Exam

Name___________________________________

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

1) The production possibilities frontier

A) illustrates why there need not be any scarcity in the world.
B) is the boundary between attainable and unattainable levels of production.
C) shows how production increases as prices rise.
D) shows prices at which production is possible and impossible.
E) is the boundary between what we want to consume and what we want to produce.
Answer: B

2) Which one of the following concepts is not illustrated by a production possibilities frontier?
A) marginal benefit
B) attainable and unattainable points
C) opportunity cost
D) scarcity
E) the tradeoff between producing one good versus another
Answer: A

3) A point inside a production possibilities frontier

A) is preferred to a point on the production possibilities frontier.
B) illustrates the idea of opportunity cost.
C) is unattainable.
D) indicates some wasted or misallocated resources.
E) indicates a point of production efficiency.
Answer: D

4) Which one of the following concepts is illustrated by a production possibilities frontier?

A) profit
B) consumption
C) property rights
D) investment
E) tradeoff
Answer: E

5) If Sam is producing at a point inside his production possibilities frontier, then he

A) must be doing the best he can with limited resources.
B) is fully using all his resources and allocating his resources to their best use.
C) is unaffected by costs and technology.
D) has a high opportunity cost of moving from this point.
E) can increase production of both goods with zero opportunity cost.
Answer: E

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 6) If Sam is producing at a point on his production possibilities frontier, then he
A) can produce more of both goods.
B) is not subject to scarcity.
C) is unaffected by costs and technology.
D) cannot produce any more of either good.
E) can increase the production of one good only by decreasing the production of the other.
Answer: E

Use the figure below to answer the following questions.

Figure 2.1.1

7) Refer to the production possibilities frontier in Figure 2.1.1. Which one of the following statements is true about
point A?
A) It is unattainable.
B) Although no more of good X can be produced, more of good Y can be produced.
C) It is preferred to point B.
D) Although no more of good Y can be produced, more of good X can be produced.
E) Resources are either unused or misallocated or both.
Answer: E

8) Complete the following sentence. In Figure 2.1.1,

A) movement from C to B would require a technological improvement.
B) movement from A to B would require a technological advance.
C) some resources must be unused at point C.
D) the concept of decreasing opportunity cost is illustrated.
E) point B is a point of production efficiency.
Answer: E

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 9) Refer to the production possibilities frontier in Figure 2.1.1. Which one of the following is true about point C?
A) It is attainable only if the opportunity cost of producing X increases.
B) It is attainable and inefficient.
C) It is unattainable.
D) It is attainable only if the opportunity cost of producing X decreases.
E) It is efficient and attainable.
Answer: C

10) If Harold can increase production of good X without decreasing production of any other good, then Harold
A) has a linear production possibilities frontier.
B) prefers good X to any other good.
C) is producing on his production possibilities frontier.
D) is producing outside his production possibilities frontier.
E) is producing inside his production possibilities frontier.
Answer: E

11) If Harold must decrease production of some other good to increase production of good X, then Harold
A) is producing on his production possibilities frontier.
B) has a linear production possibilities frontier.
C) prefers good X to any other good.
D) is producing inside his production possibilities frontier.
E) is producing outside his production possibilities frontier.
Answer: A

12) A situation in which resources are either wasted or misallocated or both is illustrated by
A) a point inside the production possibilities frontier.
B) a point above or to the right of the production possibilities frontier.
C) any point on either the horizontal or the vertical axis.
D) a point on or inside the production possibilities frontier.
E) a point outside the production possibilities frontier.
Answer: A

13) A production possibilities frontier is negatively sloped because

A) any choice along the PPF involves a tradeoff.
B) the quantity of a good purchased decreases as its price falls.
C) some resources are misallocated.
D) opportunity cost of production increases as more of a good is produced.
E) there is too little capital in the economy.
Answer: A

14) Ted chooses to study for his economics exam instead of going to the concert. The concert he will miss is Ted's
________ of studying for the exam.
A) absolute cost
B) opportunity cost
C) comparative cost
D) discretionary cost
E) monetary cost
Answer: B

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15) Opportunity cost of an action is
A) the comparative cost.
B) the best choice that can be made.
C) the highest-valued alternative forgone.
D) the money cost.
E) the absolute cost.
Answer: C

16) On a graph of a production possibilities frontier, opportunity cost is represented by

A) a point on the vertical axis.
B) a point on the horizontal axis.
C) the x-axis intercept.
D) the slope of the production possibilities frontier.
E) a ray through the origin.
Answer: D

17) Production efficiency is achieved when

A) there are no tradeoffs.
B) all resources are equally productive in all activities.
C) we produce goods and services at the lowest possible cost.
D) resources are not equally productive in all activities.
E) the production possibilities frontier shifts outward at a constant pace.
Answer: C

18) A tradeoff exists when

A) we move from a point on the PPF to a point within the PPF.
B) we move from a point inside the PPF to a point on the PPF.
C) the PPF shifts outward.
D) the PPF shifts inward.
E) we move along the PPF.
Answer: E

19) Which of the following quotations best illustrates a tradeoff?

A) "The more and more gadgets the firm produces, the bigger the fall in widget production."
B) "If the firm reorganized its production process, it could produce more widgets and more gadgets."
C) "If the firm invests more in capital equipment, it can expand sales next year."
D) "The firm has been able to lower costs due to its extensive experience in building widgets."
E) "The firm should sell more gadgets, even if it means hiring more workers."
Answer: A

20) A medical clinic employs 10 workers. Each worker can produce a maximum of either 2 units of medical services or
5 units of administrative services a day. The production possibilities frontier of this firm shows
A) increasing opportunity cost.
B) zero opportunity cost.
C) constant opportunity cost.
D) decreasing opportunity cost.
E) infinite opportunity cost.
Answer: C

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21) A medical clinic employs 10 workers. Each worker can produce a maximum of either 2 units of medical services or
5 units of administrative services a day. The opportunity cost of producing one more unit of medical services is
A) 0.4 units of administrative services.
B) 2.5 units of administrative services.
C) 1 unit of medical services.
D) 5 units of administrative services.
E) 2 units of administrative services.
Answer: B

22) A medical clinic employs 10 workers. Each worker can produce a maximum of either 2 units of medical services or
5 units of administrative services a day. One day, the clinic wants to produce 10 units of medical services and 30
units of administrative services. This output level is
A) inefficient.
B) efficient.
C) unattainable.
D) on the clinic's PPF.
E) attainable if each worker specializes in one service.
Answer: C

23) A medical clinic employs 10 workers. Each worker can produce a maximum of either 2 units of medical services or
5 units of administrative services a day. One day, the clinic wants to produce 16 units of medical services and 5
units of administrative services. This output level is
A) inefficient.
B) attainable and efficient.
C) on the clinic's PPF.
D) unattainable.
E) efficient.
Answer: A

24) The bowed-out (concave) shape of a production possibilities frontier illustrates

A) the equal usefulness of resources in all activities.
B) capital accumulation.
C) decreasing opportunity cost.
D) increasing opportunity cost.
E) technological change.
Answer: D

