Section 2.1: Scarcity, Choice, and Opportunity Cost (Ver. 2)
Which of the following does NOT constitute an act of ʺinvestmentʺ as economists use the term? A) The city council authorizes the construction of a new fire station. B) A retiree buys 50 shares of stock at $10 a share and then sells the stock at a profit for $20 a share. C) An accountant attends a seminar on changes in the federal tax code. D) A department store increases its inventory of football jerseys before the Super Bowl.
A retiree buys 50 shares of stock at $10 a share and then sells the stock at a profit for $20 a share.
True/False A societyʹs production possibility frontier is bowed in from the origin due to specialized resources.
False
True/False Comparative advantage refers to the ability to produce better quality goods than a competitor.
False
True/False In economics, the term capital refers only to some form of money.
False
True/False The government produces only what the market is willing to pay for.
False
True/False When two people trade, one must lose.
False
The economic problem can best be stated as A) How can the economy improve technology so as to shift the production possibility frontier up and to the right? B) Given scarce resources, how exactly do societies go about deciding what to produce, how to produce it, and for whom to produce? C) Given the fact that the economy is inefficient, how much and what type of government intervention should be used to improve the efficiency of the economy? D) What is the best rate of economic growth for a society?
Given scarce resources, how exactly do societies go about deciding what to produce, how to produce it, and for whom to produce?
Related to the Economics in Practice on p. 28: How did the introduction of the microwave in 1960 affect the market for frozen food? A) It encouraged people to leave the work force by making cooking easier and less time-consuming. B) It reduced the opportunity cost of eating frozen food by decreasing the amount of time required to prepare frozen meals. C) It increased the financial cost of alternative methods of food preparation, such as conventional ovens. D) It made frozen foods more appealing by increasing the variety of meals that could be frozen and reheated.
It reduced the opportunity cost of eating frozen food by decreasing the amount of time required to prepare frozen meals.
Consider two countries, Japan and Malaysia. Japan devotes a smaller portion of its production to capital. All other things equal which of the following statements is most likely true? A) Japan is a poorer country than Malaysia. B) Japan will move up its production possibility curve faster than Malaysia. C) Malaysia is producing inside its production possibility frontier, whereas Japan is producing at a point on its production possibility frontier. D) Malaysiaʹs production possibility frontier will shift up and out farther and faster than Japanʹs.
Malaysiaʹs production possibility frontier will shift up and out farther and faster than Japanʹs.
Suppose an economy produces hybrid engines and solar panels in perfectly competitive industries. The economy is currently operating at a point on its ppf. If a single firm gains control over the production of solar panels, which of the following is most likely to happen? A) The economy will move to a less-desirable point on the ppf. B) The economyʹs ppf will shift inward. C) The economy will now be able to produce at a point outside its ppf. D) The economyʹs ppf will shift outward, but the maximum number of solar panels will remain the same.
The economy will move to a less-desirable point on the ppf.
The gap between rich and poor countries A) has decreased over time because poor countries can more easily devote resources to capital production B) has increased over time because poor countries find it difficult to devote resources to capital production C) has remained constant over time because technological advances can be easily shared among nations D) has remained constant over time because the rate of capital production has remained constant in rich and poor nations
has increased over time because poor countries find it difficult to devote resources to capital production
For an economy to produce at a point beyond its current ppf, the economy must A) waste less B) be more efficient C) reduce inputs D) increase its resource base
increase its resource base
A society can produce two goods: donuts and beer. The societyʹs production possibility frontier is negatively sloped and ʺbowed outwardʺ from the origin. As this society moves down its production possibility frontier, producing more and more units of donuts, the opportunity cost of producing beer A) decreases B) remains constant C) increases D) could decrease or increase depending on the technology
increases
As you move down the production possibility frontier, the absolute value of the marginal rate of transformation A) increases B) decreases C) initially increases, then decreases D) initially decreases, then increases
increases
An economy that is producing on the production possibility frontier at some point other than the output of efficient allocation is A) efficient, as it is on the production possibility frontier B) inefficient, as the combination of goods and services produced is not what people want C) efficient, as the economy is producing goods at the lowest possible cost D) inefficient, as that combination of goods could be produced at a lower cost if more efficient technology were employed
inefficient, as the combination of goods and services produced is not what people want
The process of using resources to produce new capital is A) research and development B) investment C) consumption D) economic growth
investment
