a point outside the frontier.

Answer:  D

Topic:  Attainable points, unemployment

Skill:  Level 3: Using models

Section:  Checkpoint 3.1

Status:  Old

AACSB:  Analytical thinking

 

 

25) Suppose that an economy is currently producing at a point that lies inside of its production possibilities set. Which of the following would best explain this circumstance?

1.    A) The economy does not have enough resources to produce at a point closer to the frontier of the production possibilities set.

2.    B) The prevailing level of technology prevents the economy from producing at a point closer to the frontier of the production possibilities set.

3.    C) The economy is experiencing a high level of unemployment.

4.    D) Any of the above statements could explain this situation.

5.    E) None of the above statements could explain this situation.

Answer:  C

Topic:  Attainable points, unemployment

Skill:  Level 3: Using models

Section:  Checkpoint 3.1

Status:  New

AACSB:  Analytical thinking

26) Which of the following statements is correct?

1.    A) An increase in productivity moves the economy from inside the production possibilities frontier to the frontier itself.

2.    B) An increase in productivity shifts the economy from producing at a point on the production possibilities frontier to a point outside the production possibilities frontier.

3.    C) An increase in unemployment shifts the economy further inside its production possibilities frontier.

4.    D) An increase in unemployment shifts the economy from a point outside the production possibilities frontier back to the production possibilities frontier.

5.    E) A reduction in unemployment shifts the entire production possibilities frontier outward.

Answer:  C

Topic:  Attainable points, unemployment

Skill:  Level 3: Using models

Section:  Checkpoint 3.1

Status:  New

AACSB:  Analytical thinking

 

27) A point on the production possibilities frontier reflects an

1.    A) attainable point with full employment of all resources.

2.    B) attainable point without full employment of all resources.

3.    C) unattainable point with full employment of all resources.

4.    D) unattainable point without full employment of all resources.

5.    E) None of the above answers is correct.

Answer:  A

Topic:  Attainable points, full employment

Skill:  Level 2: Using definitions

Section:  Checkpoint 3.1

Status:  Old

AACSB:  Reflective thinking

 

 

28) Suppose a country operates on its production possibility frontier when it produces 1000 books and 1000 tables. The combination of ________ reflects ________

1.    A) 500 books and 1000 tables; an inefficient but attainable point.

2.    B) 1000 books and 500 tables; an efficient point.

3.    C) 1000 books and 1000 tables; a free lunch.

4.    D) 500 books and 500 tables; an attainable and efficient point.

5.    E) 1000 books and 1500 tables; a free lunch.

Answer:  A

Topic:  Attainable points, inefficiency

Skill:  Level 3: Using models

Section:  Checkpoint 3.1

Status:  Old

AACSB:  Analytical thinking

29) Consider a production possibility frontier with books and tables. A combination of 1000 books and 500 tables is on the frontier. Which of the following are true?

1.    Production of 700 books and 400 tables is attainable but inefficient.

2.    Production of 1000 books and 600 tables is unattainable.

iii.            Production of 500 books and 1000 tables is inside the frontier.

1.    A) i and ii

2.    B) i, ii and iii

3.    C) i and iii

4.    D) ii and iii

5.    E) i only

Answer:  A

Topic:  Attainable points

Skill:  Level 3: Using models

Section:  Checkpoint 3.1

Status:  Old

AACSB:  Analytical thinking

 

 

 

 

30) The table above shows a production possibilities frontier for an economy. Which of the following combinations is unattainable?

1.    A) 0 loaves of bread and 800 books

2.    B) 100 loaves of bread and 800 books

3.    C) 200 loaves of bread and 800 books

4.    D) 300 loaves of bread and 200 books

5.    E) 0 loaves of bread and 0 books

Answer:  C

Topic:  Unattainable points

Skill:  Level 3: Using models

Section:  Checkpoint 3.1

Status:  Old

AACSB:  Analytical thinking

31) The table above shows a production possibilities frontier for an economy. If the economy tried to produce a combination of 250 loaves of bread and 800 books,

1.    A) there is some unemployment.

2.    B) there is full employment.

3.    C) the tradeoff between bread and books is inefficient.

4.    D) it cannot produce this combination because it lacks enough resources or technology.

5.    E) it is enjoying a free lunch.

Answer:  D

Topic:  Unattainable points

Skill:  Level 3: Using models

Section:  Checkpoint 3.1

Status:  Old

AACSB:  Analytical thinking

 

 

32) The figure above shows the production possibilities frontier for a country. A combination of 4 million gallons of milk and 4 million gallons of ice cream is