25) If production of a good experiences increasing opportunity cost, then the production possibilities frontier is
A) bowed outward with a positive slope.
B) a vertical line.
C) a positively sloped straight line.
D) bowed outward with a negative slope.
E) a negatively sloped straight line.
Answer: D

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26) The fact that resources are not equally productive in all activities
A) implies that gains from specialization and trade are unlikely.
B) follows from the law of demand.
C) implies that an economy should not produce certain goods.
D) implies a linear production possibilities frontier.
E) implies that a production possibilities frontier will be bowed outward.
Answer: E

27) If additional units of any good can be produced at a constant opportunity cost, the production possibilities frontier
A) is bowed outward and negatively sloped.
B) has an increasing positive slope.
C) is positively sloped and linear.
D) is linear and negatively sloped.
E) is bowed inward and negatively sloped.
Answer: D

28) The existence of increasing opportunity cost

A) follows from the existence of property rights.
B) explains why specialization is frequently useful.
C) explains why some societies produce inside their production possibilities frontier.
D) explains why resources are scarce.
E) explains the bowed-out shape of the production possibilities frontier.
Answer: E

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Use the figure below to answer the following questions.

Figure 2.1.2

29) Refer to the production possibilities frontier in Figure 2.1.2. If 6 units of X are produced, then
A) 60 units of Y can be produced with some resources not fully used.
B) 50 units of Y can be produced if all resources are used and assigned to the task for which they are the best
match.
C) 50 units of Y must be produced, regardless of resource utilization.
D) 40 units of Y cannot be produced unless production of X is decreased.
E) 40 units of Y cannot be produced unless production of X is increased.
Answer: B

30) Refer to the production possibilities frontier in Figure 2.1.2. Suppose that 50 units of Y are produced. Then
A) 7 units of X are being produced.
B) 6 units of X are being produced.
C) 9 units of X can be produced if all resources are used and assigned to the task for which they are the best
match.
D) 6 units of X can be produced if all resources are used and assigned to the task for which they are the best
match.
E) resources are not being fully utilized.
Answer: D

31) Refer to the production possibilities frontier in Figure 2.1.2. At point A, the opportunity cost of producing 3 more
units of X is
A) zero units of Y.
B) 30 units of Y.
C) 10 units of Y.
D) 3 units of X.
E) 20 units of Y.
Answer: E

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32) Refer to the production possibilities frontier in Figure 2.1.2. At point A, the opportunity cost of increasing
production of Y to 80 units is
A) 1 unit of X. B) 2 units of X. C) 10 units of Y. D) 3 units of X. E) 80 units of Y.
Answer: D

33) Refer to the production possibilities frontier in Figure 2.1.2. At point C, the opportunity cost of producing one
more unit of X is
A) 1 unit of X. B) 20 units of X. C) 1 unit of Y. D) 8 units of X. E) 20 units of Y.
Answer: E

34) Refer to the production possibilities frontier in Figure 2.1.2. At point C, what is the opportunity cost of increasing
the production of Y from 20 to 50 units?
A) 20 units of Y B) 30 units of Y C) 6 units of X D) 8 units of X E) 2 units of X
Answer: E

35) Consider the production possibilities frontier in Figure 2.1.2. Which of the following statements is false?
A) The opportunity cost of producing Y increases as production of Y increases.
B) Points inside the production possibilities frontier indicate wasted or misallocated resources.
C) The opportunity cost of producing X increases as production of X increases.
D) Production at point A shifts the production possibilities frontier outward.
E) Resources are not equally useful in the production of X and Y.
Answer: D

36) As we increase production of X, we must give up production of larger and larger amounts of Y to produce each
additional unit of X. Select the best statement.
A) The production possibilities frontier for X and Y is a straight line.
B) We must be producing inside the production possibilities frontier.
C) As a result, we should not specialize in the production of X.
D) Good Y will be more highly regarded by consumers than good X.
E) This illustrates increasing opportunity cost.
Answer: E

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Use the figure below to answer the following questions.

Figure 2.1.3

37) Figure 2.1.3 illustrates Mary's production possibilities frontier. If Mary wants to move from point B to point C,
Mary must
A) pay more for her factors of production.
B) give up some of good Y to obtain more of good X.
C) increase capital.
D) give up some of good X to obtain more of good Y.
E) improve technology.
Answer: B

38) Figure 2.1.3 illustrates Mary's production possibilities frontier. If Mary wants to move from point D to point C,
Mary must
A) hire more workers.
B) improve technology.
C) give up some of good Y to obtain more of good X.
D) increase capital.
E) give up some of good X to obtain more of good Y.
Answer: E

39) Refer to the production possibilities frontier in Figure 2.1.3. The opportunity cost of moving from C to B will be
A) greater than moving either from D to C or from B to A.
B) greater than moving from D to C but less than moving from B to A.
C) less than moving from E to D.
D) less than moving from D to C but greater than moving from B to A.
E) the same as moving from D to C or moving from B to A.
Answer: B

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Use the table below to answer the following questions.

Table 2.1.1
The following table gives points on the production possibilities frontier for goods X and Y.

Point Production of X Production of Y

A 0 40
B 4 36
C 8 28
D 12 16
E 16 0

40) Refer to Table 2.1.1. What is true at point C?

A) If 8 units of X are produced, then at most 28 units of Y can be produced.
B) If 8 units of X are produced, then only 36 units of Y can be produced.
C) If 8 units of X are produced, then at least 28 units of Y can be produced.
D) If 28 units of Y are produced, then more than 8 units of X can be produced.
E) Some resources are unemployed.
Answer: A

41) Refer to Table 2.1.1. The opportunity cost of increasing the production of X from 8 to 12 units is
A) 8 units of Y. B) 12 units of Y. C) 4 units of Y. D) 4 units of X. E) 16 units of Y.
Answer: B

42) Refer to Table 2.1.1. The opportunity cost of increasing the production of Y from 16 to 36 units is
A) 8 units of X. B) 16 units of X. C) 12 units of X. D) 20 units of Y. E) 4 units of X.
Answer: A

43) The economy illustrated by the data in Table 2.1.1 exhibits

A) initially increasing, then decreasing opportunity cost.
B) constant opportunity cost in the production of Y.
C) decreasing opportunity cost.
D) increasing opportunity cost.
E) constant opportunity cost in the production of X.
Answer: D

44) From the data in Table 2.1.1, the production of 7 units of X and 28 units of Y is
A) unattainable.
B) on the PPF between points C and D.
C) attainable but leaves some resources wasted or misallocated or both.
D) outside the PPF.
E) on the PPF between points B and C.
Answer: C

45) Refer to Table 2.1.1. As the production of X increases,

A) the production of Y increases.
B) the amount of X produced increases at an increasing rate.
C) the opportunity cost of each additional unit of X produced increases.
D) unemployment increases.
E) the opportunity cost of each additional unit of X produced decreases.
Answer: C

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 46) The data in Table 2.1.1 illustrate that
A) the opportunity cost of producing an additional unit of Y increases as the production of Y increases.
B) the producer has a comparative advantage in the production of X.
C) the producer has a comparative advantage in the production of Y.
D) the opportunity cost of producing an additional unit of Y is constant as the production of X increases.
E) the opportunity cost of producing an additional unit of Y decreases as the production of Y increases.
Answer: A

47) The production possibilities frontier corresponding to the data in Table 2.1.1 is
A) negatively sloped and linear.
B) negatively sloped and bowed inward.
C) positively sloped and bowed outward.
D) positively sloped and linear.
E) negatively sloped and bowed outward.
Answer: E

48) From the data in Table 2.1.1, the production of 10 units of X and 28 units of Y is
A) attainable but leaves some resources misallocated.
B) unattainable.
C) attainable but inefficient.
D) on the production possibilities frontier between points C and D.
E) inside the PPF.
Answer: B

Use the table below to answer the following questions.

