Chapter 2: Scarcity and the World of Trade-Offs

Suppose that Canadian farmers can grow wheat more cheaply than can U.S. farmers. In the interest of efficiency, what is the desirable outcome? A) Allow the Canadian farmers to sell their wheat for a lower price. B) Pass a law in Canada mandating a minimum price for wheat equal to what is charged by U.S. farmers. C) Pass a law in the United States mandating a maximum price for wheat equal to what is charged by Canadian farmers. D) Have U.S. citizens boycott Canadian wheat.

A) Allow the Canadian farmers to sell their wheat for a lower price.

Tom is better than his sister at mowing the lawn and delivering papers. However, he earns $10 per hour delivering papers and $0 mowing his parentsʹ lawn. A) Tomʹs opportunity cost for mowing the lawn is the money he could have earned delivering papers. B) Tomʹs opportunity cost for mowing the lawn is the time it would have taken his sister to mow it. C) If Tom specializes in mowing the lawn, he might be able to start a profitable business. D) Tom should specialize in mowing lawns.

A) Tomʹs opportunity cost for mowing the lawn is the money he could have earned delivering papers.

If Vice President Smith is a better typist than his assistant, he is said to have a(n) ________ advantage in typing over the assistant. A) absolute B) unusual C) relative D) overwhelming

A) absolute

ʺMy brother is better at cooking, better at cleaning, and better at fixing the car than I am.ʺ Relative to his sister, this brother has: A) an absolute advantage in cooking, cleaning, and car repair. B) comparative advantage in cooking, cleaning, and car repair. C) more intelligence than his sister. D) more income than his sister

A) an absolute advantage in cooking, cleaning, and car repair.

A production possibilities curve will shift outward or to the right for all of the following reasons EXCEPT: A) an increase in the unemployment rate. B) an increase in the quality of the labor force. C) an improvement in production technology. D) a discovery of a new source of renewable energy

A) an increase in the unemployment rate.

The production possibilities curve for two products is bowed out because A) as the production of a good increases, opportunity cost increases. B) as the production of a good increases, opportunity cost is unchanged. C) the qualities of the resources are not identical. D) there are unemployed resources.

A) as the production of a good increases, opportunity cost increases.

ʺWantsʺ as an economic concept includes: A) both material and nonmaterial desires. B) only the purchase of necessary basic goods. C) only the desire for luxury goods. D) only those goods that can be purchased with oneʹs paycheck.

A) both material and nonmaterial desires.

If an economy produces only steel and wheat, a new fertilizer will: A) cause the production of wheat to increase at every point on a production possibilities curve but not affect the production of steel, that is the curve moves outward on the wheat axis only. B) cause the production of both wheat and steel to increase at every point along the production possibilities curve, that is the curve moves outward on both the wheat axis and the steel axis. C) not affect the production of either wheat or steel. D) cause the production of steel to increase at every point along the production possibilities curve but not affect the production of wheat, that is the curve moves outward on the steel axis only.

A) cause the production of wheat to increase at every point on a production possibilities curve but not affect the production of steel, that is the curve moves outward on the wheat axis only.

Opportunity costs arise from A) choices. B) taxes. C) mistakes. D) regrets.

A) choices.

One of the benefits of specialization is: A) greater output. B) people enjoy doing one repetitive task over and over. C) specialists cost less to hire. D) training costs are higher.

A) greater output.

If a country is currently producing inside its production possibilities curve: A) it can increase the production of both goods by putting unemployed resources to work. B) it can increase the production of one of the goods only if it reduces the production of the other good. C) it is experiencing efficient production of one good but not the other. D) None of the above are correct.

A) it can increase the production of both goods by putting unemployed resources to work.

Comparative advantage is the ability to: A) perform an activity at a lower opportunity cost. B) determine who your best trading partners are. C) determine the best use of capital goods. D) convince others of the best choices to make in their own self-interest.

A) perform an activity at a lower opportunity cost.

If a country wants to promote future growth, it should: A) produce more capital goods today. B) produce more consumer goods today. C) produce only economic goods. D) produce only needed goods.

A) produce more capital goods today.

To have more consumer goods in the future we must: A) produce more capital goods today. B) lower current income. C) get government involved in the production process. D) pass new laws.

A) produce more capital goods today.

The law of increasing relative cost exists because... A) resources are not perfectly adaptable to both production processes. B) the demand for the product increases. C) the cost of resources of the products increase. D) the cost of resources of the products decrease.

A) resources are not perfectly adaptable to both production processes.

