Econ 201 Chapter 2

If an economy is efficient:

all opportunities to make people better off without making other people worse off have been taken.

An economy is said to have a comparative advantage if it:

has the lowest cost of producing a particular good, compared with other economies.

The production possibility frontier illustrates that:

if all resources of an economy are being used efficiently, more of one good can be produced only if less of another good is produced

The production possibility frontier will NOT shift outward due to an:

increase in the unemployment rate.

(Figure: Wine and Wheat) Use Figure: Wine and Wheat. The opportunity cost of moving from producing ONLY wheat to producing at point D is _____ tons of wheat.

3

(Table: Production Possibilities Schedule I) Use Table: Production Possibilities Schedule I. If the economy produces 10 units of capital goods per period, it also can produce, at MOST, _____ units of consumer goods per period.

4

(Figure: Omar's Production Possibilities) Use Figure: Omar's Production Possibilities. Which point or points represent(s) a feasible combination of coconuts and fish?

A, B, and C

Which statement is TRUE?

It is possible to have an absolute disadvantage but a comparative advantage in something

(Figure: Guns and Butter) Use Figure: Guns and Butter. This production possibility frontier is:

bowed out because of increasing opportunity costs.

Because of trade, a country may:

consume outside its production possibility frontier.

(Figure: Bicycles and Radishes II) Use Figure: Bicycles and Radishes II. The country depicted in this figure is operating at point M. It could achieve production at point I only if it:

increased the quantities of capital, natural resources, or labor available or improved its technology

The opportunity cost of production:

is what you give up to produce the good.

The existence of government intervention often suggests that:

markets may not be able to provide for efficient results all of the time.

A simplified representation that is used to study a real situation is called a(n):

model.

Assume an economy is operating on its production possibility frontier, which shows the production of military and civilian goods. If the output of military goods is increased, the output of civilian goods

must decrease.

(Table: Trade-off of Study Time and Leisure Time) Use Table: Trade-off of Study Time and Leisure Time. A student sleeps 8 hours per day and divides the remaining time between study time and leisure time. The table shows the combinations of study and leisure time that can be produced in the 16 waking hours of each day. Suppose the student completes a speed-reading course that allows him to do the same amount of studying in half as many hours. His opportunity cost:

of leisure has increased.

The U.S. production possibility frontier will _____ if there is a large influx of working-age immigrants.

shift out

Technological improvements will

shift the production possibility frontier outward.

(Table: Production Possibilities Schedule II) Use Table: Production Possibilities Schedule II. The production of 14 units of consumer goods and 1 unit of capital goods per period would result in:

some unused or inefficiently used resources.

(Figure: Strawberries and Submarines) Use Figure: Strawberries and Submarines. Suppose the economy is operating at point G. This implies that:

the economy has unemployment and/or inefficiently allocates resources.