Table 2.1.2
Production Possibilities

Possibility Kilograms of Butter Snowshoes

A 8 0
B 6 1
C 0 3

49) Refer to Table 2.1.2. In moving from combination B to combination C, the opportunity cost of producing one
additional snowshoe is
A) 6 kilograms of butter.
B) 3 kilograms of butter.
C) 2 kilograms of butter.
D) 1/6 kilogram of butter.
E) 1/2 kilogram of butter.
Answer: B

50) Refer to Table 2.1.2. According to this production possibilities frontier,

A) a combination of 0 kilograms of butter and 4 snowshoes is attainable.
B) resources are equally useful in all activities.
C) the opportunity cost of producing snowshoes increases as more snowshoes are produced.
D) a combination of 6 kilograms of butter and 1 snowshoe is inefficient.
E) the opportunity cost of producing snowshoes decreases as more snowshoes are produced.
Answer: C

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Use the table below to answer the following question.

Table 2.1.3
Production possibilities for a society that produces only two
goods hockey sticks and maple leaves

Possibility Hockey Sticks Maple Leaves

A 3 0
B 2 3
C 0 9

51) Refer to Table 2.1.3. In moving from combination C to combination B, the opportunity cost of producing one
additional hockey stick is
A) 1/6 maple leaves.
B) 2 maple leaves.
C) 6 maple leaves.
D) 1/2 maple leaves.
E) 3 maple leaves.
Answer: E

Use the table below to answer the following question.

Table 2.1.4
Consider the following production possibilities for a pizza parlour in a typical week:

Possibility Pop Pizza

a 14 cases 0
b 12 cases 6
c 9 cases 11
d 5 cases 14
e 0 cases 15

52) Refer to Table 2.1.4. Complete the following sentence. The production possibilities frontier in the table shows
A) decreasing opportunity cost.
B) under-utilization of resources.
C) increasing opportunity cost.
D) learning-by-doing.
E) constant opportunity cost.
Answer: C

53) The slope of the production possibilities frontier curve measures

A) comparative advantage.
B) opportunity cost of producing the good measured on the x-axis.
C) marginal benefit of the good measured on the y-axis.
D) absolute advantage.
E) preferences for the goods measured on both axes.
Answer: B

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Use the figure below to answer the following question.

Figure 2.1.4

54) Refer to the production possibilities frontier in Figure 2.1.4. Which point is unattainable?
A) A B) B C) C D) D E) E
Answer: E

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Use the figure below to answer the following question.

Figure 2.1.5

55) The graph in Figure 2.1.5 shows Sunland's PPF for food and sunscreen. Sunland faces ________ opportunity cost of
food and ________ opportunity cost of sunscreen.
A) a constant; a constant
B) an increasing; a decreasing
C) a decreasing; a decreasing
D) a decreasing; an increasing
E) an increasing; an increasing
Answer: A

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Use the figure below to answer the following questions.

Figure 2.1.6

56) Figure 2.1.6 shows the production possibilities frontier for a firm that produces pet food. Point A is ________ and
point B is ________.
A) inefficient; efficient
B) unattainable; unattainable.
C) unattainable; attainable.
D) attainable; attainable.
E) attainable; unattainable.
Answer: E

57) Figure 2.1.6 shows the production possibilities frontier for a firm that produces pet food. This PPF ________
illustrate scarcity because ________.
A) does not; scarcity does not occur in the market for pet food
B) does not; the firm can produce any quantity it wants if it is willing to charge a high enough price
C) does; as more is produced, consumers must pay a higher price
D) does not; the PPF is downward sloping
E) does; the firm cannot produce points outside the frontier, and as the firm moves along the PPF, it cannot
produce more dog biscuits without producing less cat food
Answer: E

58) When producing at a point of production efficiency,

A) all wants are satisfied.
B) the opportunity cost of producing goods other than those measured on the axes of the production
possibilities frontier is zero.
C) a tradeoff occurs.
D) a firm is producing inside the production possibilities frontier.
E) resources are either wasted or misallocated.
Answer: C

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59) Jane produces only corn and cloth. If her preferences for corn and cloth change, then
A) her PPF becomes steeper.
B) her PPF becomes flatter.
C) her PPF becomes straighter.
D) her PPF does not change.
E) the world PPF shifts outward.
Answer: D

60) The production possibilities frontier is

A) downward sloping and illustrates the marginal benefit of increasing production of the good measured on the
x-axis.
B) upward sloping and a movement along the PPF illustrates a free lunch.
C) upward sloping and illustrates a tradeoff in production of the good measured on the x-axis and the good
measured on the y-axis.
D) downward sloping and illustrates a tradeoff in production of the good measured on the x-axis and the good
measured on the y-axis.
E) downward sloping and a movement along the PPF illustrates a free lunch.
Answer: D

61) The production possibilities frontier shows

A) the maximum level of production that can be attained.
B) the effect of advancing technology on production possibilities.
C) the maximum quantity of resources available at any given time.
D) the prices consumers are willing to pay for goods and services.
E) the maximum possible growth rate of output in an economy.
Answer: A

62) The Government of Canada promises to produce more defence goods without any decrease in the production of
other goods. This promise is valid
A) if Canada is producing at a point on its PPF.
B) only if technology advances or capital increases.
C) if Canada is producing at a point inside its PPF.
D) only if the PPF shifts rightward.
E) if Canada is producing at a point outside its PPF.
Answer: C

63) Consider a PPF that measures the production of quilts on the y-axis and the production of pillows on the x-axis.
As the firm moves along this PPF, the production of
A) all goods other than pillows and quilts is decreasing.
B) all goods other than pillows and quilts is increasing.
C) all goods other than pillows and quilts remains constant.
D) pillows and quilts are both decreasing.
E) pillows and quilts are both increasing.
Answer: C

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64) Choose the correct statements.
1. Opportunity cost of a good is the increase in the quantity produced of one good divided by the decrease in the
quantity produced of another good as we move along the PPF.
2. The opportunity cost of an action is the highest-valued alternative forgone.
3. Opportunity cost is a ratio.
4. There is no relationship between the opportunity cost of producing an additional good measured on the
x-axis and the opportunity cost of producing an additional good measured on the y-axis.
A) Statements 1 and 3 are correct.
B) Statements 2 and 4 are correct.
C) Statements 2 and 3 are correct.
D) Statements 1 and 2 are correct.
E) Statements 3 and 4 are correct.
Answer: C

