Quiz 2 -Ch. 2

The model that shows the goods and services the economy is capable of producing is the model of: A) utility. B) The fallacy of composition. C) production possibilities. D) scarcity.

C) production possibilities.

If Farmer Sam MacDonald can produce 200 pounds of cabbages and 0 pounds of potatoes or 0 pounds of cabbages and 100 pounds of potatoes and faces a linear possibilities curve for his farm, the opportunity cost of producing an additional pound of cabbage is _______ pound(s) of potatoes. A) 1/2 B) 2 C) 100 D) 200

A) 1/2

(Exhibit: Strawberries and Submarines) Suppose the economy is now operating at point A. The first submarine, which is achieved at point B, would have an opportunity cost of _______ million tons of strawberries. A) 50 B) 150 C) 400 D) 950

A) 50

A point inside the production possibilities curve may indicate that resources are not being used efficiently. A) True B) False

A) True

Improvements in technology will shift the production possibilities curve outward. A) True B) False

A) True

Society's production possibilities curve is primarily concerned with answering the economic question of what goods and services a society can produce. A) True B) False

A) True

The fact that a society's production possibilities curve is bowed out from the origin of a graph demonstrates the law of: A) increasing opportunity cost. B) decreasing opportunity cost. C) constant opportunity cost. D) convex opportunity cost.

A) increasing opportunity cost.

(Exhibit: Production Possibilities Curve for Firms A and B) In Firm A, the opportunity cost of producing 1 more unit of X in terms of Y: A) is equal to the opportunity cost in Firm B of producing 1 more unit of X in terms of Y. B) is less than the opportunity cost in Firm B of producing 1 more unit of X in terms of Y. C) is greater than the opportunity cost in Firm B of producing 1 more unit of X in terms of Y. D) cannot be determined.

A) is equal to the opportunity cost in Firm B of producing 1 more unit of X in terms of Y.

The textbook classifies technology as _______ and entrepreneurs as _______. A) knowledge; persons who seek profit by finding new ways to organize factors of production B) capital; labor C) labor skills; capital D) a factor of production; a factor of production

A) knowledge; persons who seek profit by finding new ways to organize factors of production

An example of a natural resource is: A) oil in the ground. B) oil in storage tanks. C) a factory. D) a computer program.

A) oil in the ground.

When the government provides national defense, it is: A) providing goods and services. B) enforcing the legal system. C) maintaining the money supply. D) stabilizing the economy.

A) providing goods and services.

(Exhibit: Consumer and Capital Goods) If the economy is operating at point Y on currently relevant Curve 1, this means that: A) the economy is at full employment and is efficient. B) the economy is less than fully employed. C) the economy is not efficient. D) economic growth is not possible in the future.

A) the economy is at full employment and is efficient.

Any point inside a production possibilities curve indicates: A) unemployment and/or inefficiency. B) that the law of increasing opportunity costs is no longer valid. C) that society doesn't want more of either good. D) that economic growth is no longer possible.

A) unemployment and/or inefficiency.

(Exhibit: Production Possibilities Schedule 2) If the economy is producing at alternative X, the opportunity cost to it of producing at Y instead of X is _______ units of consumer goods per period. A) 0 B) 6 C) 8 D) 14

B) 6

Government in the United States plays an unimportant role in the economy because the rules for the functioning of the private economy are inherent in the markets themselves. A) True B) False

B) False

(Exhibit: Production Possibilities Curve 2) The economy will experience its least growth by operating at point: A) N. B) P. C) Q. D) R.

B) P.

Capital is best considered as: A) the natural environment. B) a factor of production that has been produced. C) financial assets. D) money.

B) a factor of production that has been produced.

(Exhibit: Strawberries and Submarines) The downward slope of the production possibilities curve implies that resources: A) must be used efficiently. B) are scarce. C) should not be wasted. D) should be allocated so that approximately equal amounts of both goods are produced.

B) are scarce.

One of the two criteria for a resource to be considered as a natural resource is that it must: A) have been produced. B) be found in nature. C) be part of a factory or building. D) not be used to produce goods and services.

B) be found in nature.

If an economy has to sacrifice only one unit of good X for each unit of good Y produced throughout the relevant range, then its production possibilities curve has a(n): A) zero slope. B) constant, negative slope. C) increasing, negative slope. D) decreasing, negative slope.

B) constant, negative slope.

If a production possibilities curve were bowed in or convex to the origin of a graph, it would demonstrate: A) increasing opportunity cost. B) decreasing opportunity cost. C) constant opportunity cost. D) fluctuating opportunity cost.

B) decreasing opportunity cost.

Comparative advantage leads to producing at a: A) higher opportunity cost. B) lower opportunity cost. C) higher dollar cost. D) point where costs just begin to fall.

B) lower opportunity cost.

By specializing in the production of particular goods, a nation is: A) less likely to make efficient use of available resources. B) more likely to engage in international trade. C) able to become self-sufficient. D) unable to develop a comparative advantage.

