The Economic Problem Chapter 3 Test Bank - Microeconomics Australia 2e Complete Test Bank by Michael Parkin, Robin Bade. DOCX document preview.
Parkin&Bade, Microeconomics, 2nd edition
Chapter 3: The Economic Problem
Multiple choice: Choose the one alternative that best completes the statement or answers the question.
1. Australia produced approximately ________ worth of goods and services in 20171.
Difficulty: Basic
Standard/Graduate Attribute AACSB: Reflective thinking
A-Head: 3.1 Production Possibilities
2. Which of the following is an assumption used when drawing a production possibilities frontier?
i. Human wants and desires are limited to what is available.
ii. Only two goods are considered.
iii. The level of technology is fixed and unchanging.
Difficulty: Basic
Standard/Graduate Attribute AACSB: Reflective thinking
A-Head: 3.1 Production Possibilities
3. The production possibilities frontier illustrates the
A) resources the economy possesses, but not its level of technology.
C) amount of each good that people want to buy.
D) maximum combinations of goods and services that can be produced.
E) goods and services people want.
Difficulty: Basic
Standard/Graduate Attribute AACSB: Reflective thinking
A-Head: 3.1 Production Possibilities
4. A production possibilities frontier shows
A) that if price of one good decreases, the price of the other has to increase.
B) how money can be allocated among two kinds of goods.
C) the limits to future growth of a nation.
D) that it is impossible to produce inefficiently.
E) the various combinations of output a nation can produce at a certain time, given its available resources and technology.
Difficulty: Basic
Standard/Graduate Attribute AACSB: Reflective thinking
A-Head: 3.1 Production Possibilities
5. Consider a production possibility frontier with jeans on the vertical axis and shoes on the horizontal axis. As the country moves along the frontier closer to the horizontal axis,
C) the country eventually chooses an unattainable point.
Difficulty: Basic
Standard/Graduate Attribute AACSB: Reflective thinking
A-Head: 3.1 Production Possibilities
The table above gives four production possibilities for aeroplanes and cruise ships. In possibility A, how many resources are devoted to the production of aeroplanes?
E) It is impossible to tell without more information about the prices of aeroplanes and cruise ships.
Difficulty: Basic
Standard/Graduate Attribute AACSB: Reflective thinking
A-Head: 3.1 Production Possibilities
The table above gives four production possibilities for aeroplanes and cruise ships. In possibility A, how many resources are devoted to the production of cruise ships?
E) It is impossible to tell without more information about the prices of airplanes and cruise ships.
Difficulty: Basic
Standard/Graduate Attribute AACSB: Reflective thinking
A-Head: 3.1 Production Possibilities
8.. Assume that an association of young workers has lobbied the federal government to require that all workers retire once they reach the age of fifty. What impact would this law have on the nation's production possibilities frontier?
B) The level of unemployment would decrease so the production possibilities frontier would shift outward.
C) The number of young workers would increase so the production possibilities frontier would shift outward.
D) The nation would move to a new position on its production possibilities frontier but the frontier itself would not shift.
E) The production possibilities frontier would shift inward.
Difficulty: Basic
Standard/Graduate Attribute AACSB: Analytical thinking
A-Head: 3.1 Production Possibilities
9.. When all of the available factors of production are being efficiently employed, the
A) economy is producing at a point beyond its PPF.
B) economy is producing at a point on its PPF.
D) economy is producing at a point within its PPF.
E) opportunity cost of changing production is infinite.
Difficulty: Basic
Standard/Graduate Attribute AACSB: Reflective thinking
A-Head: 3.1 Production Possibilities
10. In the production possibilities frontier model, an unattainable point lies
A) only outside the production possibilities frontier.
B) both on and outside the production possibilities frontier.
C) only on the production possibilities frontier itself.
D) only inside the production possibilities frontier.
E) There are no unattainable points in the production possibilities model.
Difficulty: Basic
Standard/Graduate Attribute AACSB: Reflective thinking
A-Head: 3.1 Production Possibilities
11. When production efficiency does NOT occur,
i. an economy is producing at a point within its PPF.
ii. there are unemployed resources.
iii. allocative efficiency cannot occur.
Difficulty: Basic
Standard/Graduate Attribute AACSB: Reflective thinking
A-Head: 3.1 Production Possibilities
12. If a society moves from a period of time with significant unemployment to a time with full employment, its production possibilities frontier will
C) not shift because the society moves from one point on the frontier to a point outside the frontier.
D) not shift because the society moves from a point inside the frontier to a point on the frontier.
E) not shift because the society moves from one point on the frontier to a point inside the frontier.
Difficulty: Basic
Standard/Graduate Attribute AACSB: Analytical thinking
A-Head: 3.1 Production Possibilities
13. Suppose that an economy is currently producing at a point that lies inside of its production possibilities set. Which of the following would best explain this circumstance?
A) The prevailing level of technology prevents the economy from producing at a point closer to the frontier of the production possibilities set.
B) The economy is experiencing a high level of unemployment.
C) The economy does not have enough resources to produce at a point closer to the frontier of the production possibilities set.
D) Any of the above statements could explain this situation.
E) None of the above statements could explain this situation.