65) Sal sells hot dogs and hamburgers. The price of a hamburger is $5 and the price of a hotdog is $2. Sal's opportunity
cost of producing 1 hamburger is 3 hot dogs. What is Sal's opportunity cost of producing 1 hot dog?
A) $2
B) 1 hamburger
C) 1/3 hamburger
D) $5
E) 3 hamburgers
Answer: C

66) A pizza parlour that is production efficient produces pizza and panzerotti along a straight-line PPF. One point on
its PPF is 10 pizzas and 2 panzerotti. Another point on its PPF is 8 pizzas and 5 panzerotti. If the pizza parlour
increases the quantity of pizza it produces from 8 to 10, what is the opportunity cost of producing one of the
additional pizzas?
A) 1.5 panzerotti
B) zero panzerotti
C) 5 panzerotti
D) 3 panzerotti
E) 2 panzerotti
Answer: A

67) Marginal cost

A) is unrelated to the production possibilities frontier.
B) is less than marginal benefit.
C) is greater then marginal benefit.
D) is the opportunity cost of producing one more unit of a good or service.
E) equals marginal benefit.
Answer: D

68) The quantity of shoes produced is measured along the x-axis of a bowed-outward production possibilities frontier
and the quantity of shirts produced is measured along the y-axis. As you move down towards the right along the
production possibilities frontier, the marginal cost of
A) a shirt remains constant.
B) a pair of shoes increases.
C) a pair of shoes decreases.
D) a shirt equals the marginal benefit of a pair of shoes.
E) a pair of shoes and a shirt is equal at the midpoint between the x-axis and the y-axis.
Answer: B

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69) Which of the following is true regarding marginal benefit?
I. The marginal benefit curve shows the benefit firms receive by producing another unit of a good.
II. Marginal benefit increases as more and more of a good is consumed.
III. Marginal benefit is the maximum amount a person is willing to pay to obtain one more unit of a good.
A) I only B) I and II C) I and III D) III only E) I, II, and III
Answer: D

70) To describe preferences, economists use the concept of

A) marginal benefit.
B) price.
C) opportunity cost.
D) scarcity.
E) marginal cost.
Answer: A

71) As consumption of a good increases,

A) the price of the good falls.
B) marginal benefit increases or decreases depending on price.
C) marginal benefit increases.
D) marginal benefit decreases.
E) marginal benefit equals price.
Answer: D

72) The marginal benefit curve of a good

A) shows the benefit a firm receives from producing one more unit of that good.
B) shows the most a consumer is willing to pay for one more unit of that good.
C) is bowed outward.
D) is upward-sloping.
E) is vertical.
Answer: B

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Use the figure below to answer the following questions.

Figure 2.2.1

73) In Figure 2.2.1, the curve labelled B shows

A) that the benefit of producing more bicycles is greater than the benefit of producing more scooters.
B) that the benefit of producing more scooters is greater than the benefit of producing more bicycles.
C) the number of bicycles that people are willing to forgo to obtain another scooter.
D) the number of scooters that people are willing to forgo to obtain another bicycle.
E) the number of scooters that people must forgo to obtain another bicycle.
Answer: D

74) In Figure 2.2.1, when 2,000 bicycles are produced each month,
A) the marginal benefit of the 2,000th bicycle equals the marginal cost of the second scooter.
B) fewer bicycles must be produced to reach the efficient level of output.
C) the marginal benefit of the 2,000th bicycle is greater than the marginal cost of the 2,000th bicycle.
D) the marginal benefit of the 2,000th bicycle equals the marginal cost of the 4th scooter.
E) the production of bicycles is efficient.
Answer: C

75) In Figure 2.2.1, the curve labelled A is the ________ curve and the curve labelled B is the ________ curve.
A) marginal benefit; trade
B) marginal benefit; marginal cost
C) marginal cost; trade
D) production possibilities; trade
E) marginal cost; marginal benefit
Answer: E

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76) In Figure 2.2.1, when 4,000 bicycles are produced each month,
A) the production of bicycles is efficient.
B) the marginal benefit of the 4,000th bicycle is greater than the marginal cost of the 4,000th bicycle.
C) fewer bicycles must be produced to reach the efficient level of output.
D) more bicycles must be produced to reach the efficient level of output.
E) the marginal benefit of the 4,000th bicycle equals the marginal cost of the 4th scooter.
Answer: C

77) A marginal benefit curve measures

A) willingness to pay.
B) comparative advantage.
C) opportunity cost.
D) absolute advantage.
E) expenditure.
Answer: A

78) Allocative efficiency refers to a situation where

A) marginal benefit is maximized.
B) we cannot produce more of any one good without giving up some other good.
C) opportunity costs are equal for all goods.
D) opportunity cost is zero for all goods.
E) goods and services are produced at the lowest possible cost and in the quantities that provide the greatest
possible benefit.
Answer: E

79) When the market achieves allocative efficiency,

A) marginal benefit minus marginal cost is positive.
B) marginal benefit equals marginal cost.
C) marginal benefit is at its maximum.
D) marginal cost is at its minimum.
E) marginal cost minus marginal benefit is positive.
Answer: B

80) Marginal benefit of a good or service is the benefit received from consuming ________. It is measured by the most
that people are willing to pay for ________.
A) as much as is available; the total amount consumed
B) one more unit of it; an additional unit of it
C) goods that you prefer; more of it
D) goods that you prefer; an additional unit of it
E) one more unit of it; more of it
Answer: B

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Use the table below to answer the following question.

Table 2.2.1

Ethanol Food crops

(barrels per day) (tonnes per day)
70 and 0
64 and 1
54 and 2
40 and 3
22 and 4
0 and 5

81) A country produces ethanol and food crops. Table 2.2.1 shows the country's PPF. The marginal benefit of food
crops
A) equals the marginal cost of food crops.
B) remains constant as the quantity of food crops produced increases from 1 tonne a day to 2 tonnes a day.
C) cannot be calculated from the table.
D) equals 70 barrels of ethanol.
E) increases as the quantity of food crops produced increases from 1 tonne a day to 2 tonnes a day.
Answer: C

82) The principle of decreasing marginal benefit implies that the

A) additional benefit of obtaining one more unit of a good or service decreases as more of that good or service is
consumed.
B) total benefit of obtaining more of a good or service remains the same as more is consumed.
C) total benefit of obtaining more of a good or service decreases as more is consumed.
D) additional benefit of producing one more unit of a good or service decreases as more of that good or service
is produced.
E) additional benefit of obtaining one more unit of a good or service increases as more of that good or service is
consumed.
Answer: A

83) The most anyone is willing to pay for another purse is $30. Currently the price of a purse is $40, and the cost of
producing another purse is $50. The marginal benefit of a purse is
A) $10. B) $20. C) $30. D) $40. E) $50.
Answer: C

84) A marginal cost curve that is

A) vertical is derived from a PPF that has a bowed-out shape.
B) upward sloping is derived from a PPF that has a constant slope.
C) a horizontal line is derived from a PPF that has a constant slope.
D) a horizontal line is derived from a PPF that has a bowed-out shape.
E) downward sloping is derived from a PPF that has a bowed-out shape.
Answer: C

