Microeconomics: Canada in the Global Environment, 10th Edition Test Bank

Microeconomics: Canada in the Global Environment, 10e (Parkin) 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. Answer: A Diff: 1 Type: MC Topic: Production Possibilities and Opportunity Cost 2) Which one of the following concepts is not illustrated by a production possibilities frontier? A) scarcity B) marginal benefit C) opportunity cost D) attainable and unattainable points E) the tradeoff between producing one good versus another Answer: B Diff: 2 Type: MC Topic: Production Possibilities and Opportunity Cost 3) A point inside a production possibilities frontier A) indicates some wasted 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. Answer: A Diff: 1 Type: MC Topic: Production Possibilities and Opportunity Cost 4) Which one of the following concepts is illustrated by a production possibilities frontier? A) profit B) consumption C) investment D) property rights E) tradeoff Answer: E Diff: 1 Type: MC Topic: Production Possibilities and Opportunity Cost 77 Copyright © 2019 Pearson Canada Inc. 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. Answer: A Diff: 2 Type: MC Topic: Production Possibilities and Opportunity Cost 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. Answer: E Diff: 2 Type: MC Topic: Production Possibilities and Opportunity Cost 78 Copyright © 2019 Pearson Canada Inc. 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 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) Although no more of good X can be produced, more of good Y can be produced. Answer: D Diff: 1 Type: MC Topic: Production Possibilities and Opportunity Cost 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. Answer: B Diff: 2 Type: MC Topic: Production Possibilities and Opportunity Cost 79 Copyright © 2019 Pearson Canada Inc. 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 efficient and attainable. B) It is unattainable. C) It is attainable and inefficient. D) It is attainable only if the opportunity cost of producing X increases. E) It is attainable only if the opportunity cost of producing X decreases. Answer: B Diff: 2 Type: MC Topic: Production Possibilities and Opportunity Cost 10) If Harold can increase production of good X without decreasing production of any other good, then Harold A) is producing on his production possibilities frontier. B) is producing outside his production possibilities frontier. C) is producing inside his production possibilities frontier. D) has a linear production possibilities frontier. E) prefers good X to any other good. Answer: C Diff: 2 Type: MC Topic: Production Possibilities and Opportunity Cost 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) is producing outside his production possibilities frontier. C) is producing inside his production possibilities frontier. D) prefers good X to any other good. E) has a linear production possibilities frontier. Answer: A Diff: 1 Type: MC Topic: Production Possibilities and Opportunity Cost 12) A situation in which resources are either wasted or misallocated or both is illustrated by A) any point on either the horizontal or the vertical axis. B) a pointabove or to the right of the production possibilities frontier. C) a point outside the production possibilities frontier. D) a point inside the production possibilities frontier. E) a point on or inside the production possibilities frontier. Answer: D Diff: 1 Type: MC Topic: Production Possibilities and Opportunity Cost 80 Copyright © 2019 Pearson Canada Inc. 13) A production possibilities frontier is negatively sloped because A) the quantity of a good purchased decreases as its price falls. B) opportunity cost of production increases as more of a good is produced. C) some resources are misallocated. D) there is too little capital in the economy. E) opportunity cost of production decreases as more of a good is produced. Answer: B Diff: 2 Type: MC Topic: Production Possibilities and Opportunity Cost 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) monetary cost B) absolute cost C) opportunity cost D) discretionary cost E) comparative cost Answer: C Diff: 1 Type: MC Topic: Production Possibilities and Opportunity Cost 15) Opportunity cost of an action is A) the best choice that can be made. B) the highest-valued alternative forgone. C) the money cost. D) the comparative cost. E) the absolute cost. Answer: B Diff: 1 Type: MC Topic: Production Possibilities and Opportunity Cost 16) On a graph of a production possibilities frontier, opportunity cost is represented by A) a point on the horizontal axis. B) a point on the vertical axis. C) a ray through the origin. D) the slope of the production possibilities frontier. E) the x-axis intercept. Answer: D Diff: 2 Type: MC Topic: Production Possibilities and Opportunity Cost 81 Copyright © 2019 Pearson Canada Inc. 17) Production