1.    A) unattainable.

2.    B) attainable and production efficient.

3.    C) attainable and production inefficient.

4.    D) unattainable and production efficient.

5.    E) More information is needed to determine if the point is attainable or not.

Answer:  A

Topic:  Unattainable points

Skill:  Level 3: Using models

Section:  Checkpoint 3.1

Status:  Old

AACSB:  Analytical thinking

33) 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

1.    A) unattainable.

2.    B) attainable and production efficient.

3.    C) attainable and production inefficient.

4.    D) unattainable and production efficient.

5.    E) More information is needed to determine if the point is attainable or not.

Answer:  B

Topic:  Attainable points, full employment

Skill:  Level 3: Using models

Section:  Checkpoint 3.1

Status:  Old

AACSB:  Analytical thinking

 

 

34) The figure above shows the production possibilities frontier for a country. A combination of 2 million gallons of milk and 2 million gallons of ice cream is

1.    A) unattainable.

2.    B) attainable and production efficient.

3.    C) attainable and production inefficient.

4.    D) attainable but more than production efficient.

5.    E) More information is needed to determine if the point is attainable or not.

Answer:  C

Topic:  Attainable points, unemployment

Skill:  Level 3: Using models

Section:  Checkpoint 3.1

Status:  Old

AACSB:  Analytical thinking

 

35) Point D in the above PPF figure is

1.    A) an attainable production combination with unemployed resources.

2.    B) a tradeoff.

3.    C) an unattainable production combination.

4.    D) a production combination that can be attained once resources are fully employed.

5.    E) More information is needed to determine which of the above answers is correct.

Answer:  C

Topic:  Unattainable points

Skill:  Level 3: Using models

Section:  Checkpoint 3.1

Status:  Old

AACSB:  Analytical thinking

 

 

36) Which point in the figure above is an attainable combination that would have unemployed resources?

1.    A) point A

2.    B) point B

3.    C) point C

4.    D) point D

5.    E) point A and point B

Answer:  C

Topic:  Attainable points, unemployment

Skill:  Level 3: Using models

Section:  Checkpoint 3.1

Status:  Old

AACSB:  Analytical thinking

 

37) The figure above shows a nation’s production possibilities frontier. In the figure, point A shows

1.    A) the maximum quantity of pizza that can be produced.

2.    B) the minimum quantity of pizza that the society must produce.

3.    C) an unattainable point.

4.    D) an attainable point with unemployed resources.

5.    E) More information is needed to determine which of the above answers is correct.

Answer:  A

Topic:  Attainable points

Skill:  Level 3: Using models

Section:  Checkpoint 3.1

Status:  Old

AACSB:  Analytical thinking

 

 

38) The figure above shows a nation’s production possibilities frontier. In the figure, point B shows

1.    A) an unattainable point.

2.    B) an attainable point.

3.    C) a point with a free lunch.

4.    D) a point with no tradeoff.

5.    E) a point at which there are unemployed resources.

Answer:  A

Topic:  Unattainable points

Skill:  Level 3: Using models

Section:  Checkpoint 3.1

Status:  Old

AACSB:  Analytical thinking

 

39) The figure above shows the production possibilities frontier for a country. In order for it to produce at point E, the

1.    A) country would need to acquire more resources and/or more advanced technology.

2.    B) production of compact cars would need to decrease.

3.    C) production of SUVs would need to decrease.

4.    D) country would need to use its resources more efficiently.

5.    E) country would need to determine that compact cars and SUVs are equally important to it.

Answer:  A

Topic:  Unattainable points

Skill:  Level 3: Using models

Section:  Checkpoint 3.1

Status:  Old

AACSB:  Analytical thinking

 

 

40) The figure above shows the production possibilities frontier for a country. If the country is producing at point D, then the

1.    A) resources are being used efficiently.

2.    B) technology associated with producing SUVs and compact cars is advancing.

3.    C) resources are not being used efficiently and/or are unemployed.

4.    D) production of SUVs and compact cars is maximized.

5.    E) None of the above answers is correct because it is not possible to produce at point D.

Answer:  C

Topic:  Attainable points, unemployment

Skill:  Level 3: Using models

Section:  Checkpoint 3.1

Status:  Old

AACSB:  Analytical thinking

 

 

41) The above figure shows the production possibility frontier for an economy. The point or points that are attainable and production efficient are

1.    A) points B and C.

2.    B) points A, B, and C.

3.    C) point E.

4.    D) points A, B, C, and D.

5.    E) points A and D.

Answer:  B

Topic:  Production possibilities frontier

Skill:  Level 2: Using definitions

Section:  Checkpoint 3.1

Status:  Old

AACSB:  Analytical thinking

 

