macro-econ chapter 2

increasing opportunity costs; constant opportunity costs (If there are increasing opportunity costs, the PPF is bowed-outward and if there are constant opportunity costs the PPF is a straight line.)

A bowed-outward PPF represents ____________________ and a straight-line PPF represents___________________.

constant (Straight lines have a constant slope. Since the slope of a PPF indicates how much of one good must be forfeited in order to produce one more unit of the other good, the opportunity cost of producing each unit must be constant when the PPF is a straight line.)

A production possibilities frontier (PPF) that is a downward-sloping straight line depicts _________________ opportunity costs.

is greater along curve 2.

Consider two straight-line PPFs. They have the same horizontal intercept, but curve 1 is flatter than curve 2. The opportunity cost of producing the good on the horizontal axis

If the economy's PPF is represented by PPF1, points A and B are efficient, while points C and D are unattainable.

Refer to the exhibit. Which of the following statements is true?

Jorge

Refer to the table. Who has the comparative advantage in the production of good A?

for every computer produced, a different number of printers is forfeited.

The increased production of computers comes at increasing opportunity costs in terms of printers. This means that

A decline in technology (this decline generally involves being able to produce less output with a fixed amount of resources or the requirement to use more resources to produce the same level of output. A reduction in technology would therefore cause the country's PPF to shift leftward.)

What is most likely to shift a country's production possibilities frontier (PPF) leftward?

the society has chosen to produce a different combination of goods.

A movement from one point to another along a given production possibilities frontier (PPF) indicates that

it can produce more of one good without giving up some of another good. AND it does not produce the maximum output with its given resources and technology.

An economy is productive inefficient when

shift outward

Economic growth causes the PPF to

a comparative

If Country ABC can produce a given good at a lower opportunity cost than can any other country, then an economist would describe Country ABC as having __________________________ advantage in the production of this good.

efficient, no (The PPF shows the maximum possible combinations of two goods that can be produced. At points along the PPF, all resources are fully employed and the country is producing the maximum amount of output possible with the available resources and technology)

If Country XYZ is currently producing a combination of outputs that lies on its production possibilities frontier (PPF), then its economy is productive_____________ and has _______________ unemployed resources.

40 (At the point at which the economy is producing the maximum quantity of good Y, it must be producing zero units of good X. If a PPF was drawn with good Y on the vertical axis and good X on the horizontal axis, the vertical intercept would be at the point where zero units of X are being produced and 200 units of good Y are being produced. Each time that the economy then produces one additional unit of good X they must always forfeit five units of good Y, indicating that the slope of this PPF would be - 5. This indicates that the maximum number of units of good X that could be produced is 40.)

If an economy can produce a maximum of 200 units of good Y and the opportunity cost of 1X is always 5Y, then what is the maximum units of good X the economy can produce?

bowed outward curve (A curve that is bowed outward starts out relatively flat and becomes increasingly steep, so its slope is increasing. If producing each successive unit of good X requires giving up increasingly more units of good Y, then the slope of the PPF would be bowed outward.)

If an increasing quantity of good X must be forfeited in order to produce each additional unit of good Y, then the production possibilities frontier (PPF) for goods X and Y would be a(n)

There is not enough information to answer the question. (The combination of two goods given - (a) 10X and 0Y and (b) 0X and 100Y - are the opposite end points of the PPF. In other words, they lie on either the X or Y axis. We do not know if when each unit of X is given up, 10 units of Y is gained or if, say, for the first unit of X given up 5 units of Y are gained, and then for the second unit of X given up, a different quantity of units of Y is given up. This means, then, that we don't know if there are constant, increasing, or decreasing opportunity costs. If there are constant opportunity costs, then the PPF is a straight line; if increasing, bowed-outward, and if decreasing, bowed-inward.)

If the economy can produce (a) 10X and 0Y and it can also produce (b) 0X and 100Y, then it follows that

then this can affect the industry in which you end up working. (At either point, productive efficiency exists, not productive inefficiency.)

If the economy is at one point on the PPF instead of at another point on the PPF,

then this could be because people want to consume more of one good than another. (We know that one point represents productive efficiency (because it is at point on the PPF), but we can't be sure if the other point is on the PPF or below it.)

If the economy is at one point on the PPF instead of at another point,

more than 6Y.

If the law of increasing opportunity costs is operable, and currently the opportunity cost of producing the 201st unit of good X is 6Y, then the opportunity cost of producing the 301st unit of good X is most likely to be

there could be more manufactured goods produced in the country today than 10 years ago. (There could be more manufactured goods produced in the country, but this is not necessarily so.)

If there are 5 million manufacturing jobs in a country today and 8 million manufacturing jobs in the country 10 years ago, it follows that

a downward-sloping straight line

If there is always a five-for-one tradeoff between goods X and Y, then the PPF between X and Y is

both countries can consume a combination of goods beyond its PPF. (Comparative advantage occurs when one country can produce a good at a lower opportunity cost compared to another country. By using comparative advantage as a guide to which country should produce which product, both countries can benefit from specialization and trade. Gains from specialization and trade can allow both countries to consume a combination of goods beyond their respective PPFs.)