efficiency is achieved when A) the production possibilities frontier shifts outward at a constant pace. B) there are no tradeoffs. C) all resources are equally productive in all activities. D) resources are not equally productive in all activities. E) we produce goods and services at the lowest possible cost. Answer: E Diff: 2 Type: MC Topic: Production Possibilities and Opportunity Cost 18) A tradeoff exists when A) we move from a point inside the PPF to a point on the PPF. B) we move from a point on the PPF to a point within the PPF. C) the PPF shifts outward. D) we move along the PPF. E) the PPF shifts inward. Answer: D Diff: 2 Type: MC Topic: Production Possibilities and Opportunity Cost 19) Which of the following quotations best illustrates a tradeoff? A) “If the firm reorganized its production process, it could produce more widgets and more gadgets.” B) “The firm should sell more gadgets, even if it means hiring more workers.” C) “The more and more gadgets the firm produces, the bigger the fall in widget production.” D) “If the firm invests more in capital equipment, it can expand sales next year.” E) “The firm has been able to lower costs due to its extensive experience in building widgets.” Answer: C Diff: 2 Type: MC Topic: Production Possibilities and Opportunity Cost 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) decreasing opportunity cost. C) constant opportunity cost. D) zero opportunity cost. E) infinite opportunity cost. Answer: C Diff: 2 Type: MC Topic: Production Possibilities and Opportunity Cost 82 Copyright © 2019 Pearson Canada Inc. 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 one more unit of medical services is A) 2 units of administrative services. B) 5 units of administrative services. C) 0.4 units of administrative services. D) 2.5 units of administrative services. E) 1 unit of medical services. Answer: D Diff: 2 Type: MC Topic: Production Possibilities and Opportunity Cost 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 decides to produce 10 units of medical services and 30 units of administrative services. This output level is A) efficient. B) unattainable. C) inefficient. D) on the clinic’s PPF. E) attainable if each worker specializes in one service. Answer: B Diff: 2 Type: MC Topic: Production Possibilities and Opportunity Cost 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 decides to produce 16 units of medical services and 5 units of administrative services. This output level is A) efficient. B) unattainable. C) inefficient. D) on the clinic’s PPF. E) attainable and efficient. Answer: C Diff: 2 Type: MC Topic: Production Possibilities and Opportunity Cost 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) technological change. D) increasing opportunity cost. E) decreasing opportunity cost. Answer: D Diff: 2 Type: MC Topic: Production Possibilities and Opportunity Cost 83 Copyright © 2019 Pearson Canada Inc. 25) If opportunity costs are increasing, then the production possibilities frontier is A) bowed outward with a positive slope. B) a positively sloped straight line. C) a negatively sloped straight line. D) bowed outward with a negative slope. E) a vertical line. Answer: D Diff: 1 Type: MC Topic: Production Possibilities and Opportunity Cost 26) The fact that resources are not equally productive in all activities A) implies that a production possibilities frontier will be bowed outward. B) implies that gains from specialization and trade are unlikely. C) follows from the law of demand. D) implies a linear production possibilities frontier. E) implies that an economy should not produce certain goods. Answer: A Diff: 2 Type: MC Topic: Production Possibilities and Opportunity Cost 27) If additional units of any good can be produced at a constant opportunity cost, the production possibilities frontier is A) bowed inward and negatively sloped. B) bowed outward and negatively sloped. C) positively sloped and linear. D) horizontal. E) linear and negatively sloped. Answer: E Diff: 2 Type: MC Topic: Production Possibilities and Opportunity Cost 28) The existence of increasing opportunity cost A) explains why specialization is frequently useful. B) explains why resources are scarce. C) explains the bowed-out shape of the production possibilities frontier. D) follows from the existence of property rights. E) explains why some societies produce inside their production possibilities frontier. Answer: C Diff: 2 Type: MC Topic: Production Possibilities and Opportunity Cost 84 Copyright © 2019 Pearson Canada Inc. 