Chapter 2 The Economic Problem

2.1 Production Possibilities and Opportunity Cost

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

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

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

4) Which one of
the following concepts is illustrated by a production possibilities
frontier?
A)
profit
B)
consumption
C)
investment
D)
monetary exchange
E) the tradeoff
between producing one good versus another

5) If Sam is
producing at a point inside his production possibilities frontier, then he
A) can increase production of
both goods with zero opportunity cost.
B) is fully using all his
resources and allocating his resources to their best use.
C) must be doing the best he can
with limited resources.
D) is unaffected by costs and
technology.
E) has a high opportunity cost of
moving from this point.
6) If Sam is
producing at a point on his production possibilities frontier, then he
A) cannot produce any more of
either good.
B) is unaffected by costs and
technology.
C) can produce more of both
goods.
D) is not subject to scarcity.
E) can increase the production of
one good only by decreasing the production of the other.

Use the figure below to answer the following
questions.

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Figure 2.1.1

7) Refer to the
production possibilities frontier in Figure 2.1.1. Which one of the following is true about
point A?
A) It is unattainable.
B) While no more of good Y
can be produced, more of good X can be produced.
C) It is preferred to point B.

D) Resources are either unused or
misallocated or both.
E) It is attainable only if the
amount of capital goods is increased.
8) Complete the
following sentence. In Figure 2.1.1,
A) movement from A to B
would require a technological advance.
B) point B is a point of
production efficiency.
C) some resources must be unused
at point C.
D) the concept of decreasing
opportunity cost is illustrated.
E) movement from C to B would
require a technological improvement.