If two countries use specialization and trade guided by comparative advantage, then

5 loaves of bread for Jim and 1 loaf of bread for Jill.

In an eight-hour day, Jim can produce either 25 loaves of bread or 5 pounds of butter. In an eight-hour day, Jill can produce either 8 loaves of bread or 8 pounds of butter. The opportunity cost of producing 1 pound of butter is

bowed outward curve (In order for a PPF to be a straight line, the resources used to produce the two goods would have to be perfectly interchangeable in the production of both goods. In the real world, people have different skills and talents, so it is unlikely that all resources will be equally well-suited to producing each and every product. This difficulty in substituting one resource for another will lead to increasing opportunity costs, and the PPF will be a bowed outward curve.)

In the real world, most production possibilities frontiers are a

are in the unattainable region (The PPF divides the production possibilities of an economy into two regions: an attainable region and an unattainable region. Since the PPF indicates the maximum combinations of goods that can be produced, points that lie beyond the PPF are in the unattainable region.)

Points that lie beyond (to the right of) the production possibilities frontier represent points that

(efficient and attainable; inefficient and attainable) The PPF shows the maximum possible combinations of two goods that can be produced with a fixed amount of resources and technology. At all points along a PPF the economy is producing a combination of goods that is productive efficient and attainable. At points that lie below the PPF the economy is producing a combination of goods that is productive inefficient and attainable. At points below the PPF more of one good can be produced without any less of another being produced.

Points that lie on a production possibilities frontier (PPF) are __________________________, while points that lie below the PPF are ________________________.

0 units of X

Refer to the exhibit. The economy is currently operating at point C. The opportunity cost of moving to point E is

constant opportunity costs between guns and butter.

Refer to the exhibit. The PPF illustrates

bowed outward curve; downward-sloping (The data in the table indicates that the opportunity cost of producing each additional airplane increases as more airplanes are produced. Bowed-outward PPFs are associated with increasing opportunity costs. PPFs are always downward-sloping because increased production of one good results in decreased production of the other good.)

Refer to Exhibit 2-1. If the data presented in this table was plotted to create a production possibilities frontier (PPF), the shape of the resulting PPF would be a _______________________ that is _______________________.

50 unites of ice cream (At combination A there are 600 units of ice cream being produced and zero airplanes. At combination B there are 550 units of ice cream produced and one airplane. When moving from combination A to combination B, 50 fewer units of ice cream are produced in order to produce one airplane, thus the opportunity cost of moving between these two combinations is 50 units of ice cream.)

Refer to Exhibit 2-1. What is the opportunity cost of moving from combination A to combination B?

280 units of ice cream (At combination D there are 280 units of ice cream produced and three airplanes. At combination E there are zero units of ice cream produced and four airplanes. When moving from combination D to combination E, 280 fewer units of ice cream are produced in order to produce one more airplane, thus the opportunity cost of moving between these two combinations is 280 units of ice cream.)

Refer to Exhibit 2-1. What is the opportunity cost of moving from combination D to combination E?

2 (The initial PPF shows the maximum combinations of goods X and Y that can be produced with a fixed amount of resources and technology. When a large portion of the labor force is killed (through illness, war, or natural disaster) the quantity of resources available is decreased, the economy will be able to produce less of good X and good Y, shifting the PPF inward (to the left).)

Refer to Exhibit 2-2 which depicts four possible PPF shifts for goods X and Y. Which of these graphs best represents the result of a plague that kills a significant percentage of the economy's labor force?

3 (When an advance in technology enhances production of good X but not good Y, the intercept along the axis for good X will shift outward, but the intercept for good Y will remain unchanged. For example, suppose that the original intercept for good X was 400 units of X and zero units of Y. After an advance in technology that exclusively is applied to good X the economy will be able to produce more than 400 units of X and zero units of Y, shifting the X-intercept of the PPF outward.)

Refer to Exhibit 2-2 which depicts four possible PPF shifts for goods X and Y. Which of these graphs best represents the results of an advance in technology that is exclusively involved with the production of good X?

1 (The initial PPF shows the maximum combinations of goods X and Y that can be produced with a fixed amount of resources and technology. When the quantity of resources available is increased, the economy will be able to produce more of good X and good Y, shifting the PPF outward (to the right).)

Refer to Exhibit 2-2 which depicts four possible PPF shifts for goods X and Y. Which of these graphs best represents the results of an increase in the quantity of resources available for the production of both goods?

40,000 fax machines (At combination C the economy 80,000 fax machines and 20,000 copiers. At combination B there are 40,000 fax machines produced and 40,000 copiers produced. When moving from combination C to combination B 40,000 fewer fax machines are produced in order to produce more copiers, thus the opportunity cost of moving between these two combinations is 40,000 fax machines.)

Refer to exhibit 2-3. Suppose that the economy is initially at point C. What is the opportunity cost of the economy moving from point C to point B?

an advancement in technology AND an increase in resources

Refer to the exhibit. If PPF1 is the relevant production possibilities frontier, society may move to PPF2 as a result of

at both point C and at a point A.