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) 40 units of Y cannot be produced unless production of X is decreased. B) 40 units of Y cannot be produced unless production of X is increased. C) 60 units of Y can be produced with some resources not fully used. D) 50 units of Y must be produced, regardless of resource utilization. E) 50 units of Y can be produced if all resources are used and assigned to the task for which they are the best match. Answer: E Diff: 1 Type: MC Topic: Production Possibilities and Opportunity Cost 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 can be produced if all resources are used and assigned to the task for which they are the best match. 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) resources are not being fully utilized. E) 6 units of X are being produced. Answer: B Diff: 1 Type: MC Topic: Production Possibilities and Opportunity Cost 85 Copyright © 2019 Pearson Canada Inc. 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) 30 units of Y. B) 3 units of X. C) 20 units of Y. D) 10 units of Y. E) zero units of Y. Answer: C Diff: 2 Type: MC Topic: Production Possibilities and Opportunity Cost 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) 10 units of Y. B) 80 units of Y. C) 2 units of X. D) 3 units of X. E) 1 unit of X. Answer: D Diff: 2 Type: MC Topic: Production Possibilities and Opportunity Cost 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 Y. B) 1 unit of X. C) 8 units of X. D) 20 units of X. E) 20 units of Y. Answer: E Diff: 2 Type: MC Topic: Production Possibilities and Opportunity Cost 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) 6 units of X B) 2 units of X C) 8 units of X D) 20 units of Y E) 30 units of Y Answer: B Diff: 2 Type: MC Topic: Production Possibilities and Opportunity Cost 86 Copyright © 2019 Pearson Canada Inc. 35) Consider the production possibilities frontier in Figure 2.1.2. Which of the following statements is false? A) Resources are not equally useful in the production of X and Y. B) Points inside the production possibilities frontier indicate wasted or misallocated resources. C) Production at point A shifts the production possibilities frontier outward. D) The opportunity cost of producing Y increases as production of Y increases. E) The opportunity cost of producing X increases as production of X increases. Answer: C Diff: 2 Type: MC Topic: Production Possibilities and Opportunity Cost 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) This illustrates increasing opportunity cost. B) As a result, we should not specialize in the production of X. C) The production possibilities frontier for X and Y is a straight line. D) Good Y will be more highly regarded by consumers than good X. E) We must be producing inside the production possibilities frontier. Answer: A Diff: 2 Type: MC Topic: Production Possibilities and Opportunity Cost 87 Copyright © 2019 Pearson Canada Inc. 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) improve technology. B) increase capital. C) give up some of good X to obtain more of good Y. D) give up some of good Y to obtain more of good X. E) pay more for her factors of production. Answer: D Diff: 1 Type: MC Topic: Production Possibilities and Opportunity Cost 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) improve technology. B) increase capital. C) give up some of good X to obtain more of good Y. D) give up some of good Y to obtain more of good X. E) hire more workers. Answer: C Diff: 1 Type: MC Topic: Production Possibilities and Opportunity Cost 88 Copyright © 2019 Pearson Canada Inc. 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 from D to C but less than moving from B to A. B) less than moving from D to C but greater than moving from B to A. C) the sameas moving from D to C or moving from B to A. D) greater than moving either from D to C or from B to A. E) less than moving from E to D. Answer: A Diff: 2 Type: MC Topic: Production Possibilities and Opportunity Cost 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. 40) Refer to Table 2.1.1. What is true at point C? A) If 8 units of X are produced, then at least 28 units of Y can be produced. B) If 8 units of X are produced, then at most 28 units of Y can be produced. C) If 28 units of Y are produced, then more than 8 units of X can be produced. D) If 8 units of X are produced, then only 36 units of Y can be produced. E) Some resources are unemployed. Answer: B Diff: 1 Type: MC Topic: Production Possibilities and Opportunity Cost 41) Refer to Table 2.1.1. The opportunity cost of increasing the production of X from 8 to 12 units is A) 4 units of X. B) 4 units of Y. C) 8 units of Y. D) 12 units of Y. E) 16 units of Y. Answer: D Diff: 2 Type: MC Topic: Production Possibilities and Opportunity Cost 89 Copyright © 2019 Pearson Canada Inc. 42) Refer to Table 2.1.1. The opportunity cost of increasing the production of Y from 16 to 36 units is A) 4 units of X. B) 8 units of X. C) 12 units of X. D) 16 units of X. E) 20 units of Y. Answer: B Diff: 2 Type: MC Topic: Production Possibilities and Opportunity Cost 43) The economy illustrated by the data in Table 2.1.1 exhibits A) decreasing opportunity cost. B) constant