 

42) The above figure shows the production possibility frontier for an economy. The point or points that are attainable are

1.    A) points B and C.

2.    B) points A, B, and C.

3.    C) point E.

4.    D) points A, B, C, and D.

5.    E) points A and D.

Answer:  D

Topic:  Production possibilities frontier

Skill:  Level 2: Using definitions

Section:  Checkpoint 3.1

Status:  Old

AACSB:  Analytical thinking

43) The above figure shows the production possibility frontier for an economy. The point or points that are NOT attainable are

1.    A) points B and C.

2.    B) points A, B, and C.

3.    C) point E.

4.    D) points A, B, C, and D.

5.    E) points A and D.

Answer:  C

Topic:  Production possibilities frontier

Skill:  Level 2: Using definitions

Section:  Checkpoint 3.1

Status:  Old

AACSB:  Analytical thinking

 

44) In order for Ireland to grow more potatoes, wool production must decrease. This situation is an example of

1.    A) producing at a point that lies beyond the PPF.

2.    B) zero opportunity cost.

3.    C) opportunity benefit.

4.    D) a free lunch.

5.    E) a tradeoff.

Answer:  E

Topic:  Tradeoffs

Skill:  Level 1: Definition

Section:  Checkpoint 3.1

Status:  Old

AACSB:  Reflective thinking

 

 

45) As we move along the production possibilities frontier,

1.    A) the production of one good increases as the production of the other good decreases.

2.    B) the possibilities of tradeoffs diminish.

3.    C) a tradeoff is not possible because nations need all goods.

4.    D) more of both goods can be produced.

5.    E) less of both goods can be produced.

Answer:  A

Topic:  Tradeoffs

Skill:  Level 4: Applying models

Section:  Checkpoint 3.1

Status:  Old

AACSB:  Reflective thinking

46) Which of the following statements is correct?

1.    A) If capital is idle, the economy is producing at its full potential.

2.    B) The production possibilities frontier shows that there are no limits to production.

3.    C) A tradeoff is a limit that forces an exchange or a substitution of one thing for something else.

4.    D) Any point on or within the PPF is production efficient.

5.    E) None of the above answers is correct.

Answer:  C

Topic:  Tradeoffs

Skill:  Level 2: Using definitions

Section:  Checkpoint 3.1

Status:  Old

AACSB:  Reflective thinking

 

47) When a nation is producing on its production possibilities frontier, if more resources are used to produce one good, then the production of other goods

1.    A) must increase.

2.    B) must decrease.

3.    C) must remain the same.

4.    D) must change, but they might increase or decrease.

5.    E) might increase if the nation can produce more efficiently.

Answer:  B

Topic:  Tradeoffs

Skill:  Level 3: Using models

Section:  Checkpoint 3.1

Status:  Old

AACSB:  Reflective thinking

 

 

48) The negative slope of the production possibilities frontier represents the idea

1.    A) that free lunches are possible.

2.    B) of tradeoffs, that in order to produce more of one good, the nation must produce less of another.

3.    C) of unemployment.

4.    D) of inefficient production.

5.    E) that prices rise as less is produced.

Answer:  B

Topic:  Tradeoffs

Skill:  Level 4: Applying models

Section:  Checkpoint 3.1

Status:  Old

AACSB:  Reflective thinking

49) A movement from one point on a production possibilities frontier to another represents

1.    A) a tradeoff.

2.    B) a free lunch.

3.    C) full employment of labor but not capital.

4.    D) unemployment.

5.    E) an advance in technology.

Answer:  A

Topic:  Tradeoffs

Skill:  Level 3: Using models

Section:  Checkpoint 3.1

Status:  Old

AACSB:  Reflective thinking

 

50) The saying “There’s no such thing as a free lunch,” applies

1.    A) when there is some unemployment.

2.    B) on the production possibilities frontier.

3.    C) to unattainable combinations of goods and services.

4.    D) when more of one good can be produced without decreasing production of another.

5.    E) at all points inside the PPF.

Answer:  B

Topic:  Tradeoffs

Skill:  Level 2: Using definitions

Section:  Checkpoint 3.1

Status:  Old

AACSB:  Reflective thinking

 

 

51) A free lunch (the absence of a tradeoff) when the production of a good is increased is possible for the entire economy only if

1.    A) less of some product is produced.

2.    B) prices are decreased.

3.    C) prices are increased.

4.    D) resources are used inefficiently.

5.    E) there is a movement along the PPF.

Answer:  D

Topic:  Free lunches

Skill:  Level 2: Using definitions

Section:  Checkpoint 3.1

Status:  Old

AACSB:  Reflective thinking

52) A movement from a point inside the production possibilities frontier to a point on the production possibilities frontier represents