Difficulty: Basic
Standard/Graduate Attribute AACSB: Analytical thinking
A-Head: 3.1 Production Possibilities
14. Suppose a country operates on its production possibility frontier when it produces 1,000 books and 1,000 tables. The combination of ________ reflects ________.
A) 500 books and 500 tables; an attainable and efficient point.
B) 1,000 books and 1,000 tables; a free lunch.
C) 1,000 books and 1,500 tables; a free lunch.
D) 1,000 books and 500 tables; an efficient point.
E) 500 books and 1,000 tables; an inefficient but attainable point.
Difficulty: Basic
Standard/Graduate Attribute AACSB: Analytical thinking
A-Head: 3.1 Production Possibilities
The figure above shows the production possibilities frontier for a country. A combination of 4 million litres of milk and 4 million litres of ice cream is
B) attainable and production efficient.
C) attainable and production inefficient.
D) unattainable and production efficient.
E) More information is needed to determine if the point is attainable or not.
Difficulty: Basic
Standard/Graduate Attribute AACSB: Analytical thinking
A-Head:3.1 Production Possibilities
The figure above shows the production possibilities frontier for a country. A combination of 3 million litres of milk and 3 million litres of ice cream is
B) attainable and production efficient.
C) attainable and production inefficient.
D) unattainable and production efficient.
E) More information is needed to determine if the point is attainable or not.
Difficulty: Basic
Standard/Graduate Attribute AACSB: Analytical thinking
A-Head:3.1 Production Possibilities
The figure above shows the production possibilities frontier for a country. A combination of 2 million litres of milk and 2 million litres of ice cream is
B) attainable and production efficient.
C) attainable and production inefficient.
D) attainable but more than production efficient.
E) More information is needed to determine if the point is attainable or not.
Difficulty: Basic
Standard/Graduate Attribute AACSB: Analytical thinking
A-Head:3.1 Production Possibilities
Point D in the above PPF figure is
A) an attainable production combination with unemployed resources.
B) More information is needed to determine which of the above answers is correct.
C) a production combination that can be attained once resources are fully employed.
D) an unattainable production combination.
Difficulty: Basic
Standard/Graduate Attribute AACSB: Analytical thinking
A-Head:3.1 Production Possibilities
Which point in the figure above is an attainable combination that would have unemployed resources?
Difficulty: Basic
Standard/Graduate Attribute AACSB: Analytical thinking
A-Head:3.1 Production Possibilities
The figure above shows the production possibilities frontier for a country. In order for it to produce at point E, the
A) country would need to acquire more resources and/or more advanced technology.
B) country would need to use its resources more efficiently.
C) production of SUVs would need to decrease.
D) production of station wagons would need to decrease.
E) country would need to determine that station wagons and SUVs are equally important to it.
Difficulty: Basic
Standard/Graduate Attribute AACSB: Analytical thinking
A-Head:3.1 Production Possibilities
The figure above shows the production possibilities frontier for a country. If the country is producing at point D, then the
A) resources are not being used efficiently and/or are unemployed.
B) technology associated with producing SUVs and station wagons is advancing.
C) resources are being used efficiently.
D) production of SUVs and station wagons is maximised.
E) None of the above answers is correct because it is not possible to produce at point D.
Difficulty: Basic
Standard/Graduate Attribute AACSB: Analytical thinking
A-Head:3.1 Production Possibilities
22. In order for Ireland to grow more potatoes, wool production must decrease. This situation is an example of
D) producing at a point that lies beyond the PPF.
Difficulty: Basic
Standard/Graduate Attribute AACSB: Reflective thinking
A-Head:3.1 Production Possibilities
23. As we move along the production possibilities frontier,
A) the possibility of tradeoffs diminishes.
B) a tradeoff is not possible because nations need all goods.
C) the production of one good increases as the production of the other good decreases.
D) less of both goods can be produced.
E) more of both goods can be produced.
Difficulty: Basic
Standard/Graduate Attribute AACSB: Reflective thinking
A-Head:3.1 Production Possibilities
24. When a nation is producing on its production possibilities frontier, if more resources are used to produce one good, then the production of other goods
C) might increase if the nation can produce more efficiently.
E) must change, but it might increase or decrease.
Difficulty: Basic
Standard/Graduate Attribute AACSB: Reflective thinking
A-Head:3.1 Production Possibilities
25. The negative slope of the production possibilities frontier represents the idea
A) of tradeoffs, that, in order to produce more of one good, the nation must produce less of another.
B) that prices rise as less is produced.
E) that free lunches are possible.
Difficulty: Basic
Standard/Graduate Attribute AACSB: Reflective thinking
A-Head:3.1 Production Possibilities
26. The saying "There's no such thing as a free lunch" applies
A) to unattainable combinations of goods and services.
B) at all points inside the PPF.
C) on the production possibilities frontier.
D) when there is some unemployment.
E) when more of one good can be produced without decreasing production of another.
Difficulty: Basic
Standard/Graduate Attribute AACSB: Reflective thinking
A-Head:3.1 Production Possibilities
27. A movement from a point inside the production possibilities frontier to a point on the production possibilities frontier represents
A) full employment of labour but not capital.
B) an infinite opportunity cost.
E) unemployment of labour but not capital.