opportunity cost in the production of X. C) constant opportunity cost in the production of Y. D) increasing opportunity cost. E) initially increasing, then decreasing opportunity cost. Answer: D Diff: 2 Type: MC Topic: Production Possibilities and Opportunity Cost 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) attainable but leaves some resources wasted or misallocated or both. C) on the PPF between points C and D. D) on the PPF between points B and C. E) outside the PPF. Answer: B Diff: 1 Type: MC Topic: Production Possibilities and Opportunity Cost 45) Refer to Table 2.1.1. As the production of X increases, A) the opportunity cost of each additional unit of X produced decreases. B) the production of Y increases. C) the opportunity cost of each additional unit of X produced increases. D) unemployment increases. E) the amount of X produced increases at an increasing rate. Answer: C Diff: 1 Type: MC Topic: Production Possibilities and Opportunity Cost 90 Copyright © 2019 Pearson Canada Inc. 46) The data in Table 2.1.1 illustrate that A) the producer has a comparative advantage in the production of Y. B) the producer has a comparative advantage in the production of X. C) the opportunity cost of producing an additional unit of Y increases as the production of Y increases. D) the opportunity cost of producing an additional unit of Y decreases as the production of Y increases. E) the opportunity cost of producing an additional unit of Y is constant as the production of X increases. Answer: C Diff: 2 Type: MC Topic: Production Possibilities and Opportunity Cost 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) negatively sloped and bowed outward. D) positively sloped and linear. E) positively sloped and bowed outward. Answer: C Diff: 2 Type: MC Topic: Production Possibilities and Opportunity Cost 48) From the data in Table 2.1.1, the production of 10 units of X and 28 units of Y is A) unattainable. B) attainable but leaves some resources misallocated. C) on the production possibilities frontier between points C and D. D) inside the PPF. E) attainable but inefficient. Answer: A Diff: 2 Type: MC Topic: Production Possibilities and Opportunity Cost 91 Copyright © 2019 Pearson Canada Inc. Use the table below to answer the following questions. Table 2.1.2 Production Possibilities 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) 2 kilograms of butter. B) 1/2 kilogram of butter. C) 6 kilograms of butter. D) 1/6 kilogram of butter. E) 3 kilograms of butter. Answer: E Diff: 3 Type: MC Topic: Production Possibilities and Opportunity Cost 50) Refer to Table 2.1.2. According to this production possibilities frontier, A) a combination of 6 kilograms of butter and 1 snowshoe is inefficient. B) a combination of 0 kilograms of butter and 4 snowshoes is attainable. C) resources are equally useful in all activities. D) the opportunity cost of producing snowshoes increases as more snowshoes are produced. E) the opportunity cost of producing snowshoes decreases as more snowshoes are produced. Answer: D Diff: 1 Type: MC Topic: Production Possibilities and Opportunity Cost 92 Copyright © 2019 Pearson Canada Inc. 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 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) 2 maple leaves. B) 1/2 maple leaves. C) 6 maple leaves. D) 1/6 maple leaves. E) 3 maple leaves. Answer: E Diff: 2 Type: MC Topic: Production Possibilities and Opportunity Cost Use the table below to answer the following question. Table 2.1.4 Consider the following production possibilities for a student for the typical week: 52) Refer to Table 2.1.4. Complete the following sentence. The production possibilities frontier in the table shows A) increasing opportunity cost. B) learning-by-doing. C) constant opportunity cost. D) under-utilization of resources. E) decreasing opportunity cost. Answer: A Diff: 2 Type: MC Topic: Production Possibilities and Opportunity Cost 93 Copyright © 2019 Pearson Canada Inc. 53) The slope of the production possibilities frontier curve measures A) opportunity cost of producing the good measured on the x-axis. B) comparative advantage. C) absolute advantage. D) marginal benefit from the good measured on the y-axis. E) preferences for the goods measured on both axes. Answer: A Diff: 2 Type: MC Topic: Production Possibilities and Opportunity Cost 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 Diff: 1 Type: MC Topic: Production Possibilities and Opportunity Cost 94 Copyright © 2019 Pearson Canada Inc. 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 of sunscreen. A) an increasing; a decreasing B) a constant; a constant C) a decreasing; an increasing D) an increasing; an increasing E) a decreasing; a decreasing Answer: B Diff: 1 Type: MC Topic: Production Possibilities and Opportunity Cost Source: MyLab Economics 95 Copyright © 2019 Pearson Canada Inc. 