Microeconomics 2106 Homework #2

Which concept explains how individual consumers in market economies determine what is to be produced? A. competition B. consumer sovereignty C. decentralized decision-making D. free enterprise

B. consumer sovereignty

Capital accumulation causes the production possibilities curve to shift inward over time. T/F

False

Movement from one point on the production possibilities curve to another leads to more of both goods being produced. T/F

False

Refer to Exhibit 3-4. Moving from Point ____ to Point ____ will result in an increase in the quantity of both capital and consumption goods produced this period. A. B; A B. F; A C. D; F D. F; D

A. B; A

Assume an economy can produce either videos or hats and its production possibilities can be expressed by the following combinations of those two goods utilizing all available resources: Videos Hats A: 0 30 B: 1 29 C: 2 25 D: 3 15 E: 4 0 What is the opportunity cost measured in videos in moving from point D to B? Question 24 options: A. 14 hats B. 2 videos C. zero hats D. 1 video

B. 2 videos

Refer to Exhibit 3-4. The opportunity cost of one more unit of a consumption good is greater at Point ____ than at Point ____. Question 18 options: A. D; E B. E; D C. B; A D. None of the above. The opportunity cost of a good is constant everywhere along the production possibilities curve.

B. E; D

Which of the following is a reason for the law of increasing opportunity cost? A. Some goods have limited alternative uses. B. Not all resources are equally adaptable to other uses. C. Prices of specific final goods increase as more of those goods are produced. D. Prices of specific final goods decrease as more of those goods are produced.

B. Not all resources are equally adaptable to other uses.

Refer to Exhibit 3-4. Other things being equal, the economy will achieve the greatest economic growth over time if it currently operates at: A. Point A. B. Point D. C. Point E. D. none of the above

B. Point D

Refer to Exhibit 3-13. The opportunity cost of producing an additional cupcake equals: A. 10 cakes B. 4 cakes C. 1/4 of a cake D. none of the above

C. 1/4 of a cake

Refer to Exhibit 3-4. Based on the production possibilities curve above, which of the following points are inefficient? A. A only B. B only C. A and B only D. A, B, and G only

C. A and B only

Refer to Exhibit 3-4. Considering only points on the frontier, the economy will experience the least amount of economic growth over time (ceteris paribus) if it chooses to produce at: A. Point A. B. Point C. C. Point F. D. none of the above

C. Point F.

Refer to Exhibit 3-4. Currently, Point ____ is impossible to achieve. A. A B. C C. E D. G

D. G

An increase in available resources will tend to cause a society's production possibilities curve to shift inward. T/F

False

A straight line production possibilities curve implies increasing opportunity costs. T/F

True

Refer to Exhibit 3-4. Which point corresponds to an economy experiencing significant unemployment and/or producing inefficiently? A. Point A B. Point C C. Point E D. Point F

A. Point A

The degree of government involvement in the economy is greatest in Question 39 options: A. a command economy. B. a mixed economy. C. a market economy. D. a traditional economy.

A. a command economy.

Each household makes the decision on how much of its disposable income to use for Consumption and how much for Saving. When looking at the aggregate of all households, i.e. the economy as a whole, we can state that, ceteris paribus, a high savings rate in an economy will tend to lead to: A. more investment in the capital stock of the society leading to diminished growth in the future. B. more investment in the capital stock of the society leading to higher growth in the future. C. less investment in the capital stock of the society leading to diminished growth in the future. D. less investment in the capital stock of the society leading to higher growth in the future.

B. more investment in the capital stock of the society leading to higher growth in the future.

Assume that the production possibilities for Badlands are the following combinations of kegs of beer and pounds of beef: Beef (pounds): Beer (kegs): 66 0 64 1 60 2 54 3 48 4 35 5 24 6 Which of the following is true? A. The opportunity cost of the second keg of beer is 30 pounds of beef. B. The opportunity cost of the third keg of beer is 18 pounds of beef. C. The opportunity cost of the fourth keg of beer is 6 pounds of beef. D. The opportunity cost of the fifth keg of beer is 7 pounds of beef.

C. The opportunity cost of the fourth keg of beer is 6 pounds of beef.

Which of the following will not shift the production possibilities curve outward? Question 27 options: A. an improvement in technology, which increases the efficiency of inputs B. the discovery of significant oil reserves in Alaska C. a decrease in capacity utilization of existing factories D. additions to the stock of physical capital

C. a decrease in capacity utilization of existing factories

Which of the following is a possible explanation for the shift of the production possibilities curve illustrated? A. an increase in the number of idle factories B. a technological advance that affects only bicycle production C. a technological advance that affects both pizza and bicycle production D. a decrease in the quantity of labor available due to emigration

C. a technological advance that affects both pizza and bicycle production

Which of the following will shift a production possibilities curve outward? A. an increase in the unemployment rate B. a decrease in the unemployment rate from 18% to 15% C. an improvement in technology D. a decrease in available labor and capital

C. an improvement in technology

Approximately two decades after a "baby boom," one could expect: A. production to change from an interior point to a point along the production possibilities curve. B. a movement along the production possibilities curve from one point to another. C. an outward shift of the production possibilities curve along both axes. D. an inward shift of the production possibilities curve.