1.    A) a tradeoff.

2.    B) a free lunch.

3.    C) full employment of labor but not capital.

4.    D) unemployment of labor but not capital.

5.    E) an infinite opportunity cost.

Answer:  B

Topic:  Free lunches

Skill:  Level 3: Using models

Section:  Checkpoint 3.1

Status:  Old

AACSB:  Reflective thinking

 

53) A reason the production possibilities frontier exists is

1.    A) unlimited resources and technology.

2.    B) scarcity of resources.

3.    C) scarcity of resources and unlimited technology.

4.    D) unemployment.

5.    E) that people’s wants are unlimited.

Answer:  B

Topic:  Production possibilities frontier

Skill:  Level 1: Definition

Section:  Checkpoint 3.1

Status:  Old

AACSB:  Reflective thinking

 

 

54) The production possibilities frontier is a graph showing the

1.    A) exact point of greatest efficiency for producing goods and services.

2.    B) tradeoff between free lunches.

3.    C) maximum combinations of goods and services that can be produced.

4.    D) minimum combinations of goods and services that can be produced.

5.    E) resources available for the economy’s production use.

Answer:  C

Topic:  Production possibilities frontier

Skill:  Level 1: Definition

Section:  Checkpoint 3.1

Status:  Old

AACSB:  Reflective thinking

55) The production possibilities frontier is a boundary that separates

1.    A) the combinations of goods that can be produced from the combinations of services.

2.    B) attainable combinations of goods and services that can be produced from unattainable ones.

3.    C) equitable combinations of goods and services that can be produced from inequitable ones.

4.    D) fair combinations of goods and services that can be consumed from unfair ones.

5.    E) affordable production points from unaffordable points.

Answer:  B

Topic:  Production possibilities frontier

Skill:  Level 1: Definition

Section:  Checkpoint 3.1

Status:  Old

AACSB:  Reflective thinking

 

56) Points inside the PPF are all

1.    A) unattainable and have fully employed resources.

2.    B) attainable and have fully employed resources.

3.    C) unattainable and have some unemployed resources.

4.    D) attainable and have some unemployed resources.

5.    E) unaffordable.

Answer:  D

Topic:  Attainable points, inefficiency

Skill:  Level 2: Using definitions

Section:  Checkpoint 3.1

Status:  Old

AACSB:  Reflective thinking

 

 

57) During a time of high unemployment, a country can increase the production of one good or service

1.    A) without decreasing the production of something else.

2.    B) but must decrease the production of something else.

3.    C) and must increase the production of something else.

4.    D) by using resources in the production process twice.

5.    E) but the opportunity cost is infinite.

Answer:  A

Topic:  Free lunches

Skill:  Level 1: Definition

Section:  Checkpoint 3.1

Status:  Old

AACSB:  Reflective thinking

58) Moving along the production possibilities frontier itself illustrates

1.    A) the existence of tradeoffs.

2.    B) the existence of unemployment of some factors of production.

3.    C) the benefits of free lunches.

4.    D) how free lunches can be exploited through trade.

5.    E) how tradeoffs need not occur if the economy is efficient.

Answer:  A

Topic:  Tradeoffs

Skill:  Level 1: Definition

Section:  Checkpoint 3.1

Status:  Old

AACSB:  Reflective thinking

 

59) The production possibilities frontier illustrates which of the following economic ideas?

1.    A) efficiency

2.    B) tradeoffs

3.    C) opportunity cost

4.    D) all of the above

5.    E) none of the above

Answer:  D

Topic:  Production possibilities frontier

Skill:  Level 3: Using models

Section:  Checkpoint 3.1

Status:  New

AACSB:  Reflective thinking

 

 

60) Points on the PPF are all

1.    A) unattainable and have fully employed resources.

2.    B) free lunches.

3.    C) inefficient.

4.    D) attainable and have some unemployed resources.

5.    E) production efficient.

Answer:  E

Topic:  Production efficiency

Skill:  Level 1: Definition

Section:  Checkpoint 3.1

Status:  Old

AACSB:  Reflective thinking

3.2   Opportunity Cost

 

1) In a production possibilities frontier graph, the cost of producing more units of a good is measured by the

1.    A) dollar value of the resources used to produce the good.

2.    B) amount of the other good or service that must be forgone.

3.    C) dollar value of the additional output.

4.    D) area in the arc between the PPF and a straight line drawn between the starting point and the ending point.

5.    E) None of the above answers is correct.

Answer:  B

Topic:  Opportunity cost

Skill:  Level 2: Using definitions

Section:  Checkpoint 3.2

Status:  Old

AACSB:  Reflective thinking

 

2) The opportunity cost of producing one more unit of a good is calculated by dividing the

1.    A) increase in the quantity of that good by the decrease in the quantity of other good.

2.    B) total quantity of that good by the total quantity of other good.

3.    C) decrease in the quantity of the other good by the increase in the quantity of the good whose opportunity cost we’re calculating.