Refer to the exhibit. Productive efficiency exists at

0.50 copiers Each time that the economy produces 40,000 additional fax machines it must forfeit 20,000 copiers. This means that the opportunity cost of producing one fax machine is 0.50 copiers, since 20,000 divided by 40,000 equals 0.50.

Suppose an economy can produce any of the following combinations of copiers and fax machines: (0 copiers and 120,000 fax machines), (20,000 copiers and 80,000 fax machines), (40,000 copiers and 40,000 fax machines), (60,000 copiers and 0 fax machines). From the information provided, what is the opportunity cost of producing each additional fax machine?

The society had some unemployed resources to begin with, but then started using all of its resources.

Suppose that a society begins at a point inside its production possibilities frontier (PPF) and then ends up at a point on that same PPF. Which of the following could have caused such a change?

the endpoint of the PPF to shift rightward for military goods, but the endpoint of the PPF for civilian goods would remain at its original point.

Suppose that an economy originally has a bowed outward production possibilities frontier (PPF) for military goods and civilian goods. An improvement in technology that allows only more military goods to be produced, but not more civilian goods, would cause

efficient and attainable.

Suppose that one point on a country's production possibilities frontier (PPF) for trucks and tables occurs at a point at which 500 trucks can be produced and 0 tables are produced. At this point the economy is producing a combination of goods that is productive

a downward-sloping curve that is bowed-outward. (PPFs are always downward sloping since an increase in production of one good results in fewer units of the other good produced, an inverse relationship. A straight-line PPF is created when a constant number of units of one good are forfeited for each additional units of the other good produced. A bowed-outward curve results when there is an increase in the amount of one good forfeited as every additional successive unit of the other good is produced.)

Suppose that there is a production possibilities frontier (PPF) drawn for goods X and Y. If there is an increase in the amount of good Y forfeited as every additional successive unit of good X is produced, the PPF between goods X and Y would be

shift a country's production possibilities frontier rightward.

The discovery and utilization of a new and readily available alternative source of energy would tend to

two, one-half (Each time that the economy produces ten additional units of good Y they must forfeit five units of good X. This means that the opportunity cost of producing one unit of Y is two units of good X, since ten divided by five equals two. It also means that the opportunity cost of producing one unit of X is one-half unit of Y, since five divided by ten equals one-half.)

The economy can produce 15X and 10Y, 10X and 20Y, 5X and 30Y, or 0X and 40Y. It follows that the opportunity cost of one unit of X is ____Y and the opportunity cost of one unit of Y is ____ X.

correct, assuming that the PPF is shifting outwards. (When the economy is at a point on its PPF it is producing one of the maximum combinations of civilian goods and military goods. At any point on the PPF it is impossible to produce more of both types of goods, assuming that the PPF is not shifting at all. However, if the PPF is assumed to be shifting outward, then it would be possible for an economy to produce more military goods and more civilian goods simultaneously.)

The economy is currently at a point on its production possibilities frontier (PPF) for civilian goods and military goods. A presidential candidate says that it is possible to get more of everything--more civilian goods and more military goods--simultaneously. The candidate is

- point A may be an inefficient point. AND - point A may be an efficient point.

The economy moves from point A, where it produces 400X and 200Y, to point B, where it produces 500X and 140Y. It follows that

some resources are better suited to the production of a given good than are other resources. (It is unlikely that all resources are equally well-suited to the production of a given good. Those resources that are best suited to the production of the good are likely to be employed first, followed eventually by the resources that are less well-suited leading. This means that subsequent units will be produced at a higher opportunity cost than units produced earlier.)

The law of increasing opportunity costs exists because

below its PPF.

There are large numbers of unemployed resources in the economy. The economy is most likely operating

5 cars Opportunity cost is illustrated as we move from one point on a PPF to another point on that same PPF. It shows what must be given up in order to produce more of another good. In this problem, the country loses 5 cars when producing at point B rather than at point A

Two points on a country's production possibilities frontier are point A where the country can produce 100 cars and 300 cameras and point B where the country can produce 95 cars and 350 cameras. The opportunity cost of moving from point A to point B is

As more computers are produced, the opportunity cost incurred from producing each additional computer is greater than for the previous unit produced. (The law of increasing opportunity cost states that as more of a good is produced, the opportunity costs of producing the good increases. As an example, suppose that the opportunity cost of producing one computers is two lawnmowers and that the opportunity cost of producing a second computer is three lawnmowers.)

Which of the following is an illustration of the law of increasing opportunity costs?

technology (The PPF shows the maximum possible combinations of two goods that can be produced with a fixed amount of resources and technology. At all points along a PPF the economy is producing a combination of goods that is productive efficient and attainable. At points that lie below the PPF the economy is producing a combination of goods that is productive inefficient and attainable. At points below the PPF more of one good can be produced without any less of another being produced.)

_____________________ refers to the body of skills and knowledge involved in the use of resources in production.