Difficulty: Basic
Standard/Graduate Attribute AACSB: Reflective thinking
A-Head:3.1 Production Possibilities
28. The production possibilities frontier is a graph showing the
A) resources available for the economy's production use.
B) minimum combinations of goods and services that can be produced.
C) exact point of greatest efficiency for producing goods and services.
D) maximum combinations of goods and services that can be produced.
E) tradeoff between free lunches.
Difficulty: Basic
Standard/Graduate Attribute AACSB: Reflective thinking
A-Head:3.1 Production Possibilities
29. During a time of high unemployment, a country can increase the production of one good or service
A) without decreasing the production of something else.
B) by using resources in the production process twice.
C) and must increase the production of something else.
D) but must decrease the production of something else.
E) but the opportunity cost is infinite.
Difficulty: Basic
Standard/Graduate Attribute AACSB: Reflective thinking
A-Head:3.1 Production Possibilities
30. Moving along the production possibilities frontier itself illustrates
A) the existence of unemployment of some factors of production.
B) the existence of tradeoffs.
C) the benefits of free lunches.
D) how tradeoffs need not occur if the economy is efficient.
E) how free lunches can be exploited through trade.
Difficulty: Basic
Standard/Graduate Attribute AACSB: Reflective thinking
A-Head:3.1 Production Possibilities
31. The production possibilities frontier illustrates which of the following economic ideas?
Difficulty: Basic
Standard/Graduate Attribute AACSB: Reflective thinking
A-Head:3.1 Production Possibilities
32. The opportunity cost of producing one more unit of a good is calculated by dividing the
A) total quantity of that good by the total quantity of other good.
B) total quantity of the other good by the total quantity of the good whose opportunity cost we're calculating.
C) price of the good whose opportunity cost we are calculating by the number of units of the other good that are forgone.
D) increase in the quantity of that good by the decrease in the quantity of other good.
E) decrease in the quantity of the other good by the increase in the quantity of the good whose opportunity cost we're calculating.
Difficulty: Basic
Standard/Graduate Attribute AACSB: Analytical thinking
A-Head:3.1 Production Possibilities
33. On a production possibilities frontier, 500 kilograms of apples and 1200 kilograms of bananas can be produced while, at another point on the same frontier, 300 kilograms of apples and 1300 kilograms of bananas can be produced. Between these points, what is the opportunity cost of producing a kilogram of bananas?
E) 12/5 = 2.4 kilograms of apples
Difficulty: Basic
Standard/Graduate Attribute AACSB: Analytical thinking
A-Head:3.1 Production Possibilities
34. On a production possibilities frontier, 500 kilograms of apples and 1200 kilograms of bananas can be produced while, at another point on the same frontier, 300 kilograms of apples and 1300 kilograms of bananas can be produced. Between these points, what is the opportunity cost of producing a kilogram of apples?
A) 0.5 of a kilogram of bananas
B) 5/12 of a kilogram of bananas
Difficulty: Basic
Standard/Graduate Attribute AACSB: Analytical thinking
A-Head:3.1 Production Possibilities
35. A country produces only apples and bananas. Moving from point A to point B along its production possibilities frontier, 5 apples are forgone and 4 bananas are gained. What is the opportunity cost of a banana?
E) None of the above answers is correct.
Difficulty: Basic
Standard/Graduate Attribute AACSB: Analytical thinking
36. A country produces only apples and bananas. Moving from point A to point B along its production possibilities frontier, 5 apples are gained and 4 bananas are forgone. What is the opportunity cost of an apple?
E) None of the above answers is correct.
Difficulty: Basic
Standard/Graduate Attribute AACSB: Analytical thinking
The table above shows a nation's production possibilities frontier. If the nation wants to produce 4 robots and 34 pizzas,
A) it will shift the production possibilities frontier.
B) it will be unable to do so because the production point is unattainable.
C) the opportunity cost is 9 pizzas.
D) the nation will then be producing at a production efficient point.
E) the nation will be producing inefficiently.
Difficulty: Basic
Standard/Graduate Attribute AACSB: Analytical thinking
The table above shows a nation's production possibilities frontier. If the nation chooses to increase the production of robots from 2 to 3 and it is on its PPF, it will have to forgo ________ pizzas.
E) None of the above answers is correct.
Difficulty: Basic
Standard/Graduate Attribute AACSB: Analytical thinking
The table above shows a nation's production possibilities frontier. The opportunity cost of a robot between combination D and E is
E) undefined because neither point is production efficient.
Difficulty: Basic
Standard/Graduate Attribute AACSB: Analytical thinking
The above figure shows the production possibility frontier for a country. Suppose the country is producing at point A. What is the opportunity cost of increasing the production of rice to 12 tonnes?
D) 15 thousand bottles of wine
E) Nothing, it is a free lunch.
Difficulty: Basic
Standard/Graduate Attribute AACSB: Analytical thinking
The above figure shows the production possibility frontier for a country. Suppose the country is producing at point D. What is the opportunity cost of increasing the production of rice to 15 tonnes?
C) 15 thousand bottles of wine
E) Nothing, it is a free lunch.