4.    D) total quantity of the other good by the total quantity of the good whose opportunity cost we’re calculating.

5.    E) price of the good whose opportunity cost we are calculating by the number of units of the other good that are forgone.

Answer:  C

Topic:  Opportunity cost

Skill:  Level 3: Using models

Section:  Checkpoint 3.2

Status:  Old

AACSB:  Analytical thinking

 

 

3) To find the opportunity cost of producing one more unit of any product while on the production possibilities frontier requires

1.    A) setting the amounts of the two products equal to each other.

2.    B) setting the change in one product equal to the change in the other product.

3.    C) dividing the amount of the product forgone by the amount of the product gained.

4.    D) subtracting the change in the product whose production increased from the change in the product whose production decreased.

5.    E) None of these describes how to find opportunity cost.

Answer:  C

Topic:  Opportunity cost

Skill:  Level 3: Using models

Section:  Checkpoint 3.2

Status:  Old

AACSB:  Analytical thinking

4) To calculate the opportunity cost per unit, you divide the decrease in the quantity of the forgone item by the

1.    A) decrease in the quantity of the other item.

2.    B) increase in the quantity of the other item obtained.

3.    C) price of the item obtained.

4.    D) price of the item forgone.

5.    E) price of the item obtained and then multiply by the price of the item forgone.

Answer:  B

Topic:  Opportunity cost

Skill:  Level 2: Using definitions

Section:  Checkpoint 3.2

Status:  Old

AACSB:  Analytical thinking

 

5) On a production possibilities frontier, 500 pounds of apples and 1,200 pounds of bananas can be produced while at another point on the same frontier, 300 pounds of apples and 1,300 pounds of bananas can be produced. Between these points, what is the opportunity cost of producing a pound of bananas?

1.    A) 2 pounds of bananas

2.    B) 200 pounds of apples

3.    C) 2 pounds of apples

4.    D) 0.5 a pound of apples

5.    E) 12/5 = 2.4 pounds of apples

Answer:  C

Topic:  Opportunity cost

Skill:  Level 3: Using models

Section:  Checkpoint 3.2

Status:  Old

AACSB:  Analytical thinking

 

 

6) On a production possibilities frontier, 500 pounds of apples and 1,200 pounds of bananas can be produced while at another point on the same frontier, 300 pounds of apples and 1,300 pounds of bananas can be produced. Between these points, what is the opportunity cost of producing a pound of apples?

1.    A) 2 pounds of bananas

2.    B) 100 pounds of bananas

3.    C) 2 pounds of apples

4.    D) 0.5 of a pound of bananas

5.    E) 5/12 of a pound of bananas

Answer:  D

Topic:  Opportunity cost

Skill:  Level 3: Using models

Section:  Checkpoint 3.2

Status:  Old

AACSB:  Analytical thinking

7) A country produces only apples and bananas. Moving from point A to point B along its production possibilities frontier, 5 apples are forgone and 4 bananas are gained. What is the opportunity cost of a banana?

1.    A) 4 apples

2.    B) 5/4 of an apple

3.    C) 4/5 of an apple

4.    D) 1 banana

5.    E) None of the above answers is correct.

Answer:  B

Topic:  Opportunity cost

Skill:  Level 3: Using models

Section:  Checkpoint 3.2

Status:  Old

AACSB:  Analytical thinking

 

8) A country produces only apples and bananas. Moving from point A to point B along its production possibilities frontier, 5 apples are gained and 4 bananas are forgone. What is the opportunity cost of an apple?