C. an outward shift of the production possibilities curve along both axes.

Inefficiency is best illustrated by which of the following? A. foregoing civilian goods in order to produce more military goods B. limiting economic growth by reducing capital spending C. high levels of unemployment of labor and other resources that could be productively employed D. producing outside the production possibilities frontier

C. high levels of unemployment of labor and other resources that could be productively employed

The production possibilities curve illustrates: A. the minimum quantity of two resources necessary to produce a given level of output. B. that when resources are currently being used inefficiently, it is possible to increase production of one good only by sacrificing some of another good. C. that when resources are currently being used efficiently, it is possible to increase production of one good only by sacrificing some of another good. D. the minimum quantities of output that can be produced using available resources.

C. that when resources are currently being used efficiently, it is possible to increase production of one good only by sacrificing some of another good.

Suppose Freeland produces few consumption goods and many investment goods while Liberty Nation produces few investment goods and many consumption goods. Other things equal, you would expect A. per capita income to grow more rapidly in Liberty Nation. B. population to grow faster in Liberty Nation. C. the production possibilities curve for Freeland will shift out more rapidly than that of Liberty Nation. D. that if both countries started with identical production possibilities curves, in twenty years, people in Liberty Nation will be able to produce more consumer goods than people in Freeland.

C. the production possibilities curve for Freeland will shift out more rapidly than that of Liberty Nation.

Countries with high labor costs tend to: Question 25 options: A. rely on only one method for the production of goods. B. use more labor rather than capital in the production process. C. use more capital rather than labor in the production process. D. be relatively poor countries.

C. use more capital rather than labor in the production process.

Refer to Exhibit 3-4. For this economy, the most preferred point at which to produce is: A. Point C. B. Point D. C. Point E. D. It cannot be determined without information about society's preferences.

D. It cannot be determined without information about society's preferences.

The concept of opportunity cost is illustrated by: A. a movement from the interior of the production possibilities curve to the frontier. B. a movement from the production possibilities curve to its interior. C. a movement from a point on the production possibilities curve to the northeast. D. a movement along the production possibilities curve, as production of one good falls in order to increase production of another.

D. a movement along the production possibilities curve, as production of one good falls in order to increase production of another.

Assume the economy moves from a situation with full employment to one in which the unemployment rate is higher. This can be portrayed as: A. an inward shift of the production possibilities curve. B. an outward shift of the production possibilities curve. C. a movement from a point inside the production possibilities curve to a point closer to the production possibilities curve. D. a movement from a point on the production possibilities curve to a point inside the production possibilities curve.

D. a movement from a point on the production possibilities curve to a point inside the production possibilities curve.

Which of the following concepts are illustrated by the production possibilities curve? A. scarcity B. choice C. trade-offs D. all of the above

D. all of the above

The high rate of capital investment in China over the past decades has: A. led to the creation of productive overcapacity that leads to the necessity for exports. B. been made possible by generations of Chinese citizens giving up consumption for the benefit of future generations. C. been facilitated by the Chinese government with policies that encouraged saving over spending. D. all the above.

D. all the above. led to the creation of productive overcapacity that leads to the necessity for exports, been made possible by generations of Chinese citizens giving up consumption for the benefit of future generations, and been facilitated by the Chinese government with policies that encouraged saving over spending.

Refer to the figure below. Which of the following would make point X attainable? A. technological innovation in the production of computers only B. technological innovation in the production of autos only C. technological innovation in all areas of production D. both b. and c. above

D. both b. and c. above

Given its production possibilities curve, the optimal combination of outputs for a society: A. is beyond the production possibilities curve. B. is at the midpoint of the production possibilities curve. C. is inside the production possibilities curve. D. depends on the preferences of that society.

D. depends on the preferences of that society.

An economy is producing two goods, ice cream and cookies, and is currently operating efficiently. This economy can produce more cookies if: Question 26 options: A. it increases the price of ice cream. B. it increases the price of cookies. C. more of the economy's resources become idle. D. it produces less ice cream.

D. it produces less ice cream.

In a market operating along the production possibilities curve, which of the following is inevitable if the production of one of the goods is increased? A. inefficiency B. labor shortage C. unemployed resources D. less of other goods must be produced

D. less of other goods must be produced

Refer to Exhibit 3-4. The movement from Point D to Point E: A. results in an increase in the production of capital goods but a decrease in the production of consumption goods this period. B. does not change the level of output produced since both points are on the production possibilities curve. C. results in an increase in the production of both capital and consumption goods this period. D. results in an increase in the production of consumption goods but a decrease in the production of capital goods this period.

D. results in an increase in the production of consumption goods but a decrease in the production of capital goods this period.

An improvement in technology will tend to cause a society's production possibilities curve to shift outward. T/F

True

An increase in an economy's capital stock increases its future productive capacity. T/F

True

Other things being constant, an economy must give up some consumer goods and services today to produce more capital goods in order to grow. T/F

True

The opportunity cost of a particular good tends to increase with its rate of output because some resources cannot be easily adapted from the production of one good or service to another. T/F

True