During periods of unemployment A) the economy operates at a point inside the production possibilities curve. B) the economy operates at a point outside the production possibilities curve. C) the production possibilities curve shifts inward. D) the production possibilities curve shifts outward.

A) the economy operates at a point inside the production possibilities curve.

An example of an entrepreneur would be A) the owner of a new Indian food restaurant. B) the cafeteria employee who won the employee of the month award. C) a Greyhound bus driver. D) the cashier at your local supermarket.

A) the owner of a new Indian food restaurant

When Adam Smithʹs ten pin workers specialized, they were able to increase output of pins in a day from 200 to 48,000. One reason for the increase in pin output was due to: A) the time saved when workers do not need to shift from one task to another. B) the boredom the workers suffered when they stopped making a whole pin and only concentrated on one task such as painting the heads white. C) new machinery. D) the bonus they received when they produced more pins.

A) the time saved when workers do not need to shift from one task to another.

The high opportunity cost of voting in the United States is due to: A) the value of time devoted to casting a ballot. B) the inability of candidates to differentiate themselves from one another. C) the inability of the typical voter to change the election outcome by voting. D) the confusion generated by the voting machines.

A) the value of time devoted to casting a ballot.

Which of the following would be categorized as ʺlandʺ? A) timber. B) human capital. C) buildings. D) entrepreneurship.

A) timber.

The opportunity cost of a decision is the: A) value of the best alternative not chosen. B) value of all the alternatives not chosen. C) cost of making the wrong choice. D) cost incurred by others who are unhappy with your decision.

A) value of the best alternative not chosen.

You can buy either movie tickets or DVDs. If one movie ticket costs $10 and a DVD costs $15, what is the opportunity cost of buying 10 DVDs? A) $1,000 B) 15 movie tickets C) 1.5 movie tickets D) 150 movie tickets

B) 15 movie tickets

The reason that most of the coffee that is consumed in the United States comes from Colombia is that: A) Colombia has an absolute advantage in producing coffee relative to the United States. B) Colombia has a comparative advantage in producing coffee relative to the United States. C) coffee cannot be grown in the United States. D) government trade disincentives regarding Colombian coffee make such trade possible

B) Colombia has a comparative advantage in producing coffee relative to the United States.

A graphical representation which shows the trade-off that occurs when more of one output is obtained at the sacrifice of another is called A) a Laffer Curve. B) a production possibilities curve (PPC). C) a bell curve. D) a supply curve.

B) a production possibilities curve (PPC).

The term ʺlaborʺ for an economist includes: A) all skilled workers, but not the unskilled workers. B) all productive contributions of humankind. C) only the value of the work done by scientists. D) all employees who have high school diplomas.

B) all productive contributions of humankind.

Inefficient use of resources is shown on the production possibilities curve A) by an inward shifting of the curve. B) by a point inside the curve. C) by a point near the top of the curve. D) by a point outside the curve.

B) by a point inside the curve.

Comparative advantage implies that you A) can produce more units of a good or service than another. B) can produce a good or service at a lower opportunity cost. C) can produce goods with more capital resources. D) can produce goods with more human resources.

B) can produce a good or service at a lower opportunity cost.

Assuming Vice President Smith has to sacrifice more than the assistant in order to engage in full-time typing, we would say that the assistant has a(n) ________ advantage in typing versus Mr. Smith. A) absolute B) comparative C) pecuniary D) overwhelming

B) comparative

Trading off capital goods for increasing amounts of consumer goods today will most likely result in: A) increased long-term growth. B) decreased long-term growth. C) decreased prices in consumer goods. D) increases in the quantity of consumer goods

B) decreased long-term growth.

According to the concept of comparative advantage, a good should be produced in that nation in which A) domestic opportunity cost is greatest. B) domestic opportunity cost is the smallest. C) money is used. D) terms of trade are maximized.

B) domestic opportunity cost is the smallest.

The principle of comparative advantage implies that: A) only wealthy countries can benefit from international trade. B) everyone can benefit from international trade. C) we should limit the extent to which people specialize. D) most people are harmed by trade.

B) everyone can benefit from international trade.

The bowed shape of the traditional production possibilities curve reflects the... A) negative side effects of economic growth. B) fact that not all resources are equally well-suited to producing all goods. C) costs of unemployment. D) problems of inequality.

B) fact that not all resources are equally well-suited to producing all goods.

Economic bads are goods A) for which the produced quantity is less than the amount desired at a positive price. B) for which the desired quantity is less than what nature provides at a zero price. C) that individuals desire but which receive social disapproval. D) that receive social approval but which governments dislike.

