ECO Ch. 2

Which of the following best describes the three fundamental economic questions?

What to produce, how to produce, and for whom to produce

Which of the following is an example of an organization using marginal analysis?

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

Suppose that 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 change?

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

Which word or phrase best completes the following sentence? Marginal analysis means evaluating __________ changes from a current situation

Positive or negative

Opportunity cost

Represents the best alternative sacrificed for chosen alternative

An economy can produce various combinations of food and shelter along the production possibilities curve. 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 then which of the following would be true?

The PPC will rotate outward along the food axis, but will not shift on the shelter axis

In the study of economics, investment means

The accumulation of capital that is used to produce goods and services

Combinations of goods outside the production possibilities curve of which of the following characteristics?

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

Suppose that 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 TV sitcoms, (3) play pool, (4) jog around town. You can choose one activity. What is the opportunity cost of studying economics for one hour, given this information?

Watching two half-hour TV sitcoms

If an economy can produce various combinations of food and shelter along a production possibilities curve, then if we increase the production of shelter all along the PPC, which of the following is true?

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

Which of the following is not one of the three fundamental economic questions?

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

A production possibilities curve shows the various combinations of two outputs that

An economy can produce

Which of the following reasons might explain why an economy would be operating inside its production possibilities curve?

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

The ability of an economy to produce greater levels of output per time period is called

Economic growth

If a production possibilities curve has capital on the vertical axis and consumer goods on the horizontal axis, which of the following is true?

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

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?

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

The principle that the opportunity cost increases as the production of one output expands is the

Law of increasing opportunity costs

Which word best completes the following sentence? A rational decision maker always chooses the option for which marginal benefit is _________ marginal cost

More than

A production possibilities curve is drawn based on which of the following assumptions?

None of these answers are correct

An economy can produce various combinations of food and shelter along a production possibilities curve. We first increase the production of shelter along the PPC. If we then continue to shift more and more production to shelter, then which of the following will most likely happen to the opportunity cost of a unit of shelter?

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