Difficulty: Basic
Standard/Graduate Attribute AACSB: Analytical thinking
The above figure shows the production possibility frontier for a country. What is the opportunity cost per tonne of rice to move from point B to point D?
E) None of the above answers is correct.
Difficulty: Basic
Standard/Graduate Attribute AACSB: Analytical thinking
43. The above figure shows the production possibility frontier for a country. What is the opportunity cost per tonne of rice to move from point D to E?
E) None of the above answers is correct.
Difficulty: Basic
Standard/Graduate Attribute AACSB: Analytical thinking
The above figure shows the production possibility frontier for a country. What is the opportunity cost to move from point D to point E?
C) 15 thousand bottles of wine
E) Nothing, it is a free lunch.
Difficulty: Basic
Standard/Graduate Attribute AACSB: Analytical thinking
45. Suppose that, in a PPF graph, wheat is on the vertical axis and jets are on the horizontal axis. Moving down along the PPF, the
A) number of jets increases and the opportunity cost of jets increases.
B) amount of wheat increases and the opportunity cost of wheat decreases.
C) number of jets increases and the opportunity cost of jets decreases.
D) amount of wheat increases and the opportunity cost of wheat increases.
E) opportunity cost of jets and wheat both increase.
Difficulty: Basic
Standard/Graduate Attribute AACSB: Reflective thinking
46. The bowed out (concave) shape of the production possibilities curve implies that, as production of one good
A) decreases, production of other goods decreases as well.
B) increases, society must forgo decreasing amounts of another good.
C) increases, society must forgo increasing amounts of another good.
D) increases, society can obtain a free lunch.
E) increases, production of other goods increases as well.
Difficulty: Basic
Standard/Graduate Attribute AACSB: Reflective thinking
47. A bowed out production possibilities frontier shows
A) that resources are equally productive in all uses.
B) increasing opportunity cost.
C) that resources are not equally productive in all uses.
D) Both answers B and C are correct.
E) Both answers A and B are correct.
Difficulty: Basic
Standard/Graduate Attribute AACSB: Reflective thinking
48. As an economy increasingly specialises in producing one good, the opportunity cost of that good increases. The opportunity cost increases because
A) as more of a good is produced the profit from its production must rise.
B) not all goods are equally valuable.
C) resources are not equally productive in all activities.
D) what must be paid to resources increases.
E) human wants are virtually unlimited.
Difficulty: Basic
Standard/Graduate Attribute AACSB: Reflective thinking
49. When a production possibilities frontier is bowed outward, as more of one good is produced, its opportunity cost
D) might increase, decrease or remain constant depending on how much people value the additional units of the good.
Difficulty: Basic
Standard/Graduate Attribute AACSB: Reflective thinking
50. If there is increasing opportunity cost, then, when moving downward on a production possibilities frontier, the opportunity cost of the good on the horizontal axis ________ as more of the good is produced.
A) decreases and the PPF gets flatter
B) increases and the PPF gets flatter
C) increases and the PPF gets steeper
D) does not change and the PPF gets steeper
E) decreases and the PPF gets steeper
Difficulty: Basic
Standard/Graduate Attribute AACSB: Analytical thinking
51. Why does a nation experience increasing opportunity cost?
A) As the nation moves from a production point within the PPF to another point also within the PPF, opportunity costs increase.
B) Because the nation cannot produce at the unattainable production points that lie beyond the PPF.
C) As the nation moves from a production point within the PPF to one on the PPF, opportunity costs increase.
D) Resources are not equally productive in producing different kinds of goods and services.
E) When the amount of resources increases, the opportunity cost of all goods and services increases.
Difficulty: Basic
Standard/Graduate Attribute AACSB: Reflective thinking
52. If the production possibilities frontier between two goods were a straight line, then the opportunity cost of one good in terms of another would be
E) either constant, increasing or decreasing, but more information is needed to determine which.
Difficulty: Basic
Standard/Graduate Attribute AACSB: Reflective thinking
53. If the production possibilities frontier between bottled water and water in a jug is a straight line, which of the following statements would be correct?
A) A large amount of unemployment must exist.
B) Producing more of one good gives the economy a free lunch.
C) There is no tradeoff between the two goods.
D) Resources are equally productive at producing either product.
E) There is no decrease in the production of one good when the production of the other is increased.
Difficulty: Basic
Standard/Graduate Attribute AACSB: Reflective thinking
54. The table above shows the production possibilities for an economy. Drawing a PPF with books on the vertical axis and bread on the horizontal axis, a movement from possibility B to possibility C to possibility D shows the opportunity cost of ________ moving down along the PPF.
B) books and bread are both increasing
Difficulty: Basic
Standard/Graduate Attribute AACSB: Analytical thinking
55. The table above shows the production possibilities for an economy. The opportunity cost of a loaf of bread is ________ when moving from possibility B to possibility C.
Difficulty: Basic
Standard/Graduate Attribute AACSB: Analytical thinking
The table above presents the production possibilities frontier for a nation. Using the information in the table, when moving from possibility C to D, the cost of 1 unit of a capital good in terms of the consumption goods forgone is ________ consumption goods per capital good.
Difficulty: Basic
Standard/Graduate Attribute AACSB: Analytical thinking
The figure above illustrates a small country's production possibilities frontier. Based on the figure, we can tell that the nation's resources are
A) equally productive in all tasks because the slope is negative.
