Chapter 2

not possible to produce more of one good without giving up the production of some other good that is valued more highly.

12) Allocative efficiency occurs when it is

benefit; cost; a pencil

14) A country produces only pencils and erasers. Pencil production is allocatively efficient if the marginal ________ of a pencil equals the marginal ________ of ________.

II and III

50) Which of the following is TRUE regarding markets? I) Economists define a market as a geographic location where trade occurs. II) A market enables buyers and sellers to get information about each other and to buy and sell from each other. III) Markets coordinate decisions through prices.

can increase production of both goods with no increase in resources.

6) Sam's production possibilities frontier has good A on the horizontal axis and good B on the vertical axis. If Sam is producing at a point inside his frontier, then he

from consuming; decreases as consumption

16) Marginal benefit is the benefit ________ one more unit of the good and ________ of the good increases.

when marginal benefit equals marginal cost.

18) Resource use is allocatively efficient

some resources are better suited for producing computers, computer technology is subject to the principle of decreasing costs, the opportunity cost of producing more computers decreases as more computers are produced

2) The bowed outward shape of the production possibilities frontier in the above figure indicates that

if the marginal benefit of the good is greater than its marginal cost.

20) If the marginal benefit of consuming another unit of a good is positive, then to reach the allocatively efficient level of output more of the good should be produced and consumed

shift outward from the origin.

24) Technological progress makes the production possibilities frontier

shift the U.S. PPF outward.

26) Suppose the United States discovers a way to produce clean nuclear fuel. The effect of this discovery would be to

current consumption and future consumption.

28) The tradeoff between current consumption and the production of capital goods also reflects a tradeoff between

production possibilities frontier shifts outward.

30) When economic growth occurs, the

an outward shift in the PPF.

32) Economic growth is shown on the production possibilities frontier as

1 unit of X per unit of Y for Agnes and 1/2 unit of X per unit of Y for Brenda.

38) Agnes can produce either 1 unit of X or 1 unit of Y in an hour, while Brenda can produce either 2 units of X or 4 units of Y in an hour. The opportunity cost of producing a unit of Y is

3 sandwiches

4) At one point along a PPF, 10 pizzas and 7 sandwiches can be produced. At another point along the same PPF, 9 pizzas and 10 sandwiches can be produced. The opportunity cost of a pizza between these points is ________ per pizza.

the ability to perform an activity at a lower opportunity cost than anyone else.

40) Comparative advantage is

define and enforce property rights.

46) In order for societies to reap the gains from trade, it is necessary to

any arrangement that enables buyers and sellers to get information and trade with one another.

48) The term "market" refers to