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) unattainable; attainable. B) attainable; unattainable. C) unattainable; unattainable. D) attainable; attainable. E) inefficient; efficient Answer: B Diff: 1 Type: MC Topic: Production Possibilities and Opportunity Cost Source: MyLab Economics 57) Figure 2.1.6 shows the production possibilities frontier for a firm that produces pet food. This PPF ________ illustrate scarcity because ________. A) 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 B) does not; the firm can produce any quantity it wants if it is willing to charge a high enough price C) does not; the PPF is downward sloping D) does; as more is produced, consumers must pay a higher price E) does not; scarcity does not occur in the market for pet food Answer: A Diff: 1 Type: MC Topic: Production Possibilities and Opportunity Cost 96 Copyright © 2019 Pearson Canada Inc. 58) When producing at a point of production efficiency, A) the quantity of goods produced can be either on or inside the production possibilities frontier. B) all wants are satisfied. C) the opportunity cost of producing goods other than those measured on the axes of the production possibilities frontier is zero. D) a tradeoff occurs. E) resources are either wasted or misallocated. Answer: D Diff: 1 Type: MC Topic: Production Possibilities and Opportunity Cost 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) the world PPF shifts outward. E) her PPF does not change. Answer: E Diff: 1 Type: MC Topic: Production Possibilities and Opportunity Cost 60) The production possibilities frontier is A) upward sloping and illustrates a tradeoff in production of the good measured on the x-axis and the good measured on the y-axis. B) downward sloping and illustrates a tradeoff in production of the good measured on the x-axis and the good measured on the y-axis. C) upward sloping and a movement along the PPF illustrates a free lunch. D) downward sloping and a movement along the PPF illustrates a free lunch. E) downward sloping and illustrates the marginal benefit from increasing production of the good measured on the x-axis. Answer: B Diff: 1 Type: MC Topic: Production Possibilities and Opportunity Cost 61) The production possibilities frontier shows A) the maximum possible growth rate of output in an economy. B) the maximum quantity of resources available at any given time. C) the maximum level of production that can be attained. D) combinations of goods and services that do not fully use available resources. E) the effect of advancing technology on production possibilities. Answer: C Diff: 1 Type: MC Topic: Production Possibilities and Opportunity Cost 97 Copyright © 2019 Pearson Canada Inc. 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 outside its PPF. B) if Canada is producing at a point on its PPF. C) if Canada is producing at a point inside its PPF. D) only if the PPF shifts rightward. E) only if technology advances or capital increases. Answer: C Diff: 2 Type: MC Topic: Production Possibilities and Opportunity Cost 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 remains constant. C) all goods other than pillows and quilts is increasing. D) pillows and quilts are both increasing. E) pillows and quilts are both decreasing. Answer: B Diff: 1 Type: MC Topic: Production Possibilities and Opportunity Cost Source: MyLab Economics 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 1 and 2 are correct. C) Statements 2 and 3 are correct. D) Statements 2 and 4 are correct. E) Statements 3 and 4 are correct. Answer: C Diff: 1 Type: MC Topic: Production Possibilities and Opportunity Cost Source: MyLab Economics 98 Copyright © 2019 Pearson Canada Inc. 2.2 Using Resources Efficiently 1) Marginal cost A) is the opportunity cost of producing one more unit of a good or service. B) is unrelated to the production possibilities frontier. C) equals marginal benefit. D) is less than marginal benefit. E) is greater then marginal benefit. Answer: A Diff: 1 Type: MC Topic: Using Resources Efficiently 2) The quantity of shoes produced is measured along the x-axis of a bowed-outward production possibilitiesfrontier 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 pair of shoes decreases. B) a pair of shoes increases. C) a shirt remains constant. D) a shirt equals the marginal benefit from 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 Diff: 2 Type: MC Topic: Using Resources Efficiently 3) 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 Diff: 3 Type: MC Topic: Using Resources Efficiently 4) To describe preferences, economists use the concept of A) opportunity cost. B) scarcity. C) marginal benefit. D) marginal cost. E) price. Answer: C Diff: 1 Type: MC Topic: Using Resources Efficiently 99 Copyright © 2019 Pearson Canada Inc. 5) As consumption of a good increases, A) marginal benefit increases. B) marginal