B) unlimited because the slope is negative and the PPF is bowed out.
C) not equally productive in all tasks because the production possibilities frontier is bowed out.
D) not equally productive in all tasks because the slope is negative.
E) equally productive in all tasks because the production possibilities frontier is bowed out.
Difficulty: Basic
Standard/Graduate Attribute AACSB: Analytical thinking
The figure above illustrates a small country's production possibilities frontier. Moving from point A to point B, the per unit opportunity cost of a tablet is ________ per tablet.
Difficulty: Basic
Standard/Graduate Attribute AACSB: Analytical thinking
The figure above shows the production possibilities frontier for a country. In order for it to move from producing at point A to producing at point B, the country would need to
A) decrease station wagon production by 3 million.
B) decrease SUV production by 1 million.
C) decrease SUV production by 3 million.
D) decrease SUV production by 4 million.
E) acquire more resources and/or more advanced technology.
Difficulty: Basic
Standard/Graduate Attribute AACSB: Analytical thinking
The figure above shows the production possibilities frontier for a country. In order for it to move from producing at point A to producing at point B, the country would need to incur an opportunity cost of
E) 0 because the gain in compact cars exceeds the loss in SUVs.
Difficulty: Basic
Standard/Graduate Attribute AACSB: Analytical thinking
61. While moving on the production possibilities frontier, if the opportunity cost of producing one good is 1/2, the opportunity cost of producing the other good (in the same range) is
E) An amount that cannot be calculated without more information.
Difficulty: Basic
Standard/Graduate Attribute AACSB: Analytical thinking
62. Moving between two points on a PPF, a country gains 6 cars and forgoes 3 trucks. The opportunity cost of 1 car is
Difficulty: Basic
Standard/Graduate Attribute AACSB: Analytical thinking
63. A country produces only cans of soup and ballpoint pens. If the country produces on its bowed outward PPF and increases the production of cans of soup, the opportunity cost of additional
A) cans of soup is decreasing.
B) cans of soup remains unchanged.
C) cans of soup is increasing.
D) ballpoint pens is increasing.
E) More information is needed to determine what happens to the opportunity cost.
Difficulty: Basic
Standard/Graduate Attribute AACSB: Analytical thinking
64. Increasing opportunity cost exists
B) for a country but not for an individual.
C) inside the PPF but not on the PPF.
D) only in theory but not in real life.
E) as long as there is high unemployment.
Difficulty: Basic
Standard/Graduate Attribute AACSB: Reflective thinking
65. Which of the following is the best definition of economic growth?
A) The sustained expansion of production possibilities
B) The opportunity cost of consumption
C) Increased development of land and entrepreneurship
D) The opportunity cost of capital
E) The investment in capital and consumption goods by an economy
Difficulty: Basic
Standard/Graduate Attribute AACSB: Reflective thinking
66. Economic growth depends upon which of the following?
i. Increasing the quantity of labour
ii. Lowering the prices of goods and services
Difficulty: Basic
Standard/Graduate Attribute AACSB: Reflective thinking
A) the opportunity cost of production will increase.
C) the opportunity cost of production will approach 0.
E) its PPF does not shift; instead, the production point moves from inside the PPF to be closer to the PPF.
Difficulty: Basic
Standard/Graduate Attribute AACSB: Reflective thinking
68. The opportunity cost of economic growth is
A) a slower accumulation of human capital.
B) zero, because it means an expansion of production possibilities.
C) the decrease in the current production of productive factors.
D) the increase in the nation's capital stock and/or its technology.
E) the decrease in the current production of consumption goods.
Difficulty: Basic
Standard/Graduate Attribute AACSB: Reflective thinking
The above figure shows the PPF for a country that produces computers and computer factories. Which of the following would most likely shift the PPF from PPF0 in one year to PPF1 in the next?
A) Increase the production of computers from 9 million (at point C) to 11 million (at point B).
B) Increase consumption of both computers and computer factories.
C) Decrease production of both computers and computer factories by moving into the interior of the PPF.
D) Nothing, because the PPF does not shift.
E) Decrease the production of computers from 11 million (at point B) to 9 million (at point C) and build 9 new computer factories.
Difficulty: Basic
Standard/Graduate Attribute AACSB: Analytical thinking
The above figure shows the PPF for a country that produces computers and computer factories. The nation's production possibilities frontier is PPF0. At which of the following production points would the economy grow most rapidly?
D) It makes no difference among the three points because they are all production efficient.
E) More information is needed to answer the question.
Difficulty: Basic
Standard/Graduate Attribute AACSB: Analytical thinking
Suppose India and France have the same PPF, shown in the figure above. Based on their current production points, which is India's most likely future PPF?
E) None of the above because economic growth will not happen in India.
Difficulty: Basic
Standard/Graduate Attribute AACSB: Analytical thinking
Suppose India and France have the same PPF, shown in the figure above. Based on their current production points, which is France's most likely future PPF?
E) None of the above because economic growth will not happen in India.