1.    A) 4 bananas

2.    B) 5/4 of a bananas

3.    C) 4/5 of a banana

4.    D) 1 apple

5.    E) None of the above answers is correct.

Answer:  C

Topic:  Opportunity cost

Skill:  Level 3: Using models

Section:  Checkpoint 3.2

Status:  Old

AACSB:  Analytical thinking

 

 

 

9) Robinson Crusoe divides his time between catching fish and gathering fruit. Part of his production possibilities frontier is given in the above table. If Mr. Crusoe is on his PPF and he increases the amount of fruit he gathers from 56 to 90 pounds, the opportunity cost is

1.    A) 37 pounds of fish.

2.    B) 31 pounds of fish.

3.    C) 17 pounds of fish.

4.    D) 34 pounds of fruit.

5.    E) 90 pounds of fruit.

Answer:  C

Topic:  Opportunity cost

Skill:  Level 2: Using definitions

Section:  Checkpoint 3.2

Status:  Old

AACSB:  Analytical thinking

10) Robinson Crusoe divides his time between catching fish and gathering fruit. Part of his production possibilities frontier is given in the above table. Mr. Crusoe, while lonesome, is efficient and always stays on his PPF. Mr. Crusoe is consuming 20 pounds of fish. Then he decides to slowly become a vegetarian and decrease his consumption of fish to 9 pounds. This decision means that Mr. Crusoe will

1.    A) incur an opportunity cost of 9 pounds of fruit.

2.    B) incur an opportunity cost of 20 pounds of fish.

3.    C) be able to enjoy a gain of 9 pounds of fruit.

4.    D) incur an opportunity cost of 99 pounds of fruit.

5.    E) incur an opportunity cost of 9 pounds of fish.

Answer:  C

Topic:  Opportunity cost

Skill:  Level 2: Using definitions

Section:  Checkpoint 3.2

Status:  Old

AACSB:  Analytical thinking

 

 

 

 

11) The table above shows a nation’s production possibilities frontier. If the nation wants to produce 4 robots and 34 pizzas,

1.    A) it will shift the production possibilities frontier.

2.    B) the opportunity cost is 9 pizzas.

3.    C) the nation will be producing inefficiently.

4.    D) it will be unable to do so because the production point is unattainable.

5.    E) the nation will then be producing at a production efficient point.

Answer:  D

Topic:  Unattainable points

Skill:  Level 3: Using models

Section:  Checkpoint 3.2

Status:  Old

AACSB:  Analytical thinking

12) The table above shows a nation’s production possibilities frontier. If the nation chooses to increase the production of robots from 2 to 3 and it is on its PPF, it will have to forgo ________ pizzas.

1.    A) 37

2.    B) 34

3.    C) 3

4.    D) 35.5

5.    E) None of the above answers is correct.

Answer:  C

Topic:  Opportunity cost

Skill:  Level 3: Using models

Section:  Checkpoint 3.2

Status:  Old

AACSB:  Analytical thinking

 

 

13) The table above shows a nation’s production possibilities frontier. The opportunity cost of a robot between combination D and E is

1.    A) 4 pizzas.

2.    B) 34 pizzas.

3.    C) 30 pizzas.

4.    D) 1/4 of a pizza.

5.    E) undefined because neither point is production efficient.

Answer:  A

Topic:  Opportunity cost

Skill:  Level 3: Using models

Section:  Checkpoint 3.2

Status:  Old

AACSB:  Analytical thinking

 

14) The figure above shows the production possibilities frontier for a country. The opportunity cost of a gallon of milk between combination point A and B is

1.    A) 4 gallons of ice cream for a gallon of milk.

2.    B) 3 gallons of ice cream for a gallon of milk.

3.    C) 1 gallon of ice cream for a gallon of milk.

4.    D) 1/3 of a gallon of ice cream for a gallon of milk.

5.    E) zero because at point A, zero milk is being produced.

Answer:  D

Topic:  Opportunity cost

Skill:  Level 3: Using models

Section:  Checkpoint 3.2

Status:  Old

AACSB:  Analytical thinking

 

 

15) The figure above shows the production possibilities frontier for a country. If the economy is operating at point B, then the opportunity cost of another million gallons of milk is

1.    A) 4 gallons of ice cream for a gallon of milk.

2.    B) 3 gallons of ice cream for a gallon of milk.

3.    C) 1 gallon of ice cream for a gallon of milk.

4.    D) 1/3 of a gallon of ice cream for a gallon of milk.

5.    E) zero because after producing another million gallons of milk, then zero gallons of ice cream are produced.

Answer:  B

Topic:  Opportunity cost

Skill:  Level 3: Using models

Section:  Checkpoint 3.2

Status:  Old

AACSB:  Analytical thinking

 

 

16) The above figure shows the production possibility frontier for a country. Suppose the country is producing at point A. What is the opportunity cost of increasing the production of rice to 12 tons?

1.    A) 15 thousand bottles of wine

2.    B) 6 thousand bottles of wine

3.    C) 9 thousand bottles of wine

4.    D) 12 tons of rice

5.    E) Nothing, it is a free lunch.

Answer:  B

Topic:  Opportunity cost

Skill:  Level 3: Using models

Section:  Checkpoint 3.2

Status:  Old

AACSB:  Analytical thinking

 

 

17) The above figure shows the production possibility frontier for a country. Suppose the country is producing at point D. What is the opportunity cost of increasing the production of rice to 15 tons?