21
85) All points on the PPF are points of ________ efficiency. When we produce at the point on the PPF that we prefer
above all other points we achieve ________ efficiency.
A) unattainable; attainable
B) productive; prominent
C) allocative; allocative
D) production; allocative
E) allocative; production
Answer: D

86) Microsoft's marginal cost of the 100th copy of Microsoft Windows 10 is

A) the maximum amount that someone is willing to pay Microsoft to obtain the code that supports Windows 10.
B) the maximum amount that someone is willing to pay for the 100th copy of Windows 10.
C) the opportunity cost of producing the 100th copy of Windows 10.
D) equal to the marginal benefit of the 100th copy of Windows 10.
E) greater than the marginal benefit of the 100th copy of Windows 10.
Answer: C

87) A florist is producing a quantity of bouquets at which marginal benefit exceeds marginal cost. Is the florist
attaining allocative efficiency?
A) Yes. Allocative efficiency occurs whenever marginal benefit exceeds marginal cost.
B) No. The florist must increase production to attain allocative efficiency.
C) Yes, if the price of a bouquet is greater than the florist's cost to produce it.
D) No. The florist must decrease production to attain allocative efficiency.
E) Yes, if the florist is operating on her PPF.
Answer: B

88) A florist is producing a quantity of bouquets at which marginal cost exceeds marginal benefit. Is the florist
attaining allocative efficiency?
A) Yes. Allocative efficiency occurs whenever marginal cost exceeds marginal benefit.
B) Yes, if the florist is making a profit.
C) Yes, if the florist is operating on her PPF.
D) No. The florist must increase production to attain allocative efficiency.
E) No. The florist must decrease production to attain allocative efficiency.
Answer: E

89) How does allocative efficiency relate to the PPF?

The allocatively efficient point is
A) the point on the PPF where the absolute value of the slope is greatest.
B) the point on the PPF at which consumers are willing to pay the highest price for the goods produced.
C) any point on the PPF where marginal benefit exceeds marginal cost.
D) the point on the PPF at which marginal benefit equals marginal cost.
E) any point on the PPF.
Answer: D

22
 90) Anna and Josh can both produce lasagne. We say that Anna has a comparative advantage in the production of
lasagne if
A) Anna has a higher opportunity cost of producing lasagne than Josh.
B) Anna has a lower opportunity cost of producing lasagne than Josh.
C) Anna produces lasagne using a better recipe than Josh.
D) people will pay Anna more to produce a lasagne than they will pay Josh.
E) Anna produces more lasagne in an hour than Josh.
Answer: B

91) Anna and Josh both produce spaghetti and penne. Anna has a comparative advantage in the production of
spaghetti if
A) the amount by which Anna must reduce production of penne is less than the amount by which Josh must
reduce production of penne to produce an additional bowl of spaghetti.
B) Josh has a secret recipe for producing spaghetti.
C) the spaghetti that Anna produces is delicious.
D) the amount by which Anna must reduce production of penne is more than the amount by which Josh must
reduce production of penne to produce an additional bowl of spaghetti.
E) Anna is faster than Josh at producing a bowl of spaghetti.
Answer: A

92) Debra has an absolute advantage in producing administrative services when she
A) has a comparative advantage in producing administrative services.
B) uses the most up-to-date technology.
C) can produce more administrative services than anyone else, using the same quantity of inputs.
D) hires an exceptional staff to help her.
E) can produce administrative services at a lower opportunity cost than anyone else.
Answer: C

93) A person who has an absolute advantage in the production of all goods will
A) not be able to gain from specialization and trade.
B) produce all goods at the lowest opportunity cost.
C) have a comparative advantage in the production of only some goods and not others.
D) not have a comparative advantage in the production of any goods.
E) also have a comparative advantage in the production of all goods.
Answer: C

Use the information below to answer the following questions.

Fact 2.3.1

In an eight-hour day, Antony can produce either 24 baguettes or 8 kilograms of cheese. In an eight-hour day, Rudolph can
produce either 8 baguettes or 8 kilograms of cheese.

94) Given Fact 2.3.1, the opportunity cost of producing 1 baguette is

A) 20 minutes (1/3 hour) for Antony and 1 hour for Rudolph.
B) 1/3 kilogram of cheese for Rudolph and 1 kilogram of cheese for Antony.
C) 3 kilograms of cheese for Antony and 1 kilogram of cheese for Rudolph.
D) 1/3 kilogram of cheese for Antony and 1 kilogram of cheese for Rudolph.
E) 8 kilograms of cheese for both Antony and Rudolph.
Answer: D

23
95) From Fact 2.3.1, we know that
A) Antony has the higher opportunity cost of producing both baguettes and cheese.
B) Antony has the lower opportunity cost of producing cheese, while Rudolph has the lower opportunity cost of
producing baguettes.
C) Antony has the lower opportunity cost of producing baguettes, while Rudolph has the lower opportunity
cost of producing cheese.
D) Antony has the lower opportunity cost of producing both baguettes and cheese.
E) Antony has the lower opportunity cost of producing baguettes, while Antony and Rudolph have equal
opportunity costs of producing cheese.
Answer: C

96) Refer to Fact 2.3.1. Which one of the following statements is true?
A) Antony has an absolute advantage in cheese production.
B) Rudolph has an absolute advantage in cheese production.
C) Rudolph has a comparative advantage in baguette production.
D) Antony has a comparative advantage in cheese production.
E) Antony has a comparative advantage in baguette production.
Answer: E

97) Refer to Fact 2.3.1. The opportunity cost of producing 1 kilogram of cheese is
A) 20 minutes (1/3 hour) for Antony and 1 hour for Rudolph.
B) 8 baguettes for Rudolph and 24 baguettes for Antony.
C) 1 hour for Antony and 1 hour for Rudolph.
D) 3 baguettes for Antony and 1/3 baguettes for Rudolph.
E) 3 baguettes for Antony and 1 baguette for Rudolph.
Answer: E

98) Given Fact 2.3.1, Antony and Rudolph

A) cannot gain from trade.
B) can gain from trade if Antony specializes in cheese production and Rudolph specializes in baguette
production.
C) can trade, but only Antony will gain.
D) can trade, but only Rudolph will gain.
E) can gain from trade if Antony specializes in baguette production and Rudolph specializes in cheese
production.
Answer: E

99) Consider Fact 2.3.1. Antony and Rudolph decide to produce only the good in which they have the comparative
advantage. After this specialization, total production
A) is 8 baguettes and 8 kilograms of cheese.
B) depends on the preferences of Antony and Rudolph.
C) is 32 baguettes and 16 kilograms of cheese.
D) is 24 baguettes and 8 kilograms of cheese.
E) is 8 baguettes and 24 kilograms of cheese.
Answer: D

24
Use the information below to answer the following questions.

Fact 2.3.2

Aly can produce either 1 samosa or 1 spring roll in an hour, while Dede can produce either 2 samosas or 4 spring rolls in an
hour.