B) more likely to engage in international trade.

Two components of labor are: A) residential location and education. B) natural ability and human capital. C) money and financial wealth. D) ingenuity and job-specific machinery.

B) natural ability and human capital.

Efficient production exists when the economy is: A) operating inside its production possibilities curve. B) operating on its production possibilities curve. C) operating outside its production possibilities curve. D) moving beyond its production possibilities curve.

B) operating on its production possibilities curve.

In a command socialist economy: A) resources are government owned but individuals make some decisions over their use. B) resources are government owned and government exercises broad power over their use. C) resources are privately owned and individuals make decisions over their use. D) resources are privately owned but government exercises broad power over their use.

B) resources are government owned and government exercises broad power over their use.

(Exhibit: Strawberries and Submarines) Suppose the economy is now operating at point G. This implies that: A) the economy can move to a point such as C only if it improves its technology. B) the economy is experiencing unemployment and/or inefficient allocation of resources. C) the economy lacks the resources to achieve a combination such as C. D) people in this economy don't really like strawberries and submarines.

B) the economy is experiencing unemployment and/or inefficient allocation of resources.

The North Korean economy is currently classified as: A) a mixed economy. B) market capitalism. C) command socialism. D) the same kind of economy as Sweden.

C) command socialism.

Countries import some goods and export other goods primarily because of: A) unemployment. B) self-sufficiency. C) comparative advantage. D) the law of increasing opportunity cost.

C) comparative advantage.

(Exhibit: Production Possibilities Schedule 2) The production of 14 units of consumer goods and 1 unit of capital goods per period would: A) result in full employment. B) result in no unused resources. C) result in some unused or inefficiently used resources. D) increase economic growth.

C) result in some unused or inefficiently used resources.

(Exhibit: Sugar and Freight Trains) The "bowed-out" shape of the production possibilities curve shown here demonstrates: A) that freight trains cost more than sugar. B) that sugar costs more than freight trains. C) that the opportunity cost of additional freight trains increases as the economy produces more and more of them. D) that the opportunity cost of additional freight trains decreases as the economy produces more and more of them.

C) that the opportunity cost of additional freight trains increases as the economy produces more and more of them.

In a market capitalist economy, which of the following is not an accepted role for government? A) provision of national defense B) enforcing a legal system C) establishing policies to encourage full employment D) All of the above are acceptable roles for government.

D) All of the above are acceptable roles for government.

(Exhibit: Production Possibilities Curve 1) Resource underutilization occurs at point _____ with respect to Curve ______ . A) I; y B) I; x C) J; z D) F; x

D) F; x

A movement along the production possibilities curve would be a result of: A) unemployment. B) inflation. C) changes in prices. D) changes in the combinations of the two goods produced.

D) changes in the combinations of the two goods produced.

An increase in capital goods and a decrease in consumer goods will: A) eventually lead to a shift to the right of the production possibilities curve. B) increase a nation's capacity to produce. C) lead to more rapid economic growth. D) do all of the above.

D) do all of the above.

In enforcing the legal system, the government in a market capitalist economy acts to: A) enforce contracts. B) enforce property rights. C) discourage fraud. D) do all of the above.

D) do all of the above.

An economic system is the set of rules that define _______ and _______. A) resources; prices B) who gets to vote; when elections will be held C) market prices; factors of production D) how an economy's resources are to be owned; how decisions about the resources are to be made

D) how an economy's resources are to be owned; how decisions about the resources are to be made

The concept of comparative advantage is based upon: A) absolute labor productivity. B) relative labor costs. C) dollar prices of labor. D) relative opportunity costs.

D) relative opportunity costs.

A student receives a bachelor's degree in economics and then achieves gainful employment as an economic analyst with a Fortune 500 company. This new worker is likely to enhance the economy's productivity through: A) scarcity. B) free goods. C) stable prices. D) specialization of labor.

D) specialization of labor.

Discuss and explain the rationale underlying the law of increasing opportunity cost.

The rationale behind the law of opportunity cost means that you have an understanding of what you're giving up in order to acquire another good. Let's use the example provided to us in our book. If all all we produce are skis, then the opportunity cost that we're sacrificing is the possibility of producing any snowboards. Or on the flipside, if all we're producing are snowboards, then we're giving up the possibility of producing and selling any skis. But let's say we don't want to miss out on producing both items? Then we have to analyze our possibilities of production and understanding the maximum potential for production at our plants assuming that we have a 100% efficiency and don't have any machinery downtime, missing employees, supply shortcomings, etc. Each of our plants has a different capability and alongside our production possibility curve, we end up having to sacrifice more of one product to produce the other. Perhaps we're giving up 2 pair of skis per snowboard or perhaps it's more. So understanding the increased opportunity cost helps understand that in the process, we're giving up the opportunity of another item.