hw 3

Which of the following causes the production possibilities frontier to have a bowed out, curvilinear shape?

The assumption that resources are specialized and not perfect substitutes for one another

A shift rightward of the production possibilities frontier (curve) can be caused by:

an increase in human capital (education)

Which of the following will shift the production possibilities rightward?

an increase in technology. an increase in the capital stock. increase in labor and other natural resources.

A bowed outward production possibilities frontier occurs when

as more of a good is produced, producing additional units of it require greater reductions in the other good.

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3 cans of cola

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1/2 chocolate bar

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Alpha consumes less than Beta today, but it will grow faster than Beta

In our macro example using the PPC model, according to the Keynesian school of thought, the economy is typically:

Inside the PPC frontier implying 0% opportunity cost to government stabilization efforts. .

Paul Krugman is a ______________economist.

Keynesian

See picture

Points a, b, and d, are all technically efficient.

Generally, opportunity costs increase and the production possibilities frontier bows outward. Why?

Resources are not equally useful in all activities.

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The opportunity cost of moving from 2 butter to 3 butter is a loss of 15 guns.

see picture

This model is a bowed PPF representing the law of increasing cost.

The principle of increasing opportunity cost leads to

a production possibilities frontier (PPF) that is bowed outward from the origin.

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all of the above

Which of the following is true? allocative efficiency occurs at a specific point (i.e. a specific mix of production) on the production possibilities curve (frontier) that is valued above all alternatives. productive or technical efficiency occurs anywhere on the production possibilities curve opportunity cost can be measured by the slope of the PPC curve (frontier) all of the above none of the above

all of the above

We measure the marginal ________ of a good by what a ________ for another unit of the good.

benefit; person is willing to pay

An expansion of the production possibilities frontier is

called economic growth

The production possibilities frontier

represents (the production of) all possible combinations of any two goods or services that are technically (productively) efficient.

A free rider is someone who

enjoys the benefits of a good without paying for it.

When government action leads to inefficiency, it is known as

government failure.

The principle of decreasing marginal benefit means that as the quantity of a good consumed

increases, its marginal benefit decreases.

A good or service or a resource is nonexcludable if

it is not possible to prevent someone from benefiting from it.

As a person consumes more and more of a good, the

marginal benefit decreases

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marginal benefit of a computer exceeds the marginal cost of a computer, so more computers

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marginal cost; marginal benefit

If a country must decrease current consumption to increase the amount of capital goods it produces today, then it

must be producing along the production possibilities frontier today and will see a shift outward of the frontier in the future if produces more capital goods.

If the consumption of a good or service by one person does not decrease the quantity available for another person, the good or service is

nonrival.

According to the classical school, the economy is situated__________ production possibilities frontier implying an ________ opportunity cost.

on, 100%

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point e

When consumption is rival and excludable, the product is a

private good.

The principle of increasing opportunity cost occurs because

resources are not equally suited to all activities

Economic growth can be pictured in a production possibilities frontier diagram by

shifting the production possibilities frontier outward.

The production possibilities frontier shifts as

technology changes

Marginal cost is the opportunity cost

that arises from producing one more unit of a good or service.

If the United States can increase its production of automobiles without decreasing its production of any other good, the United States must have been producing at a point

within its PPF.

A straight line production possibilities curve has constant opportunity cost (constant cost technology).

true

Points outside the production possibilities frontier illustrate production points that cannot be attained.

true

Production efficiency is achieved when

when it producing one more unit of one good cannot occur without producing less of some other good.

Resource use is allocatively efficient

when marginal benefit equals marginal cost.