Quiz 1

When we apply the concept of specialization to production and trade, this implies that:

A country should produce goods in which it has a comparative advantage.

For a country to be located at a point along its production possibilities frontier, which three assumptions must be satisfied:

A given state of technology, finite resources and the full and efficient use of inputs.

Discrimination against individuals and groups within a society will lead to:

A point located inside the PPF as labor inputs are not efficiently used.

A country's annual supply side economic growth rate will increase for all of the following reasons except:

An income tax cut increases disposable income. (Feedback: Supply side growth increases with gains in worker productivity and growth in the labor force. Tax cuts increase demand side growth but not supply side.)

Which of the following will lead to an expansion of the PPF:

An increase in worker productivity.

Use the table shown here for the following questions. There are two countries and two goods: wool and cotton. England Wool 60 tons 0 tons Cotton 0 tons 20 tons Scottland Wool 30 tons 0 tons Cotton 0 tons 30 tons Based on the table above we can conclude that:

England has a comparative advantage in wool and Scotland in cotton production. (Feedback: England gives up 3 wool for 1 cotton (60/20) and has a comparative advantage in wool production. Scotland gives up 1 wool for 1 cotton (30/30).)

Use the table shown here for the following questions. There are two countries and two goods: wool and cotton. England Wool 60 tons 0 tons Cotton 0 tons 20 tons Scottland Wool 30 tons 0 tons Cotton 0 tons 30 tons Based on the table above we can conclude that:

England has an absolute advantage in wool and Scotland in cotton production.

Use the table shown here for the following questions. There are two countries and two goods: wool and cotton. England Wool 60 tons 0 tons Cotton 0 tons 20 tons Scottland Wool 30 tons 0 tons Cotton 0 tons 30 tons Based on the table above we can conclude that with specialization and trade:

England will produce 60 tons of wool and Scotland 30 tons of cotton.

When a business purchases additional machinery used in the production of goods, this is known as:

Investment in capital.

Assume that we have a PPF. Point A lies inside (to the left) of the frontier. Point B and C are located along the frontier and Point D is located outside (to the right) the frontier. Which point(s) represents an inefficient production point(s):

Point A is inefficient.

Assume that we have a PPF. Point A lies inside (to the left) of the frontier. Point B and C are located along the frontier and Point D is located outside (to the right) the frontier. Which point(s) is an unattainable production point(s) given the current inputs available in the economy and assuming that worker productivity remains constant?

Point D is unattainable. (Feedback: Given fixed inputs of capital and labor and a given level of worker productivity, points located outside the PPF are not attainable.)

Assume that we have a PPF. Point A lies inside (to the left) of the frontier. Point B and C are located along the frontier and Point D is located outside (to the right) the frontier. Which point(s) represent feasible (attainable) production point(s):

Points A, B and C are feasible. (Feedback: All points along and inside the PPF are feasible. Points located along the frontier are also efficient.)

Assume that we have a PPF. Point A lies inside (to the left) of the frontier. Point B and C are located along the frontier and Point D is located outside (to the right) the frontier. Which point(s) represent efficient production point(s):

Points B and C are efficient. (Feedback: Points located along the PPF are efficent. Points inside the PPF are not efficient and points outside the frontier are not obtainable.)

A production possibilities frontier shows the maximum amount of two goods that can be produced if:

Resources are used efficiently.

Which of the following is not one of the three major factors of production used to produce goods and services:

Technology.

If there is a decrease in worker productivity and a decrease in the total population due to out- migration from the country:

The PPF will contract or shift inward.

If there is an increase in the labor force:

The PPF will shift outward.

The production possibilities frontier (PPF) can be used to describe all of the following except:

The effect on economic growth of higher prices.

The production possibilities frontier (PPF) can be used to describe all of the following except:

The proper distribution of wealth.

The production possibilities frontier is used to represent scarcity because:

There are finite inputs available for production.

Capital is used in the production process:

To assist labor in the production of goods and services.

If an economic recession increases the unemployment rate:

We end up at an interior point to the country's production possibilities frontier.

Free trade between countries:

Will allow for greater levels of consumption than without trade.