1.    A) 9 thousand bottles of wine

2.    B) 6 thousand bottles of wine

3.    C) 15 thousand bottles of wine

4.    D) 12 tons of rice

5.    E) Nothing, it is a free lunch.

Answer:  A

Topic:  Opportunity cost

Skill:  Level 3: Using models

Section:  Checkpoint 3.2

Status:  Old

AACSB:  Analytical thinking

18) The above figure shows the production possibility frontier for a country. Suppose the country is producing at point E. What would be the opportunity cost to increase the production of wine to 9 thousand bottles?

1.    A) 12 tons of rice

2.    B) 15 thousand bottles of wine

3.    C) 9 thousand bottles of wine

4.    D) 3 tons of rice

5.    E) Nothing, it is a free lunch.

Answer:  D

Topic:  Opportunity cost

Skill:  Level 3: Using models

Section:  Checkpoint 3.2

Status:  Old

AACSB:  Analytical thinking

 

19) The above figure shows the production possibility frontier for a country. Suppose the country is producing at point D. What would be the opportunity cost to move to point C?

1.    A) 6 thousand bottles of wine

2.    B) 15 thousand bottles of wine

3.    C) 12 tons of rice

4.    D) Nothing, it is a free lunch.

5.    E) This movement is not possible without economic growth.

Answer:  E

Topic:  Opportunity cost

Skill:  Level 3: Using models

Section:  Checkpoint 3.2

Status:  Old

AACSB:  Analytical thinking

 

 

20) The above figure shows the production possibility frontier for a country. Suppose the country is producing at point A. What would be the opportunity cost to increase the production of rice to 12 tons?

1.    A) 6 thousand bottles of wine

2.    B) 15 thousand bottles of wine

3.    C) 9 thousand bottles of wine

4.    D) 6 tons of rice

5.    E) Nothing, it is a free lunch.

Answer:  E

Topic:  Opportunity cost

Skill:  Level 3: Using models

Section:  Checkpoint 3.2

Status:  Old

AACSB:  Analytical thinking

21) The above figure shows the production possibility frontier for a country. What is the opportunity cost per ton of rice to move from point B to point D?

1.    A) 1000 bottles of wine

2.    B) 500 bottles of wine

3.    C) 2 bottles of wine

4.    D) 1/2 of a bottle of wine

5.    E) None of the above answers is correct.

Answer:  B

Topic:  Opportunity cost

Skill:  Level 3: Using models

Section:  Checkpoint 3.2

Status:  Old

AACSB:  Analytical thinking

 

22) The above figure shows the production possibility frontier for a country. What is the opportunity cost per ton of rice to move from point D to E?

1.    A) 3000 bottles of wine

2.    B) 333 bottles of wine

3.    C) 3 bottles of wine

4.    D) 1/3 of a bottle of wine

5.    E) None of the above answers is correct.

Answer:  A

Topic:  Opportunity cost

Skill:  Level 3: Using models

Section:  Checkpoint 3.2

Status:  Old

AACSB:  Analytical thinking

 

 

23) The above figure shows the production possibility frontier for a country. What is the opportunity cost to move from point D to point E?

1.    A) 6 thousand bottles of wine

2.    B) 15 thousand bottles of wine

3.    C) 6 tons of rice

4.    D) 9 thousand bottles of wine

5.    E) Nothing, it is a free lunch.

Answer:  D

Topic:  Opportunity cost

Skill:  Level 3: Using models

Section:  Checkpoint 3.2

Status:  Old

AACSB:  Analytical thinking

24) The above figure shows the production possibility frontier for a country. What is the opportunity cost to move from point D to point B?

1.    A) 12 tons of rice

2.    B) 15 thousand bottles of wine

3.    C) 6 thousand bottles of wine

4.    D) 9 thousand bottles of wine

5.    E) Nothing, it is a free lunch.

Answer:  A

Topic:  Opportunity cost

Skill:  Level 3: Using models

Section:  Checkpoint 3.2

Status:  Old

AACSB:  Analytical thinking

 

25) Moving from a point inside the production possibilities frontier to a point on the production possibilities frontier, the opportunity cost of producing more of the good on the horizontal axis

1.    A) increases.

2.    B) decreases.

3.    C) is constant.

4.    D) is 0.

5.    E) is infinite.

Answer:  D

Topic:  Opportunity cost

Skill:  Level 3: Using models

Section:  Checkpoint 3.2

Status:  Old

AACSB:  Analytical thinking

 