Difficulty: Basic
Standard/Graduate Attribute AACSB: Analytical thinking
Suppose that Germany, France, Estonia and India all have the same production possibilities, illustrated in the figure above. Based on the production points in the figure, which country is most likely to expand its PPF to PPF3?
Difficulty: Basic
Standard/Graduate Attribute AACSB: Analytical thinking
Suppose that Germany, France, Estonia and India all have the same production possibilities, illustrated in the figure above. Based on the production points in the figure, which country is most likely to expand its PPF to PPF1?
Difficulty: Basic
Standard/Graduate Attribute AACSB: Analytical thinking
75. To increase its economic growth, a nation should
A) increase current consumption.
B) encourage spending on goods and services.
C) encourage education because that increases the quality of labour.
D) limit the number of people in college because they produce nothing.
E) eliminate expenditure on capital goods.
Difficulty: Basic
Standard/Graduate Attribute AACSB: Reflective thinking
76. If a nation devotes a larger share of its current production to consumption goods, then
A) it must produce at a point within its PPF.
C) its PPF will shift outward.
D) some productive factors will become unemployed.
E) its economic growth will slow down.
Difficulty: Basic
Standard/Graduate Attribute AACSB: Reflective thinking
77. If Wendy can produce more of all goods than Tommy in an hour, then
A) Wendy has a comparative advantage in all goods.
B) Tommy has an absolute advantage in all goods.
C) Only Tommy but not Wendy can benefit from trade between the two of them.
D) Wendy does not need to trade with Tommy in order to achieve the gains from trade.
E) Wendy has an absolute advantage in all goods.
Difficulty: Basic
Standard/Graduate Attribute AACSB: Reflective thinking
A-Head: 3.4 Specialisation and Trade
78. When Mike has an absolute advantage in the production of two goods over Tommy, Mike
A) is better off if he does not engage in specialisation and trade with Tommy.
B) is more productive in producing both goods than Tommy.
C) is less productive than Tommy.
D) cannot gain from trade with Tommy.
E) always has a comparative advantage over Tommy in the production of both goods.
Difficulty: Basic
Standard/Graduate Attribute AACSB: Reflective thinking
A-Head:3.4 Specialisation and Trade
79. If John can produce 10 chairs or 20 lamps during a week, while Mary can produce 12 chairs or 22 lamps in the same time, who has the absolute advantage in producing each good?
A) John in producing both goods
B) John in producing chairs, Mary in producing lamps
C) Mary in producing both goods
D) Mary in producing chairs, John in producing lamps
E) Both Mary and John in both goods
Difficulty: Basic
Standard/Graduate Attribute AACSB: Analytical thinking
A-Head:3.4 Specialisation and Trade
80. Hank requires 1 hour to cut the grass and 3 hours to clean the house. His sister Holly requires 1 hour to cut the grass and 4 hours to clean the house. Which of the following statements is true?
A) Hank has a lower opportunity cost of cutting the grass.
B) Holly has a comparative advantage in cutting the grass.
C) Hank has a comparative advantage in both cutting the grass and cleaning the house.
D) Hank has an absolute advantage in both cutting the grass and cleaning the house.
E) Hank and Holly both have a comparative advantage in cutting the grass.
Difficulty: Basic
Standard/Graduate Attribute AACSB: Analytical thinking
A-Head:3.4 Specialisation and Trade
In the table above, how many jackets must Mary forgo for every dress she makes?
Difficulty: Basic
Standard/Graduate Attribute AACSB: Analytical thinking
A-Head:3.4 Specialisation and Trade
In the table above, how many jackets must Mark forgo for every dress he makes?
Difficulty: Basic
Standard/Graduate Attribute AACSB: Analytical thinking
A-Head:3.4 Specialisation and Trade
83. Having a comparative advantage means a nation can
A) produce the good at a point beyond its PPF.
C) produce at a higher opportunity cost.
E) produce without incurring an opportunity cost.
Difficulty: Basic
Standard/Graduate Attribute AACSB:Reflective thinking
A-Head:3.4 Specialisation and Trade
84.When a person has a comparative advantage in producing a good or service, the person has
A) a higher opportunity cost in producing that product than someone else.
B) an increasing marginal benefit in producing the good.
C) a decreasing opportunity cost in producing that product.
D) a constant opportunity cost in producing that product.
E) a lower opportunity cost in producing that product than someone else.
Difficulty: Basic
Standard/Graduate Attribute AACSB:Reflective thinking
A-Head:3.4 Specialisation and Trade
85. John can make pizza at a lower opportunity cost than Allen, but Allen can make more pizzas per day than John. Therefore,
A) John has a comparative advantage in pizza.
B) John has an absolute advantage in pizza.
C) John cannot benefit from trade with Allen.
D) Allen has a comparative advantage in pizza.
E) Allen cannot benefit from trade with John.
Difficulty: Basic
Standard/Graduate Attribute AACSB:Reflective thinking
A-Head:3.4 Specialisation and Trade
86. When one person's opportunity cost of producing a good is lower than another person's opportunity cost of producing the same good, it is called
Difficulty: Basic
Standard/Graduate Attribute AACSB:Reflective thinking
A-Head:3.4 Specialisation and Trade
87. For country Gamma, the opportunity cost for producing 1 computer is 10 tonnes of steel. For country Beta, the opportunity cost for producing 1 computer is 6 tonnes of steel. Which country has the comparative advantage in the production of steel?