B) for which the desired quantity is less than what nature provides at a zero price.

Education increases the stock of which factor of production? A) physical capital B) human capital C) land D) entrepreneurship

B) human capital

To an economist the term ʺneedsʺ... A) means the purchase of necessary goods. B) is objectively undefinable. C) identifies the purchases of basic goods and services. D) refers to the purchase of luxury goods.

B) is objectively undefinable.

Technology A) is constantly changing at every point along a production possibilities curve. B) is the recipe for combining land, labor, physical capital, and entrepreneurship to produce a good. C) does not have an effect on the amount of a good a society can produce with its given resources. D) only changes if resources change.

B) is the recipe for combining land, labor, physical capital, and entrepreneurship to produce a good.

Oil found in Alaska is an example of A) physical capital. B) land or natural resource. C) human capital. D) labor.

B) land or natural resource.

Internet companies attempt to make ordering and paying for items as easy as possible in order to; A) maximize the utility of the software. B) minimize opportunity costs for the customer. C) minimize transactions costs. D) maximize the time the customer spends on the website.

B) minimize opportunity costs for the customer.

Economic goods are items that: A) are used only by economists. B) provide satisfaction to users. C) cannot be sold at any price in the market. D) individuals would pay to get rid off.

B) provide satisfaction to users.

Opportunity cost exists because of A) poverty. B) scarcity. C) greed. D) self-interest.

B) scarcity.

The most basic concept of economics is A) self-interest. B) scarcity. C) demand. D) rationality.

B) scarcity.

International trade between two nations increases the standard of living of both nations due to A) specialization and gains from absolute advantage. B) specialization and gains from comparative advantage. C) high tariffs. D) political intervention.

B) specialization and gains from comparative advantage.

The trade-off between the present and future consumption is measured by: A) the money cost of both the present and future consumption. B) the foregone present consumption. C) the difference between the money price of future goods and the money cost of producing them. D) the difference between the money price of present goods and the money cost of producing them.

B) the foregone present consumption.

An outward bowed production possibilities curve illustrates all of the following EXCEPT: A) efficient production. B) the law of decreasing relative cost. C) scarcity. D) all possible combinations of production given a set of resources.

B) the law of decreasing relative cost.

The production possibilities curve shows all possible combinations of: A) two goods that are desired by society. B) two goods that can be efficiently produced with a given set of resources. C) two goods that can be purchased given the prices of the goods. D) two goods that can be produced by college graduates.

B) two goods that can be efficiently produced with a given set of resources.

Efficiency is achieved: A) when output is being produced at a point inside a production possibilities curve. B) when producers are getting the maximum possible output from the available resources. C) when consumers are able to buy everything that they want. D) when prices of all goods and services go to zero.

B) when producers are getting the maximum possible output from the available resources.

Based on the above figure, if countries ʺAʺ and ʺBʺ faced the production possibilities curves above, both countries would benefit if A) they did not trade. B) ʺAʺ produced industrial goods, and ʺBʺ produced agricultural goods. C) ʺBʺ produced industrial goods, and ʺAʺ produced agricultural goods. D) they both produced both industrial and agricultural goods.

B) ʺAʺ produced industrial goods, and ʺBʺ produced agricultural goods.

How does an economy represented by a straight-line production possibilities curve differ from one represented by a traditional production possibilities curve with a bowed shape? A) In the economy represented by a straight-line production possibilities curve, there is no opportunity cost. B) In the economy represented by a straight-line production possibilities curve, neither good is scarce. C) In the economy represented by a straight-line production possibilities curve, the law of increasing relative cost does not apply. D) In the economy represented by a straight-line production possibilities curve, changing the amount of resources devoted to the production of each good will not alter the amount of each good actually produced.

C) In the economy represented by a straight-line production possibilities curve, the law of increasing relative cost does not apply.

Why do most people choose to specialize in a narrow set of skills for their work, rather than to learn a little bit about several varied fields of endeavor? A) They feel that doing so will minimize their chances of being unemployed. B) They donʹt correctly perceive the costs of being so specialized. C) It allows them to earn more income by being more productive. D) They are unaware of how much better off they would be if they diversified their skills.

C) It allows them to earn more income by being more productive.

Why is efficiency desirable? A) It results in an equal distribution of income. B) It results in zero unemployment. C) It makes best use of the finite resources we have. D) It is the most politically popular solution

C) It makes best use of the finite resources we have.

Which of the following is NOT a factor of production? A) land. B) labor. C) a product. D) entrepreneurship.