 

26) Consider a production possibility frontier with jeans on the vertical axis and shoes on the horizontal axis. As a country moves along the frontier closer to the vertical axis,

1.    A) the opportunity cost of producing jeans increases.

2.    B) the opportunity cost of producing shoes increases.

3.    C) there are fewer tradeoffs.

4.    D) inefficient production occurs.

5.    E) the opportunity cost of producing jeans decreases.

Answer:  A

Topic:  Opportunity cost

Skill:  Level 4: Applying models

Section:  Checkpoint 3.2

Status:  Old

AACSB:  Analytical thinking

27) Suppose that in a PPF graph, wheat is on the vertical axis and jets are on the horizontal axis. Moving down along the PPF, the

1.    A) number of jets increases and the opportunity cost of jets increases.

2.    B) amount of wheat increases and the opportunity cost of wheat increases.

3.    C) number of jets increases and the opportunity cost of jets decreases.

4.    D) amount of wheat increases and opportunity cost of wheat decreases.

5.    E) opportunity cost of jets and wheat both increase.

Answer:  A

Topic:  Opportunity cost

Skill:  Level 4: Applying models

Section:  Checkpoint 3.2

Status:  Old

AACSB:  Reflective thinking

 

28) Why is a production possibilities frontier bowed out (concave)?

1.    A) The bowed shape reflects constant opportunity cost.

2.    B) The bowed shape reflects decreasing opportunity cost.

3.    C) The bowed shape indicates that opportunity cost at first decreases at a decreasing rate, and then begins to decrease at an increasing rate.

4.    D) The bowed shape indicates that opportunity cost at first increases at a decreasing rate, and then begins to increase at an increasing rate.

5.    E) The bowed shape reflects increasing opportunity cost.

Answer:  E

Topic:  Increasing opportunity costs

Skill:  Level 2: Using definitions

Section:  Checkpoint 3.2

Status:  Old

AACSB:  Reflective thinking

 

 

29) The bowed out (concave) shape of the production possibilities curve implies that as production of one good

1.    A) increases, society must forgo increasing amounts of another good.

2.    B) increases, society must forgo decreasing amounts of another good.

3.    C) decreases, production of other goods decreases as well.

4.    D) increases, production of other goods increases as well.

5.    E) increases, society can obtain a free lunch.

Answer:  A

Topic:  Increasing opportunity costs

Skill:  Level 2: Using definitions

Section:  Checkpoint 3.2

Status:  Old

AACSB:  Reflective thinking

30) The idea of increasing opportunity cost is reflected in the

1.    A) bowed out shape of the production possibilities frontier.

2.    B) bowed in shape of the production possibilities frontier.

3.    C) linear shape of the production possibilities frontier.

4.    D) positive slope of the production possibilities frontier.

5.    E) fact that the PPF shows there are unattainable production points.

Answer:  A

Topic:  Increasing opportunity costs

Skill:  Level 2: Using definitions

Section:  Checkpoint 3.2

Status:  Old

AACSB:  Reflective thinking

 

31) A bowed out production possibilities frontier shows

1.    A) that resources are equally productive in all uses.

2.    B) increasing opportunity cost.

3.    C) that resources are not equally productive in all uses.

4.    D) Both answers B and C are correct.

5.    E) Both answers A and B are correct.

Answer:  D

Topic:  Increasing opportunity costs

Skill:  Level 2: Using definitions

Section:  Checkpoint 3.2

Status:  Old

AACSB:  Reflective thinking

 

 

32) The opportunity cost of a good increases as more of it is produced because

1.    A) there is no such thing as a free lunch.

2.    B) resources are not equally productive in all activities.

3.    C) producing more of a good requires additional resources.

4.    D) the number of forgone alternatives also increases.

5.    E) people want the good less as more is produced.

Answer:  B

Topic:  Increasing opportunity costs

Skill:  Level 2: Using definitions

Section:  Checkpoint 3.2

Status:  Old

AACSB:  Reflective thinking

33) As an economy increasingly specializes in producing one good, the opportunity cost of that good increases. The opportunity cost increases because

1.    A) resources are not equally productive in all activities.

2.    B) what must be paid to resources increases.

3.    C) human wants are virtually unlimited.

4.    D) not all goods are equally valuable.

5.    E) as more of a good is produced, the profit from its production must rise.

Answer:  A

Topic:  Increasing opportunity costs

Skill:  Level 2: Using definitions

Section:  Checkpoint 3.2

Status:  Old

AACSB:  Reflective thinking