Chapter Two

If the marginal benefit of a good exceeds its marginal cost

we should produce more

A nation can consume at a point outside of its PPF

when it trades with other nations

The frontier o the production possibility curve illustrates

the combination of goods and services that can be produced efficiently

You purchased a $50 ticket to a basketball game which is now sold out. Tickets to the game are being sold by those who have them for $100. Your opportunity cost in dollars of attending the basketball game is

$100

Suppose that a typical German factory can produce 20 cameras or 1 computer in an hour, and that a typical American factory can produce 10 cameras or one computer in an hour. Germany wishes to purchase computers from the US in exchange for cameras. What is the maximum number of cameras per computer that Germany would be willing to pay the US?

20 camers

10. Productions efficiency is achieved ____.

At the point of production at which producing one more unit of one good cannot occur without producing less of some other good.

Suppose Joe can prepare 20 sandwiches or 10 pizzas in an hour and Beth can produce 36 sandwiches or 27 pizzas. Which of the following is true? Calculate the opportunity cost of making sandwiches for both people. In the same amount of time that Joe makes one sandwich, he can make ½ of a pizza. His opportunity cost is 20 sandwiches/10 pizzas or 2 sandwiches per pizza. Alternatively, he can make 10 pizzas/20 sandwiches or ½ a pizza per sandwich. For Beth, the opportunity cost is 36 sandwiches/27 pizzas or 4/3 sandwiches/pizza, or ¾ pizzas/sandwich.

Beth should produce both goods and Joe should produce sandwiches (Beth has comparative advantage in pizzas and Joe has comparative advantage in sandwiches but, since Beth has absolute advantage in both goods, she will also produce some sandwiches.)

In an eight-hour day, Andy can produce either 24 loaves of bread or 8 pounds of butter. In an eight-hour day, Bob can produce either 8 loaves of break or 8 pounds of butter. We know that Andy has a comparative advantage in the production of____

Bread, while Bob has the comparative advantage in the production of butter

A person has a comparative advantage in producing a particular good if that person:

Can produce it at a lower opportunity cost than anyone else

Jane produces only corn and cloth. Taking account of her preferences for corn and cloth _______.

Does not affect her production possibility frontier

The production possibility frontier represents

the maximum levels of production that can be attained

Suppose that you have a choice between video games and movies. If the marginal benefit of a video game, in terms of movies forgone, exceeds the marginal cost, then your resources would be used most efficiently by ________.

Increasing video games and decreasing movies.

20. A reduction in the level of unemployment would have which effect with respect to the nation's production possibilities curve?

It would not shift the curve; it would be represented by moving from a point inside the curve toward the curve

After Hurricane Mitch devastated part of Central America in October 1998, we can be reasonably sure that the production possibility frontier for that area temporarily _________.

Shifted inward, toward the origin.

If the production possibilities curve is a straight line, then:

The law of increasing opportunity costs does not apply.

A tradeoff is illustrated by

The negative slope of the PPF

What is NOT a resource?

a. 175 shares of Microsoft stock (stock shares are a financial asset)

In the context of the Production Possibilities Frontier (PPF), increasing opportunity cost is due to ________.

a. the fact that resources are not equally suited for different types of production (as a society produces more across the board, its efficiency has increased. This does not relate to opportunity cost, which is the tradeoff between the goods produced.)

Economic Growth means

an expansion of production and an outward shift of the PPF

As you study for your economics test you are increasing your:

human capital

Individual economic decisions are coordinated by

markets through adjustments in price

The production of possibility frontier is the boundary between those combinations of goods and services that can be _____

produced and those than cannot be produced

Because of the existence of comparative advantage, the total output of goods is higher when each producer:

specializes in the production of a particular good

The ppf shifts as the

technology changes