100) Refer to Fact 2.3.2. Which one of the following statements is true?
A) Dede has a comparative advantage in the production of samosas.
B) Aly has a comparative advantage in the production of spring rolls.
C) Dede will not gain from trade.
D) Dede has an absolute advantage over Aly in the production of both goods.
E) Aly will not gain from trade.
Answer: D

101) Given Fact 2.3.2, the opportunity cost of producing a samosa is

A) 1 hour for Aly and 1/2 hour for Dede.
B) 1 spring roll for Aly and 2 spring rolls for Dede.
C) 1 spring roll for Aly and 1/2 spring roll for Dede.
D) 1 hour for Aly and 1/4 hour for Dede.
E) 1 hour for Aly and 2 hours for Dede.
Answer: B

102) Given Fact 2.3.2, the opportunity cost of producing a spring roll is
A) 1 hour for Aly and 1/2 hour for Dede.
B) 1 spring roll for Aly and 2 spring rolls for Dede.
C) 1 samosa for Aly and 1/2 samosa for Dede.
D) 1 hour for Aly and 2 hours for Dede.
E) 1 spring roll for Aly and 1/2 spring roll for Dede.
Answer: C

103) Complete the following sentence. Given Fact 2.3.2,

A) there will be gains from trade if Aly specializes in the production of samosas and Dede in spring rolls.
B) there will be no gains from trade because Aly has an absolute advantage.
C) there will be gains from trade, no matter what Dede and Aly specialize in, as long as they specialize.
D) there will be gains from trade only if Aly specializes in the production of spring rolls and Dede in samosas.
E) there will be gains from trade only if Aly becomes faster at producing samosas.
Answer: A

104) Given Fact 2.3.2, what would be the total output of samosas and spring rolls in an eight-hour day if Aly and Dede
each specialized in producing the good in which they have a comparative advantage?
A) 8 samosas and 32 spring rolls
B) 24 samosas and 40 spring rolls
C) 16 samosas and 8 spring rolls
D) 8 samosas and 16 spring rolls
E) 3 samosas and 5 spring rolls
Answer: A

25
 105) Any two individuals can gain from trade
A) unless they have the same opportunity costs for producing all goods.
B) unless they have the same absolute advantage in producing all goods.
C) unless they have different opportunity costs for producing all goods.
D) if each specializes in the production of the good for which he has the higher opportunity cost.
E) unless one has an absolute advantage in producing all goods.
Answer: A

Use the figure below to answer the following questions.

Table 2.3.1
The planets of Vulcan and Romulus each produce spaceships and satellites.
The following table gives points on their production possibilities frontiers.

Vulcan Romulus
Spaceships Satellites Spaceships Satellites
0 16 0 12
2 12 2 9
4 8 4 6
6 4 6 3
8 0 8 0

106) Refer to Table 2.3.1. Which one of the following is true?

A) Romulus has both an absolute advantage and a comparative advantage in the production of satellites.
B) Vulcan has a comparative advantage in the production of spaceships.
C) Romulus has both an absolute advantage and a comparative advantage in the production of spaceships.
D) Romulus has a comparative advantage in the production of spaceships.
E) Vulcan should specialize in the production of spaceships.
Answer: D

107) Refer to Table 2.3.1. Which one of the following is true?

A) The opportunity cost of producing more spaceships is lower in Vulcan.
B) The opportunity cost of producing more satellites is the same for both planets.
C) The opportunity cost of producing more satellites is lower in Vulcan.
D) The opportunity cost of producing more spaceships is the same for both planets.
E) Vulcans are smarter than Romulans.
Answer: C

108) Refer to Table 2.3.1. For Vulcan, the opportunity cost of producing an additional spaceship is
A) 2 satellites. B) 4 satellites. C) 1 satellite. D) 2/3 satellite. E) zero.
Answer: A

109) Refer to Table 2.3.1. For Romulus, the opportunity cost of producing an additional spaceship is
A) 2 satellites. B) 2/3 satellite. C) 3/2 satellites. D) 4 satellites. E) 1 satellites.
Answer: C

26
110) Refer to Table 2.3.1. For Romulus, the opportunity cost of producing an additional satellite is
A) 2 spaceships.
B) 1/2 spaceship.
C) 2/3 spaceship.
D) 3/2 spaceships.
E) 3 spaceships.
Answer: C

111) Refer to Table 2.3.1. For Vulcan, the opportunity cost of producing an additional satellite is
A) 2 spaceships.
B) 1/2 spaceship.
C) 4 spaceships.
D) 2/3 spaceship.
E) 3 spaceships.
Answer: B

112) Refer to Table 2.3.1. Each country gains from trade if

A) Vulcan specializes in spaceships and Romulus specializes in satellites.
B) Vulcan specializes in both goods.
C) Romulus specializes in both goods.
D) they both produce the goods in which they have an absolute advantage.
E) Romulus specializes in spaceships and Vulcan specializes in satellites.
Answer: E

113) Xavier and Zack both produce yachts and fishing boats, and Xavier does not have a comparative advantage in the
production of either yachts or fishing boats.
Choose the correct statement.
A) Zack has a comparative advantage in the production of both yachts and fishing boats.
B) Xavier and Zack have the same opportunity costs of production for yachts and for fishing boats.
C) Xavier must have lower opportunity costs of production for both goods.
D) The gains from trade will be large but only in one direction.
E) Zack has an absolute advantage in the production of yachts and fishing boats.
Answer: B

114) In 5 hours, Bob can cook 5 meals or clean 6 rooms. In 5 hours, Mary can cook 30 meals or clean 10 rooms. Choose
the correct statement.
A) Mary has a comparative advantage in cooking.
B) Bob has an absolute advantage in the production of both goods.
C) Bob has a comparative advantage in cooking.
D) Since Mary is better at producing both goods, she should produce both.
E) Mary has a comparative advantage in cooking and cleaning.
Answer: A

27
Use the table below to answer the following questions.

Table 2.3.2
Weekly production of economics professors Sheila and Bruce

Sheila Bruce
Lectures Assignments Lectures Assignments
8 0 20 0
6 1 15 2
4 2 10 4
2 3 5 6
0 4 0 8

115) Given the information in Table 2.3.2, can Sheila and Bruce gain by specialization?
A) Yes, but only if Bruce gets paid more than Sheila.
B) Yes, if each specializes in the good in which they have an absolute advantage.
C) No, not under the given circumstances.
D) Yes, if each specializes in the good in which they have a comparative advantage.
E) It depends on the wages each earns.
Answer: D

116) Given the information in Table 2.3.2, choose the correct statement.
A) Sheila has a comparative advantage in producing lectures.
B) Bruce has a comparative advantage in producing lectures.
C) The opportunity cost to Bruce of producing an additional lecture is 0.4 assignments.
D) A and B are true.
E) B and C are true.
Answer: E

117) Suppose John and Joe each have different production possibility frontiers; John specializes in cloth and Joe
specializes in corn. John's island unexpectedly has exceptionally good weather, and suddenly he is twice as
productive in the production of both corn and cloth. Choose the correct statement.
A) This is an example of unemployed resources becoming employed.
B) As a result, John will have an absolute advantage in both corn and cloth.
C) There will be a change to the goods in which John and Joe specialize, because John's opportunity cost of corn
has decreased.
D) There will be no change to the goods in which John and Joe specialize, because John's comparative advantage
has not changed.
E) As a result, it is possible that John and Joe will switch the goods in which they specialize.
Answer: D

