CHAPTER 2 QUIZ QUESTIONS

1. Which words best complete the following sentence? A rational decision maker always chooses the option for which marginal benefit is marginal cost. a. less than b. equal to c. unrelated to d. more than

D

An economy can produce various combinations of food and shelter along a production possibilities curve (PPC). First, increase the production of shelter along the PPC; then continue to shift more and more production to shelter. Which of the following will most likely happen to the opportunity cost of a unit of shelter? a. Opportunity cost will increase because as more and more shelter is produced, labor and capital that is highly productive at producing food is being shifted to shelter production, and so more and more food is being given up to produce a unit of shelter. b. Opportunity cost is the amount of labor (but not capital) that is used to produce the extra shelter. c. Opportunity cost must stay constant if we are to stay on the production possibilities curve (PPC). d. Opportunity cost includes all options given up to produce shelter.

a. Opportunity cost will increase because as more and more shelter is produced, labor and capital that is highly productive at producing food is being shifted to shelter production, and so more and more food is being given up to produce a unit of shelter.

1. Suppose an economy can produce various combinations of fish and bread. If more people with strong fishing skills became employed in this economy, how would the production possibilities curve (PPC) change? a. The PPC would shift outward on the fish axis, but would not change on the bread axis. b. The PPC would shift outward equally along both the fish and bread axes. c. The PPC would shift inward on the bread axis, but would not change on the fish axis. d. The PPC would shift inward equally along both the fish and bread axes.

a. The PPC would shift outward on the fish axis, but would not change on the bread axis.

Which of the following is not one of the three fundamental economic questions? a. What happens when you add to or subtract from a current situation? b. For whom to produce? c. How to produce? d. What to produce?

a. What happens when you add to or subtract from a current situation?

1. Which word or phrase best completes the following sentence? Marginal analysis means evaluating changes from a current situation. a. positive or negative b. infinite c. no d. maximum

a. positive or negative

1. In the study of economics, investment means a. the accumulation of capital that is used to produce goods and services. b. owning stocks and bonds. c. the principle that the opportunity cost increases as the production of one output expands. D. the effect of stock prices on the production possibilities curve.

a. the accumulation of capital that is used to produce goods and services.

Three different economies have made choices about the production of capital goods. Which of the following is most likely to produce the greatest growth in the production possibilities curve (PPC)? a. Capital goods produced at the exact rate needed to replace worn-out capital. b. Greater production of capital goods than what is needed to replace worn-out capital. c. Less production of capital goods than what is needed to replace worn-out capital. d. More production of consumption goods that replace worn-out capital.

b. Greater production of capital goods than what is needed to replace worn-out capital.

1. An economy can produce various combinations of food and shelter along a production possibilities curve (PPC). Suppose a technological innovation resulted in a new, higher-yielding crop that generated more bushels of grain for a given set of land, labor, and capital resources. If this innovation did not affect the productivity of shelter production, which of the following would be true? a. The PPC will shift outward equally along both axes of the graph. b. The PPC will rotate inward along the food axis, but will not shift on the shelter axis. c. The PPC will rotate outward along the food axis, but will not shift on the shelter axis. d. The PPC will not change.

b. The PPC will rotate inward along the food axis, but will not shift on the shelter axis.

1. Combinations of goods outside the production possibilities curve (PPC) have which of the following characteristics? a. They are attainable today only if we employ all unemployed or underemployed resources. b. They are not attainable given our existing stock of resources and technology. c. They imply that some resources, such as labor, are unemployed or underemployed. d. None of the answers is correct.

b. They are not attainable given our existing stock of resources and technology.

If an economy can produce various combinations of food and shelter along a production possibilities curve (PPC), then if we increase the production of shelter along the PPC, which of the following is true? a. We also increase the production of food. b. We must decrease the production of food. This forgone food production represents the opportunity cost of the increase in shelter. c. We cannot change the production of food. d. The concept of opportunity cost does not apply along PPC.

b. We must decrease the production of food. This forgone food production represents the opportunity cost of the increase in shelter.

1. Which of the following is an example of an organization using marginal analysis? a. A hotel manager calculating the average cost per guest for the past year b. A farmer hoping for rain c. A government official considering the effect an increase in military goods production will have on the production of consumer goods d. A businessperson calculating economic profits

c. A government official considering the effect an increase in military goods production will have on the production of consumer goods

1. A production possibilities curve shows the various combinations of two outputs that a. consumers would like to consume. b. producers would like to produce. c. an economy can produce. d. an economy should produce.

c. an economy can produce.

1. Which of the following best describes the three fundamental economic questions? a. What to produce, when to produce, and where to produce b. What time to produce, what place to produce, and how to produce c. What to produce, when to produce, and for whom to produce d. What to produce, how to produce, and for whom to produce

d

Which of the following reasons could explain why an economy would be operating inside its production possibilities curve (PPC)? a. Because shrinking population has reduced the number of productive workers in the economy b. Because technological innovations have increased the productivity of labor and capital c. Because damage to natural resources, such as damage caused by deforestation leading to erosion of topsoil, has shrunk the land resource d. Because of unemployment or underemployment of labor, perhaps due to discrimination against employing workers of a certain race or gender

d. Because of unemployment or underemployment of labor, perhaps due to discrimination against employing workers of a certain race or gender

If a production possibilities curve (PPC) has capital on the vertical axis and consumer goods on the horizontal axis, which of the following is true? a. There is a trade-off between emphasizing the production of capital today to benefit people today versus emphasizing the production of consumer goods today that will generate benefits in the future. b. Greater emphasis on the production of capital today leads to future inward shifts in the PPC, thus decreasing the wealth of people in the future. c. Greater emphasis on the production of consumer goods today leads to greater outward shifts in the PPC, thus increasing the wealth of people in the future. d. Greater emphasis on the production of capital today leads to greater outward shifts in the PPC, thus increasing the wealth of people in the future.

d. Greater emphasis on the production of capital today leads to greater outward shifts in the PPC, thus increasing the wealth of people in the future.

A production possibilities curve is drawn based on which of the following assumptions? a. Resources are fixed and fully employed, and technology advances at the rate of growth of the economy overall. b. Resources such as nonrenewable resources will decline, but labor remains fully employed and technology is unchanged. c. Resources can vary; most resources experience times of unemployment; and technology advances, particularly during wartime. d. Resources such as labor and capital will grow and are fully employed, and technology is unchanged. e. None of the answers is correct.

. None of the answers is correct.

. Opportunity cost a. represents the best alternative sacrificed for a chosen alternative. b. has no relationship to the various alternatives that must be given up when a choice is made in the context of scarcity. c. represents the worst alternative sacrificed for a chosen alternative. d. represents all alternatives not chosen.

A

1. The principle that the opportunity cost increases as the production of one output expands is the a. law of increasing opportunity costs. b. law of demand. c. law of supply. d. law of increasing returns to scale.

A

1. Suppose the alternative uses of an hour of your time in the evening, ranked from best to worst, are (1) study economics, (2) watch two half-hour sitcoms, (3) play video games, and (4) jog around town. You can choose only one activity. What is the opportunity cost of studying economics for one hour given this information? a. Jogging around town b. Watching two half-hour TV sitcoms c. Playing video games d. The sum of watching two half-hour TV sitcoms, playing pool, and doing your laundry

B

1. The ability of an economy to produce greater levels of output per time period is called a. positive economics. b. negative economics. c. economic growth. d. the law of specialization.

C