C) a product.

Scarcity, by definition, means A) poverty. B) a shortage. C) a situation where the inputs for producing the things we desire are insufficient to satisfy all of our wants. D) that less of the good is available than buyers wish to purchase.

C) a situation where the inputs for producing the things we desire are insufficient to satisfy all of our wants.

If the production of capital goods is shown along the horizontal axis of a production possibilities curve, and the production of consumer goods is shown along the vertical axis of a production possibilities curve, and the economy desires to have a rapid rate of economic growth, then the economy should produce at a point: A) near the middle of the curve dividing resources equally between the production of consumer and capital goods. B) at a point near the vertical axis concentrating on the production of consumer goods. C) at a point near the horizontal axis concentrating on the production of capital goods. D) at a point inside the curve allowing the economy to adjust rapidly to changes in economic activity.

C) at a point near the horizontal axis concentrating on the production of capital goods.

The text argues that if avocado growers in Mexico can produce avocadoes cheaper than avocado growers in the United States, this will not reduce total jobs available in the United States. The logic underlying this argument is that: A) avocado growers in the United States did not earn much anyway. B) avocado growers in the United States are welcome to emigrate to Mexico. C) avocado growers in the United States will switch to specializing in a crop in which they hold the comparative advantage. D) avocado growers in Mexico need the jobs more than Americans do.

C) avocado growers in the United States will switch to specializing in a crop in which they hold the comparative advantage.

In economics, international trade is based on the existence of: A) absolute advantage between countries. B) relative advantage between countries. C) comparative advantage between countries. D) output advantage between countries.

C) comparative advantage between countries.

In order for a production possibilities curve to shift to the right, which of the following must occur? A) government involvement B) increasing consumer wants C) economic growth D) reductions in the supply of resources

C) economic growth

Two factories make wooden chairs. If the workers in factory A make each chair from start to finish and the workers in factory B divide labor, one would assume: A) the chairs in factory A are of higher quality. B) the workers in factory B have more job satisfaction. C) factory B can take advantage of division of labor and produce more efficiently. D) factory A can take advantage of division of labor and produce more efficiently

C) factory B can take advantage of division of labor and produce more efficiently.

Using productive resources to make capital goods requires that we: A) get everyone to agree on the best use of those resources. B) get government approval of our plan to make capital goods. C) forgo some level of current consumption. D) prove that the existence of the capital goods will not cause any environmental damage.

C) forgo some level of current consumption.

A bowed-outward production possibilities curve demonstrates the concept of A) constant opportunity costs as production shifts from the production of one good to the production of the other good. B) decreasing opportunity costs as production shifts from the production of one good to the production of the other good. C) increasing opportunity costs as production shifts from the production of one good to the production of the other good. D) increasing opportunity costs at first but the opportunity costs steadily decrease as you move down along the curve.

C) increasing opportunity costs as production shifts from the production of one good to the production of the other good.

Which factor of production includes water? A) physical capital B) human capital C) land D) entrepreneurship

C) land

In economics, physical capital includes A) money. B) bank accounts. C) machinery. D) shares of stock.

C) machinery.

Efficiency is defined as A) the consumption of goods. B) the production of goods and services. C) production of output at minimum cost. D) arriving at oneʹs destination quickly.

C) production of output at minimum cost.

Activities designed to convert resources into goods and services is known as: A) supply. B) consumption. C) production. D) scarcity.

C) production.

In constructing a production possibilities curve, all of the following are assumed EXCEPT: A) resources are fully employed. B) the quantity and quality of resources being used is fixed. C) the state of technology is improving. D) the time period involved is fixed.

C) the state of technology is improving.

Scarcity exists because A) there is a disruption in the distribution of goods caused by bad weather. B) there is a shortage of goods caused by war. C) there are not enough resources available to produce all the goods that people want. D) there is a shortage of qualified workers throughout the world.

C) there are not enough resources available to produce all the good that people want.

When productive activities are organized according to the principle of the division of labor, A) scarcity is eliminated. B) we do not devote enough resources for capital investment. C) total output increases due to the advantages of specialization. D) an inefficient outcome results.

C) total output increases due to the advantages of specialization.

The fact that our wants are unlimited but our resources are limited implies that A) we should limit our wants. B) entrepreneurship has failed as an economic system. C) we have to make choices. D) the only way to make someone better off is to make someone else worse off.

C) we have to make choices.