118) It benefits people to specialize and trade with each other because
A) they can take advantage of the fact they have an absolute advantage in the production of something.
B) otherwise they would not survive.
C) with specialization and trade, they can consume outside their production possibilities frontiers.
D) specialization and trade lead to a linear PPF.
E) with specialization and trade, absolute advantage increases.
Answer: C

28
119) Pam and Gino produce essays and book reports. If the opportunity cost of producing an essay is lower for Pam
than for Gino, then
A) Pam has an absolute advantage in the production of essays.
B) Gino has an absolute advantage in the production of book reports.
C) Pam has a comparative advantage in the production of essays.
D) Gino has a comparative advantage in the production of book reports.
E) Both C and D are correct.
Answer: E

120) In Portugal, the opportunity cost of a bale of wool is 3 bottles of wine. In England, the opportunity cost of 1 bottle
of wine is 3 bales of wool. Given this information,
A) England has an absolute advantage in wine production.
B) Portugal has a comparative advantage in wool production.
C) Portugal has an absolute advantage in wool production.
D) Portugal has a comparative advantage in wine production.
E) no trade will occur.
Answer: D

121) Which of the following describes comparative advantage?

A) Firm A can produce a good at a cost of $3 a unit, and Firm B can produce the same good at a cost of $4 a unit.
B) To produce a basket of wheat, Farmer John must give up growing 2 baskets of corn, whereas Farmer Ben
must give up 3 baskets of corn to produce a basket of wheat.
C) Firm A can produce 4 boxes of cereal in a day, and Firm B can produce 5 boxes of cereal in a day.
D) Bill can read one book in a week, but it takes Jeannie 10 days to read the same book.
E) Jane can type 50 words per minute, and Joe can type 60 words per minute.
Answer: B

122) The kitchen manager at an Italian restaurant is deciding what assignments he should give to his two cooks, John
and David. John can make 25 pizzas or 40 servings of pasta per hour and David can make 20 pizzas or 30 servings
of pasta per hour. Which is the manager's best choice?
A) John will make pizza because he has a comparative advantage in making pizza.
B) John and David will each spend half their time making pizza and half their time making pasta.
C) Increase David's salary because with encouragement, he can increase his output.
D) David will make pizza because he has a comparative advantage in making pizza.
E) Fire David because he is not as productive as John. John will produce both pasta and pizza.
Answer: D

123) Tom and Don have different opportunity costs of producing two goods. If Tom and Don specialize in producing
the goods in which each has a comparative advantage and they exchange goods, then
A) each will gain because each can consume a combination of goods that is outside his production possibilities
frontier.
B) each will produce a combination of goods that is inside his production possibilities frontier.
C) they each lose because they are no longer able to produce and consume both goods.
D) one of them will gain and one of them will lose.
E) each will produce a combination of goods that is outside his production possibilities frontier.
Answer: A

29
Use the information below to answer the following questions.

Fact 2.3.3

In one hour, Sue can produce 50 caps or 10 jackets, and Tessa can produce 70 caps or 7 jackets.

124) Refer to Fact 2.3.3. Sue's opportunity cost of producing a cap is ________ jackets and Tessa's opportunity cost of
producing a cap is ________ jackets.
A) 0.1; 0.2 B) 10; 7 C) 0.2; 1.0 D) 0.2; 0.1 E) 5; 0.1
Answer: D

125) Refer to Fact 2.3.3. ________ has a comparative advantage in producing caps. If Sue and Tessa each specialize in
producing the good in which they have a comparative advantage and trade 1 jacket for 6 caps, ________.
A) Tessa; Tessa loses but Sue gains
B) Tessa; Sue loses but Tessa gains
C) Sue; Tessa gains but Sue loses
D) Tessa; both Sue and Tessa gain
E) Sue; both Sue and Tessa gain
Answer: D

126) What gives a person a comparative advantage in an activity? A person has a comparative advantage when that
person
A) receives a greater benefit from performing the activity than anyone else.
B) can perform the activity faster than anyone else.
C) enjoys doing the activity.
D) is willing to do the activity at a lower wage rate than anyone else.
E) can perform the activity at a lower opportunity cost than anyone else.
Answer: E

127) What is the source of gains from trade between two workers?
A) One worker has a greater work ethic.
B) One worker pays lower taxes.
C) Divergent opportunity cost of production
D) Equal opportunity cost of production
E) One worker receives a higher wage rate.
Answer: C

128) Specialization and the gains from trade make the economy PPF outward bowed because
A) a good is initially produced by producers with higher opportunity costs and eventually produced by
producers with lower opportunity costs.
B) as more of a good is produced, its opportunity cost decreases.
C) all producers have bowed-outward PPFs and the economy's PPF is the horizontal sum of the producers'
PPFs.
D) a good is initially produced by producers with lower opportunity costs and eventually produced by
producers with higher opportunity costs.
E) as more of a good is produced, consumers are willing to pay less for each additional unit of the good.
Answer: D

30
129) A technological improvement is represented by
A) a point inside the production possibilities frontier.
B) a point outside the production possibilities frontier.
C) a movement from a point inside the production possibilities frontier to a point on the production possibilities
frontier.
D) a movement along the production possibilities frontier.
E) an outward shift of the production possibilities frontier.
Answer: E

130) In general, if country A is accumulating capital at a faster rate than country B, then country A
A) will have a higher rate of inflation than country B.
B) will soon have a comparative advantage in the production of most goods.
C) is using a larger proportion of resources to produce consumption goods.
D) will have a production possibilities frontier that is shifting outward faster than country B's.
E) will have more unemployment than country B.
Answer: D

131) The principal reason that production possibilities have grown more rapidly in Hong Kong than in Canada over the
last 50 years is because
A) Hong Kong has devoted a larger proportion of its resources to capital accumulation.
B) Hong Kong has fewer workers.
C) of cheap Hong Kong labour.
D) of foreign aid to Hong Kong.
E) Hong Kong has more natural resources.
Answer: A

132) Which one of the following would cause a production possibilities frontier to shift outward?
A) bad weather
B) a decision to fully utilize unemployed resources
C) a decrease in the population
D) an increase in the production of consumption goods
E) an increase in the stock of capital
Answer: E

133) The development of new goods and better ways of producing goods and services is
A) capital accumulation.
B) allocative efficiency.
C) technological change.
D) the big tradeoff.
E) production efficiency.
Answer: C

134) The growth of capital resources, including human capital, is

A) depreciation.
B) opportunity cost.
C) technological change.
D) capital accumulation.
E) shown by a movement along the PPF.
Answer: D

31
 135) Which one of the following would likely shift a production possibilities frontier inward?
A) a decrease in the price of natural resources
B) a drought
C) technological change
D) an increase in human capital
E) None of the above, because production possibilities frontiers do not shift inward.
Answer: B

Use the figure below to answer the following question.