C) Both have the comparative advantage in the production of steel.
D) Neither country has the comparative advantage in the production of steel.
E) More information is needed to determine which of the two nations has the comparative advantage.
Difficulty: Basic
Standard/Graduate Attribute AACSB: Analytical thinking
A-Head:3.4 Specialisation and Trade
88. If Country A can produce an extra plane by giving up two boats, and Country B can produce an extra plane by giving up three boats, then
A) Country A would like to trade with B, but B cannot gain by trading with A.
B) Country A has an absolute advantage in producing planes and a comparative advantage in producing boats.
C) Country A has a comparative advantage over Country B in the production of planes.
D) the two countries have no incentive to trade with one another.
E) Country B has a comparative advantage over Country A in the production of planes.
Difficulty: Basic
Standard/Graduate Attribute AACSB: Analytical thinking
A-Head:3.4 Specialisation and Trade
89. Rika's opportunity cost of producing 100 t-shirts is 50 jackets. Jeff's opportunity cost of producing 75 t-shirts is 25 jackets. Who should specialise in jackets?
E) More information is needed about their production possibilities frontiers to determine who should specialise in jackets.
Difficulty: Basic
Standard/Graduate Attribute AACSB: Analytical thinking
A-Head:3.4 Specialisation and Trade
Huey and Steve can grow potatoes or tomatoes. The table above shows the kilograms of potatoes and tomatoes Huey and Steve can grow in a week. Based on the table, Huey's opportunity cost of producing one kilogram of tomatoes is
A) 0.66 kilograms of potatoes.
B) 0, because he has a comparative advantage in it.
C) 0, because he has an absolute advantage in it.
Difficulty: Basic
Standard/Graduate Attribute AACSB: Analytical thinking
A-Head:3.4 Specialisation and Trade
Huey and Steve can grow potatoes or tomatoes. The table above shows the kilograms of potatoes and tomatoes Huey and Steve can grow in a week. Based on the table, Steve has a comparative advantage in
A) both potatoes and tomatoes.
D) neither potatoes nor tomatoes.
E) More information is needed about Huey's comparative advantage in order to determine Steve's comparative advantage.
Difficulty: Basic
Standard/Graduate Attribute AACSB: Analytical thinking
A-Head:3.4 Specialisation and Trade
In the table above, Jack's opportunity cost for 1 kilogram of food is ________ and his opportunity cost for 1 kilogram of clothing is ________.
A) 1 kilogram of clothing; 4 kilograms of food
B) 1/2 of a kilogram of clothing; 2 kilograms of food
C) 1/3 of a kilogram of clothing; 3 kilograms of food
D) 1 kilogram of food; 1 kilogram of clothing
E) 2 kilograms of clothing; 2 kilograms of food
Difficulty: Basic
Standard/Graduate Attribute AACSB: Analytical thinking
A-Head:3.4 Specialisation and Trade
In the table above, Jill's opportunity cost for 1 kilogram of food is ________ and her opportunity cost for 1 kilogram of clothing is ________.
A) 1/2 of a kilogram of clothing; 2 kilograms of food
B) 1 kilogram of food; 1 kilogram of clothing
C) 1 kilogram of clothing; 4 kilograms of food
D) 2 kilograms of clothing; 2 kilograms of food
E) 1/3 of a kilogram of clothing; 3 kilograms of food
Difficulty: Basic
Standard/Graduate Attribute AACSB: Analytical thinking
A-Head:3.4 Specialisation and Trade
Deb and Pete have volunteered to help their favourite charity mail out fundraiser information. The figure above shows their production possibilities frontiers for assembling packets and stuffing envelopes. If Deb spends all her time assembling packets, how many can she assemble?
Difficulty: Basic
Standard/Graduate Attribute AACSB: Analytical thinking
A-Head:3.4 Specialisation and Trade
Deb and Pete have volunteered to help their favourite charity mail out fundraiser information. The figure above shows their production possibilities frontiers for assembling packets and stuffing envelopes. What is Deb's opportunity cost of assembling 1 packet?
Difficulty: Basic
Standard/Graduate Attribute AACSB: Analytical thinking
A-Head:3.4 Specialisation and Trade
In the above figure, Jack's opportunity cost of producing 1 litre of soft drink is ________ of bottled water.
Difficulty: Basic
Standard/Graduate Attribute AACSB: Analytical thinking
A-Head:3.4 Specialisation and Trade
In the above figure, Jack's opportunity cost of producing 1 litre of bottled water is ________ of soft drink.
Difficulty: Basic
Standard/Graduate Attribute AACSB: Analytical thinking
A-Head:3.4 Specialisation and Trade
Using the figure above, if Jack and Jill specialise and gain from trade, then
A) Jack specialises in the production of soft drink.
B) Jack specialises in the production of bottled water.
C) Jack specialises on the production of soft drink and water.
D) Jack and Jill produce beyond their PPF.
E) Jack produces equal amounts of water and bottled water.
Difficulty: Basic
Standard/Graduate Attribute AACSB: Analytical thinking
A-Head:3.4 Specialisation and Trade
The figure above shows the production possibilities frontiers for the United Kingdom and France. What is the opportunity cost of one bushel of wheat in France?