If resources are combined efficiently in production, then the society A) is producing at the most-desirable point on the production possibility frontier B) is producing at a point on the production possibility frontier but not necessarily at the most-desirable point C) is producing at a point outside the production possibility frontier D) is experiencing economic growth
is producing at a point on the production possibility frontier but not necessarily at the most-desirable point
The value of the slope of a societyʹs production possibility frontier is called its A) marginal rate of substitution B) inflation rate C) unemployment rate D) marginal rate of transformation
marginal rate of transformation
Which of the following is NOT a resource as the term is used by economists? A) land B) labor C) buildings D) money
money
If the unemployment rate increases from 10% to 14%, the economy will A) move closer to a point on the ppf B) move away from the ppf toward the origin C) remain on the ppf D) remain on the origin
move away from the ppf toward the origin
If the opportunity costs of producing a good increase as more of that good is produced, the economyʹs production possibility frontier will be A) negatively sloped and ʺbowed inwardʺ toward the origin B) negatively sloped and ʺbowed outwardʺ from the origin C) a negatively sloped straight line D) a positively sloped straight line
negatively sloped and ʺbowed outwardʺ from the origin
Production inefficiency occurs A) only when an economy produces underneath its production possibility frontier B) only when an economy produces at the wrong point on the production possibility frontier C) either when an economy produces underneath the production possibility frontier or when the economy is producing the wrong combination of goods on the production possibility frontier D) only when the economy produces outside the production possibility frontier
only when an economy produces underneath its production possibility frontier
Suppose you are deciding whether to spend your tax rebate check on a new iPod player or a new digital camera. You are dealing with the concept of A) diminishing marginal returns B) comparative advantage C) opportunity costs D) the fallacy of composition
opportunity costs
The production possibility frontier is used to illustrate the concept of A) the laissez-faire economy B) opportunity costs C) equilibrium D) aggregate demand
opportunity costs
Periods of less than full employment correspond to A) points outside the ppf B) points underneath the ppf C) points on the ppf D) either points inside or outside the ppf
points underneath the ppf
The process by which resources are transformed into useful forms is A) capitalization B) consumption C) production D) allocation
production
An improvement in technology will cause the A) production possibility frontier to shift outward B) production possibility frontier to shift inward C) economy to move down the production possibility frontier D) economy to move closer to its production possibility frontier
production possibility frontier to shift outward
Capital, as economists use the term, A) is the money the firm spends to hire resources B) is money the firm raises from selling stock C) refers to the process by which resources are transformed into useful forms D) refers to things that have already been produced that are in turn used to produce other goods and services
refers to things that have already been produced that are in turn used to produce other goods and services
As more of a good, such as television sets, is produced, the opportunity costs of producing it increases. This most likely occurs because A) as more of a good is produced the inputs used to produce that good will increase in price B) consumers would be willing to pay higher prices for the good as more of the good is produced C) resources are not equally well suited to producing all goods and as more of a good is produced it is necessary to use resources less well suited to the production of that good D) as more of a good is produced the quality of that good declines and therefore the costs of production increase
resources are not equally well suited to producing all goods and as more of a good is produced it is necessary to use resources less well suited to the production of that good
The opportunity cost of investment in capital is forgone present consumption because A) capital takes a long time to produce B) capital increases the productivity of labor C) resources are scarce D) capital is an intangible good
resources are scarce
An example of forgoing present benefits in order to receive future benefits is A) production B) saving C) consumption D) growth
saving
The concept of opportunity cost is based on the principle of A) need B) consumption C) scarcity D) profit
scarcity
The concept of trade-offs would become irrelevant if A) we were dealing with a very simple, one-person economy B) poverty was eliminated C) scarcity was eliminated D) capital was eliminated
scarcity was eliminated
During the Iraq War many of Iraqʹs oil refineries were destroyed. This would best be represented by a A) movement down Iraqʹs production possibility frontier B) movement off Iraqʹs production possibility frontier to some point inside the frontier C) shift of Iraqʹs production possibility frontier toward the origin D) movement up Iraqʹs production possibility frontier
shift of Iraqʹs production possibility frontier toward the origin
The marginal rate of transformation is the A) slope of the production possibility frontier B) dollar value of the best forgone alternative C) process of using resources to produce new capital D) transformation of resources into a form that is useful to people
slope of the production possibility frontier
In economics, investment always refers to A) the act of buying stocks or bonds B) the creation of capital C) increasing the quantity of labor D) an increase in per capita output
the creation of capital