The tasks performed by the chef at your favorite restaurant could be categorized as: A) a good. B) an economic good. C) a service or intangible good. D) All of the above are correct

D) All of the above are correct

Which of the following is assumed when constructing a production possibilities curve? A) a fixed amount of resources B) the efficient use of resources C) resources of a given quality D) All of the above are correct

D) All of the above are correct

The opportunity cost of going to college full time away from home is: A) the income you could have earned from a full-time job. B) the funds you would have saved if you had not paid the tuition. C) the time you could have spent with friends back home. D) All of the above are correct.

D) All of the above are correct.

You should specialize in the production of a good if you have A) an absolute advantage. B) more capital resources than your trading partner. C) more human resources than your trading partner. D) a comparative advantage.

D) a comparative advantage.

Which of the following is NOT considered to be an economic resource? A) your economics professor B) the telephone company repair truck C) the local gas station D) a view of the stars on a clear night

D) a view of the stars on a clear night

Which of the following items would be considered scarce? A) water B) diamonds C) potato chips D) All of the above are scarce.

D) all of the above are scarce.

Economists argue that unhindered international trade leads to an efficient outcome. What is meant by ʺan efficient outcomeʺ in this context? A) an outcome in which wages are roughly equal around the world. B) an outcome in which the standard of living is roughly equal around the world. C) an outcome in which an individual can choose to specialize in a certain line of work and be certain that he or she can make a living at that until retirement. D) an outcome in which resources are devoted to their most efficient use.

D) an outcome in which resources are devoted to their most efficient use.

Economic growth is shown by: A) a point near the top of the production possibilities curve. B) a point outside the production possibilities curve. C) an inward shift of the production possibilities curve. D) an outward shift of the production possibilities curve.

D) an outward shift of the production possibilities curve.

When a country or a region of a country specializes in producing the product that has the lower opportunity cost compared to another country or region, it is practicing: A) absolute advantage. B) cost disadvantage. C) regional advantage. D) comparative advantage.

D) comparative advantage.

You have the option of consuming one cup of coffee or two donuts or three oranges. You picked the cup of coffee. Therefore the opportunity cost of this cup of coffee is: A) the price of the cup of coffee. B) the difference in the prices of these three products. C) the price of the donuts as they are usually consumed with coffee. D) either the donuts or the oranges, whichever you like more.

D) either the donuts or the oranges, whichever you like more.

The accumulated training and education that you have is: A) physical capital. B) entrepreneurship. C) economic goods. D) human capital.

D) human capital.

Opportunity cost is illustrated on the production possibilities curve (PPC) by a A) bowed-out shape of the PPC. B) shift to the right of the PPC. C) shift to the left of the PPC. D) movement along the PPC.

D) movement along the PPC.

The saying that ʺYou cannot have your cake and eat it tooʺ illustrates the economic concept of: A) a positive statement. B) a normative statement. C) physical capital. D) opportunity cost.

D) opportunity cost.

As an economy moves from point to point along its production possibilities curve, which one of the following variables changes? A) the total amount of resources employed B) the level of technology C) the time frame under consideration D) the amount of each good or service produced

D) the amount of each good or service produced

Which of the following is held constant when constructing a production possibilities curve? A) the price level B) the income level C) combination of goods produced D) the amount of total resources used

D) the amount of total resources used

The making and selling of a pencil for ten cents would likely NOT be possible, but for A) relative advantage. B) the production possibilities curve. C) absolute advantage. D) the division of labor.

D) the division of labor.

When a society takes increasing amounts of resources and applies them to the production of a specific good, resulting in increasing opportunity costs for each additional unit produced, which of the following applies? A) the law of demand B) the law of supply C) the law of scarcity D) the law of increasing relative costs

D) the law of increasing relative costs

Division of labor means that A) the labor market in the United States is geographically segmented. B) some employees join labor unions and others do not. C) management and labor are always in conflict. D) the production process is divided into smaller tasks.

D) the production process is divided into smaller tasks.

All of the following are assumptions of the production possibilities curve EXCEPT: A) resources are fully employed. B) there is a fixed time period. C) there is a fixed level of technology. D) there is a fixed demand for the products.

D) there is a fixed demand for the products.

An improvement in technology will shift the production possibilities curve A) to the left. B) along the curve. C) inward. D) to the right.

D) to the right.

Which of the following is the least scarce? A) college education. B) medicine. C) housing. D) weeds.

D) weeds.

A production possibilities curve will shift inward: A) when the unemployment rate increases. B) when production is inefficient. C) when resources are expanding. D) when a war destroys the capital goods of a country.

D) when a war destroys the capital goods of a country.