Figure 2.4.1

136) Refer to the production possibilities frontier in Figure 2.4.1. The production possibilities frontier will shift
rightward most rapidly if current production is at
A) A. B) B. C) C. D) D. E) E.
Answer: A

137) A production possibilities frontier shifts outward for all of the following reasons except
A) an increase in opportunity cost.
B) an increase in human capital.
C) a technological improvement.
D) an increase in capital.
E) an increase in the labour force.
Answer: A

138) A movement along the production possibilities frontier results from

A) an increase in production of the good measured on the x-axis and a decrease in production of the good
measured on the y-axis.
B) a change in the quantity of human capital.
C) a change in the size of the labour force.
D) technological change.
E) a change in capital.
Answer: A

32
139) The opportunity cost of shifting the production possibilities frontier outward is
A) reduced current consumption.
B) reduced future consumption.
C) technological change.
D) capital accumulation.
E) increased future consumption.
Answer: A

140) In general, the greater the proportion of resources devoted to technological research in an economy, the
A) more bowed out is the shape of the production possibilities frontier.
B) faster the production possibilities frontier shifts inward.
C) closer it comes to having a comparative advantage in the production of all goods.
D) faster the production possibilities frontier shifts outward.
E) greater is current consumption.
Answer: D

141) Consider a country that has two industries. In the north, they grow wild rice, which requires plenty of rainfall. In
the south, they grow wheat, which requires a moderate amount of rainfall (too much rainfall is bad for wheat
production). One year, there is a record rainfall. This results in
A) a parallel shift outward of the production possibilities frontier.
B) a parallel shift inward of the production possibilities frontier.
C) the production possibilities frontier rotating, with the wild rice intercept decreasing, and the wheat intercept
increasing.
D) the production possibilities frontier becoming linear.
E) the production possibilities frontier rotating, with the wild rice intercept increasing, and the wheat intercept
decreasing.
Answer: E

142) Suppose a hurricane causes extensive devastation, destroying houses, roads, schools and factories. What is the
effect of this hurricane on a production possibilities frontier consisting of consumption goods and capital goods?
A) There is a movement along the existing production possibilities frontier towards a less capital-intensive
point.
B) It shifts inward at all points.
C) It shifts outward at all points.
D) There is a movement along the existing production possibilities frontier towards a more capital-intensive
point.
E) There is a movement from the existing production possibilities frontier inwards towards a point with wasted
or misallocated resources.
Answer: B

143) Economic growth ________ overcome scarcity because ________.

A) does; with economic growth the PPF rotates outward and eventually becomes a vertical line
B) does not; economic growth requires capital accumulation and technological change
C) does; with economic growth the PPF rotates outward and eventually becomes a horizontal line
D) does not; we can produce more goods and services but it is still impossible to satisfy all our wants
E) does; we will eventually reach the point where we have too much
Answer: D

33
144) In 1970, the production possibilities per person in Canada were ________ than those in Hong Kong. Between 1970
and 2020, Hong Kong's production possibilities have ________ Canada's production possibilities.
A) greater; expanded at the same rate as
B) smaller; not expanded as quickly as
C) greater; not expanded as quickly as
D) smaller; expanded more quickly than
E) greater; expanded more quickly than
Answer: E

145) The production possibilities frontier shifts outward when

A) tastes and preferences change.
B) prices rise.
C) the quantity of money in the economy grows.
D) human capital accumulates.
E) the political party in power changes.
Answer: D

146) Consider a production possibilities frontier with corn production measured on the vertical axis and car production
measured on the horizontal axis. Unusually good weather for growing corn shifts
A) the vertical intercept of the PPF upward but does not shift the horizontal intercept of the PPF.
B) neither the horizontal intercept nor the vertical intercept of the PPF.
C) the horizontal intercept of the PPF rightward but does not shift the vertical intercept of the PPF.
D) the horizontal intercept of the PPF rightward and the vertical intercept of the PPF upward.
E) the vertical intercept of the PPF downward and the horizontal intercept of the PPF leftward.
Answer: A

147) When an economy experiences economic growth, how does the composition of total production change?
The share of agricultural and industrial production ________ and the share of service production ________.
A) doesn't change; increases
B) increases; decreases
C) increases; increases
D) decreases; decreases
E) decreases; increases
Answer: E

148) Trade is organized using the social institutions of all of the following except
A) markets.
B) labour unions.
C) property rights.
D) firms.
E) money.
Answer: B

34
149) Markets
I. enable buyers and sellers to get information.
II. are defined by economists as geographical locations where trade occurs.
III. have evolved because they facilitate trade.

Which of the above statements are correct?

A) I only
B) I and III only
C) III only
D) II and III only
E) I, II and III
Answer: B

150) A property right is

A) any commodity or token that is generally acceptable as a means of payment.
B) an economic unit that hires factors of production and organizes those factors to produce and sell goods and
services.
C) a social arrangement that governs the ownership, use, and disposable of anything that people value.
D) any arrangement that enables buyers and sellers to get information and to do business with each other.
E) a medium of exchange.
Answer: C

151) The flows in the market economy that go from firms to households are ________.
The flows in the market economy that go from households to firms are ________.
A) all flowing through goods markets; all flowing through factor markets
B) the real flows of goods and services and the real flows of labour, land, capital and entrepreneurship; the
income flows of wages, rent, interest, and profits and the flow of expenditure on goods and services
C) the income flows of wages, rent, interest, and profits and the flow of expenditure on goods and services; the
real flows of goods and services and the real flows of labour, land, capital and entrepreneurship
D) the real flows of goods and services and the income flows of wages, rent, interest and profits; the real flows of
labour, land, capital and entrepreneurship and the flow of expenditure on goods and services
E) all flowing through factor markets; all flowing through goods markets
Answer: D

152) The main functions of markets include

A) promoting the social interest, but not the self-interest.
B) enabling buyers and sellers to get information about each other.
C) establishing a physical location for business transactions.
D) selling goods, but not factors of production.
E) promoting the self-interest, but not the social interest.
Answer: B

153) In an economy lacking property rights, it would be ________ to realize the gains from trade, and there would be
________ specialization compared to an economy with property rights.
A) easier; less
B) easier; more
C) more difficult; less
D) more difficult; more
E) none of the above
Answer: C

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154) Intellectual property
A) includes land and buildings.
B) includes stocks and bonds and money in the bank.
C) is the intangible product of creative effort.
D) is protected by copyrights and patents.
E) Both C and D are correct.
Answer: E

155) A firm is
A) any economic unit that coordinates decisions through price adjustments.
B) any place that enables buyers and sellers to do business with each other.
C) any economic unit located within a factor market.
D) an economic unit that hires factors of production and organizes them to produce and sell goods and services.
E) an economic unit that produces everything that it sells.
Answer: D

156) What is real property?

A) money in the bank
B) labour
C) land and buildings
D) the intangible product of creative effort
E) stocks and bonds
Answer: C

157) Central economic planning works poorly because

A) economic planners don't know people's production possibilities and preferences.
B) there are no firms.
C) money is not used.
D) there are no markets.
E) Both B and D are correct.
Answer: A

158) ________ make economic choices and ________ coordinate these choices.
A) Households and firms; markets
B) Firms and markets; households
C) Firms; governments
D) Households and firms; governments
E) Households; firms
Answer: A

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