In terms of the production possibility frontier, an increase in productivity attributable to new technology would best be shown by A) a movement along the frontier B) the production possibility frontier shifting outward, away from the origin C) a movement from a point inside the frontier to a point on it D) a movement toward the origin
the production possibility frontier shifting outward, away from the origin
An example of an investment is A) the purchase of a share of Google stock B) the purchase of an Exxon Mobil bond C) the purchase of a Hewlett Packard laser printer for use by a business D) all of the above
the purchase of a Hewlett Packard laser printer for use by a business
When two people trade A) both of them expect to be made worse off by the exchange B) they are trying to help out each other C) they know one of them will get the better of the other D) they both expect to be made better off by the exchange
they both expect to be made better off by the exchange
If someone has a comparative advantage in growing pineapples, A) they can grow pineapples at a lower opportunity cost than other pineapple growers B) they also have an absolute advantage in growing pineapples C) they can grow more pineapples using the same resources than other pineapple growers D) pineapples are the only product they can grow
they can grow pineapples at a lower opportunity cost than other pineapple growers
According to the theory of comparative advantage, ________ raise(s) productivity by lowering opportunity costs. A) trade and specialization B) investment in capital goods C) economic growth D) exchange and consumption
trade and specialization
An economy produces capital goods and consumer goods. This economy is operating at a point on its production possibility frontier associated with a small amount of capital goods and a large amount of consumer goods. This is most likely to be a A) ʺpoorʺ country because such a nation has difficulty devoting many resources to the production of capital goods B) ʺrichʺ country because such a nation can afford to sacrifice C) country with a free market D) country with a command economy
ʺpoorʺ country because such a nation has difficulty devoting many resources to the production of capital goods
Because resources are scarce, the opportunity cost of investment in capital is A) zero B) forgone future consumption C) forgone present consumption D) infinite
forgone present consumption
Outputs in the production process are A) pollution B) money C) good and services of value to households D) resources
good and services of value to households
Related to the Economics in Practice on p. 28: Which one of the following occurs when an individual enters the paid work force? A) The opportunity cost of time for housework increases, because time spent on housework could be spent on money-earning activities. B) The opportunity cost of time for housework increases, because money earned at a job can allow individuals to pay someone to do household chores that the individuals used to do themselves. C) The opportunity cost of time for housework decreases, because increased earning power makes individuals less likely to do their own housework. D) The opportunity cost of time for housework decreases, because as more people enter the work force, businesses have greater incentives to develop innovations that make housework more efficient.
The opportunity cost of time for housework increases, because time spent on housework could be spent on money-earning activities.
True/False Among the resources used in production are labor and capital.
True
True/False Comparative advantage refers to the ability to produce at a lower opportunity cost than a competitor.
True
True/False Economic growth shifts a societyʹs production possibility frontier away from the origin.
True
True/False The ʺeconomic problemʺ is that given scarce resources, how do large societies go about answering the basic economic questions of what will be produced, how it will be produced, and who will get it.
True
True/False Things that have already been produced that are in turn used to produce other goods and services over time are called ʺcapital.ʺ
True
Which of the following would an economist classify as capital? A) a $50 bill B) a corporate bond C) a post office employee D) a guitar used by a musician
a guitar used by a musician
The production possibility frontier is a graph that shows A) all the combinations of goods and services that are consumed over time if all of societyʹs resources are used efficiently B) the amount of goods and services consumed at various average price levels C) the rate at which an economyʹs output will grow over time if all resources are used efficiently D) all the combinations of goods and services that can be produced if all of societyʹs resources are used efficiently
all the combinations of goods and services that can be produced if all of societyʹs resources are used efficiently
According to the theory of comparative advantage, specialization and free trade will benefit A) only that trading party that has both an absolute advantage and a comparative advantage in the production of all goods B) all trading parties, even when some are absolutely more efficient producers than others C) only that trading party that has an absolute advantage in the production of all goods D) only that trading party that has a comparative advantage in the production of all goods
all trading parties, even when some are absolutely more efficient producers than others
Someone has a comparative advantage in producing a good if they can produce that good A) in greater quantities B) at a lower opportunity cost C) using more capital and less labor D) without sunk costs
at a lower opportunity cost
Economic growth may occur when A) a society acquires new resources B) a society learns to produce more using existing resources C) the society begins to produce the combination of goods society wants most D) both A and B
both A and B