Difficulty: Basic
Standard/Graduate Attribute AACSB: Analytical thinking
A-Head:3.4 Specialisation and Trade
The figure above shows the production possibilities frontiers for the United Kingdom and France. What is the opportunity cost of one tonne of wheat for the United Kingdom?
Difficulty: Basic
Standard/Graduate Attribute AACSB: Analytical thinking
A-Head:3.4 Specialisation and Trade
101. What is gained when people engage in specialisation and trade?
A) There are no gains from specialisation and trade.
B) Specialisation and trade allow people to consume outside their individual production possibilities frontiers.
C) Specialisation and trade allow people to consume at a point on their production possibilities frontiers.
D) Specialisation and trade allow people to consume inside their production possibilities frontiers.
E) Specialisation and trade allow people to produce outside their individual production possibilities frontiers.
Difficulty: Basic
Standard/Graduate Attribute AACSB: Reflective thinking
A-Head:3.4 Specialisation and Trade
102. To achieve gains from trade, a country
A) specialises in producing a good in which it has a lower opportunity cost.
B) must produce at a point beyond its PPF.
C) needs to have an absolute advantage in the production of at least one good.
D) should produce at the midpoint of its PPF.
E) needs to have an absolute advantage in the production of all goods.
Difficulty: Basic
Standard/Graduate Attribute AACSB: Reflective thinking
A-Head:3.4 Specialisation and Trade
103. Specialisation and trade make a country better off because, with trade, the country can consume at a point
A) outside its production possibilities frontier.
B) inside its trading partner's production possibilities frontier.
C) inside its production possibilities frontier.
D) on its trading partner's production possibilities frontier.
E) on its production possibilities frontier.
Difficulty: Basic
Standard/Graduate Attribute AACSB: Reflective thinking
A-Head:3.4 Specialisation and Trade
104. In terms of a nation's production possibilities frontier, what impact does international trade have?
A) International trade shifts the production possibilities frontier outward for the goods that are exported and inward for the goods that are imported.
B) International trade shifts the nation's production possibilities frontier outward.
C) International trade shifts the nation's production possibilities frontier inward.
D) International trade shifts the production possibilities frontier outward for the goods that are imported and inward for the goods that are exported.
E) International trade allows the nation to consume at a point outside its production possibilities frontier.
Difficulty: Basic
Standard/Graduate Attribute AACSB: Reflective thinking
A-Head:3.4 Specialisation and Trade
105. The gains from trade include
i. lower prices from competition.
ii. greater output from specialisation.
iii. greater variety of goods and services available.
Difficulty: Basic
Standard/Graduate Attribute AACSB: Reflective thinking
A-Head:3.4 Specialisation and Trade
106. In one hour John can produce 20 loaves of bread or 8 cakes. In one hour Phyllis can produce 30 loaves of bread or 15 cakes. Which of the following statements is true?
A) Phyllis has an absolute advantage in both goods.
B) Phyllis has a comparative advantage in producing both cakes and bread.
C) John has an absolute advantage in both goods.
D) John has a comparative advantage in producing cakes.
E) Phyllis has a comparative advantage in producing bread.
Difficulty: Basic
Standard/Graduate Attribute AACSB: Analytical thinking
A-Head:3.4 Specialisation and Trade
107. Scott and Cindy both produce only pizza and tacos. In one hour, Scott can produce 20 pizzas or 40 tacos. In one hour, Cindy can produce 30 pizzas or 40 tacos. Scott's opportunity cost of producing 1 taco is
Difficulty: Basic
Standard/Graduate Attribute AACSB: Analytical thinking
A-Head:3.4 Specialisation and Trade
108. Scott and Cindy both produce only pizza and tacos. In one hour, Scott can produce 20 pizzas or 40 tacos. In one hour, Cindy can produce 30 pizzas or 40 tacos. Based on these data,
A) Cindy has a comparative advantage in producing tacos.
B) Scott has a comparative advantage in producing tacos.
C) neither Cindy nor Scott has a comparative advantage in producing tacos.
D) Cindy and Scott have the same comparative advantage in producing tacos.
E) Cindy and Scott have the same comparative advantage in producing pizzas.
Difficulty: Basic
Standard/Graduate Attribute AACSB: Analytical thinking
A-Head:3.4 Specialisation and Trade
109. Comparative advantage is directly related to which of the following concepts?
Difficulty: Basic
Standard/Graduate Attribute AACSB: Reflective thinking
A-Head:3.4 Specialisation and Trade
110. If workers in Mexico produce fewer goods and services per hour than workers in the United States in all areas of production, then
A) the United States will benefit from trade with Mexico but Mexico will not.
B) both the United States and Mexico will benefit from trade with the other.
C) neither Mexico nor the United States will benefit from trade with the other.
D) Mexico will benefit from trade with the United States but the United States will not.
E) it is unknown whether either country can benefit from trade with the other.
Difficulty: Basic
Standard/Graduate Attribute AACSB: Reflective thinking
Document Information
Connected Book
Microeconomics Australia 2e Complete Test Bank
By Michael Parkin, Robin Bade