Chapter 2: Production Possibilities, Opportunity Cost, and Economic Growth

Which of the following does not illustrate opportunity cost? - If I study, I must give up going to the football game. - If I buy a computer, I must do without a 35" television. - More consumer spending now means more spending in the future. - If I spend more on clothes, I must spend less on food.

More consumer spending now means more spending in the future.

As shown in Exhibit 1, a total output of 14 units of capital goods and 0 units of consumer goods is: - the result of maximum use of the economy's labor force. - an efficient way of using the economy's scarce resources. - unobtainable in this economy. - less than the maximum rate of output for this economy.

less than the maximum rate of output for this economy.

The basic approach that compares additional benefits of a change against the additional costs of the change is called _____________________________; additions to or subtractions from a current situation.

marginal analysis

Any point on the production possibilities curve illustrates: - minimum production combinations. - maximum production combinations. - economic growth. - a nonfeasible production combination.

maximum production combinations.

A production possibilities curve has "good X" on the horizontal axis and "good Y" on the vertical axis. On this diagram, the opportunity cost of good X, in terms of good Y, is represented by the: - distance to the curve from the horizontal axis. - distance to curve from the vertical axis. - movement along the curve. - none of the above.

movement along the curve.

On a production possibilities curve, a change from economic inefficiency to economic efficiency is obtained by: - movement along the curve. - movement from outside the frontier to a point on the curve. - movement from a point inside the frontier to a point on the curve. - a change in the slope of the curve.

movement from a point inside the frontier to a point on the curve.

The ________________________________ states that the opportunity cost increases as production of an output expands.

law of increasing opportunity costs

_________________________________ is the best alternative forgone for a chosen option.

opportunity cost

The ____________________________________________ represents the maximum possible combinations of two outputs that can be produced in a given period of time. Inefficient production occurs at any point inside the curve and all points along the curve are efficient points.

production possibilities curve

If the economy represented in Exhibit 2 is operating at Point W: - no tractor production must be forgone to produce more food in the current period. - resources are not fully used. - some tractor production must be forgone to produce more food in the current period. - increased food production would be impossible.

some tractor production must be forgone to produce more food in the current period.

The body of knowledge and skills applied to how goods are produced is

technology

Movement along this production possibilities curve shown in Exhibit 2 indicates: - that labor is not equally productive or homogeneous. - declining opportunity costs. - all inputs are homogeneous. - all of the above.

that labor is not equally productive or homogeneous.

As shown in Exhibit 1, a total output of 0 units of capital goods and 10 units of consumer goods is: - the maximum possible output of capital goods for this economy. - an inefficient way of using the economy's scarce resources. - the result of efficient use of the economy's resources. - unobtainable in this economy.

the result of efficient use of the economy's resources.

One of the assumptions underlying the production possibilities curve for any given economy is that: - the state of technology is changing. - there is an unlimited supply of available resources. - there is full employment and no underemployment of resources when the economy is operating on the curve. - goods can be produced in unlimited quantities.

there is full employment and no underemployment of resources when the economy is operating on the curve.

As production of a good increases, opportunity costs rise because: - there will be more inefficiency. - people always prefer having more goods. - of inflationary pressures. - workers are not equally suited to all tasks.

workers are not equally suited to all tasks.

The following two alternatives exist for a student who has one evening in which to prepare for two exams on the following day: P S/Economics S/Accounting A 95 80 B 80 90 The opportunity cost of receiving a 90 rather than an 80 on the accounting exam is represented by how many points on the economics exam? a. 15 points. b. 80 points. c. 90 points. d. 10 points.

15 points.

Which of the following would be most likely to cause the production possibility curve for tanks and cars to shift outward? - A reduction in the labor force. - A choice of more tanks and fewer cars. - A choice of more cars and fewer tanks. - An increase in the quantity of natural resources.

An increase in the quantity of natural resources.

Which of the following would be most likely to cause the production possibility curve for computers and education to shift outward? - A choice of more computers and less education. - A choice of more education and less computers. - A reduction in the labor force. - An increase in the quantity of resources.

An increase in the quantity of resources.

If more of one good can be produced without loss of output of another along the same production possibilities curve, the economy must have been operating efficiently.

False

If some resources were used inefficiently, the economy would tend to operate outside its production possibilities curve.

False

Investment is an economic term for the act of increasing the stock of money available for business loans.

False

Of all the points on the production possibilities curve, only one point represents an efficient division of labor.

False

The most efficient point on the production possibilities curve is the midpoint on the curve.

False

Exhibit 1 Production possibility curve data

On study guide

All points on the production possibilities curve represent efficient levels of production.

True

On the production possibilities curve, a movement between points that yields a loss of one good in order to raise the output of another good will maintain efficient production.

True

The opportunity cost of a good is the good or service forgone for a chosen good or service.

True

Which of the following moves from one point to another in Exhibit 2 would represent an increase in economic efficiency? - Z to W. - W to Y. - W to X. - X to Y.

X to Y.

Factories, equipment, and inventories produced in the present are called _________________________ which can be used to shift the production possibilities curve outward in the future; accumulation of capital.

investment

opportunity cost

best alternative sacrificed for a chosen alternative

_________________________ occurs when the production possibilities curve shifts outward as the result of changes in the resource base or advance in technology; an outward shift of the production possibilities curve.

economic growth

In order for the economy shown in Exhibit 2 to reach point Z, it must: - suffer resource unemployment. - experience an increase in its resources and/or an improvement in its technology. - use its resources more efficiently than at point W or Y. - all of the above.

experience an increase in its resources and/or an improvement in its technology.

The ________________________ problem concerns the division of output among society's citizens. The _______________________ question asks exactly which goods are to be produced and in what quantities. The ____________________ question requires society to decide the resource mix used to produce goods.

for whom, what, how

As shown in Exhibit 1, the concept of increasing opportunity costs is reflected in the fact that: - the quantity of consumer goods produced can never be zero. - the labor force in the economy is homogeneous. - greater amounts of capital goods must be sacrificed to produce an additional 2 units of consumer goods. - a graph of the production data is a downward-sloping straight line.

greater amounts of capital goods must be sacrificed to produce an additional 2 units of consumer goods.