benefit decreases. C) marginal benefit equals price. D) marginal benefit increases or decreases depending on price. E) the price of the good falls. Answer: B Diff: 1 Type: MC Topic: Using Resources Efficiently 6) The marginal benefit curve from 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 upward-sloping. D) is bowed outward. E) is vertical. Answer: B Diff: 1 Type: MC Topic: Using Resources Efficiently 100 Copyright © 2019 Pearson Canada Inc. Use the figure below to answer the following questions. Figure 2.2.1 7) In Figure 2.2.1, the curve labelled B shows A) the number of scooters that people are willing to forgo to obtain another bicycle. B) the number of bicycles that people are willing to forgo to obtain another scooter. C) the number of scooters that people must forgo to obtain another bicycle. D) that the benefit from producing more bicycles is greater than the benefit from producing more scooters. E) that the benefit from producing more scooters is greater than the benefit from producing more bicycles. Answer: A Diff: 1 Type: MC Topic: Using Resources Efficiently 8) In Figure 2.2.1, when 2,000 bicycles are produced each month, A) the marginal benefit from the 2,000th bicycle is greater than the marginal cost of the 2,000th bicycle. B) the marginal benefit from the 2,000th bicycle equals the marginal cost of the second scooter. C) fewer bicycles must be produced to reach the efficient level of output. D) the production of bicycles is efficient. E) the marginal benefit from the 2,000th bicycle equals the marginal cost of the 4th scooter. Answer: E Diff: 2 Type: MC Topic: Using Resources Efficiently 101 Copyright © 2019 Pearson Canada Inc. 9) In Figure 2.2.1, the curve labelled A is the ________ curve and the curve labelled B is the ________ curve. A) marginal cost; marginal benefit B) marginal cost; trade C) marginal benefit; trade D) production possibilities; trade E) marginal benefit; marginal cost Answer: A Diff: 1 Type: MC Topic: Using Resources Efficiently 10) In Figure 2.2.1, when 4,000 bicycles are produced each month, A) the marginal benefit from the 4,000th bicycle is greater than the marginal cost of the 4,000th bicycle. B) more bicycles must be produced to reach the efficient level of output. C) fewer bicycles must be produced to reach the efficient level of output. D) the production of bicycles is efficient. E) the marginal benefit from the 4,000th bicycle equals the marginal cost of the 4th scooter. Answer: C Diff: 2 Type: MC Topic: Using Resources Efficiently 11) A marginal benefit curve measures A) comparative advantage. B) willingness to pay. C) absolute advantage. D) opportunity cost. E) expenditure. Answer: B Diff: 1 Type: MC Topic: Using Resources Efficiently 12) Allocative efficiency refers to a situation where A) opportunity costs are equal for all goods. B) we cannot produce more of any one good without giving up some other good. C) goods and services are produced at the lowest possible cost and in the quantities that provide the greatest possible benefit. D) opportunity cost is zero for all goods. E) marginal benefit is maximized. Answer: C Diff: 1 Type: MC Topic: Using Resources Efficiently 102 Copyright © 2019 Pearson Canada Inc. 13) When the market achieves allocative efficiency, A) marginal benefit equals marginal cost. B) marginal benefit is at its maximum. C) marginal benefit minus marginal cost is positive. D) marginal cost minus marginal benefit is positive. E) marginal cost is at its minimum. Answer: A Diff: 1 Type: MC Topic: Using Resources Efficiently 14) Marginal benefit from a good or service is the benefit received from consuming ________. It is measured by the most that people are willing to pay for ________. A) goods that you prefer; an additional unit of it B) goods that you prefer; more of it C) one more unit of it; an additional unit of it D) one more unit of it; more of it E) as much as is available; the total amount consumed Answer: C Diff: 1 Type: MC Topic: Using Resources Efficiently Source: MyLab Economics Use the table below to answer the following question. Table 2.2.1 Ethanol (barrels per day) 70 64 54 40 22 0 and and and and and and Food crops (tonnes per day) 0 1 2 3 4 5 15) Refer to Table 2.2.1. Marginal benefit from food crops A) equals the marginal cost of food crops. B) remains constant as the quantity of food crops increases from 1 tonne a day to 2 tonnes a day. C) cannot be calculated from the table. D) increases as the quantity of food crops increases from 1 tonne a day to 2 tonnes a day. E) equals 70 barrels of ethanol. Answer: C Diff: 2 Type: MC Topic: Using Resources Efficiently Source: MyLab Economics 103 Copyright © 2019 Pearson Canada Inc. 16) The principle of decreasing marginal benefit implies that the A) additional benefit from obtaining one more unit of a good or service decreases as more of that good or service is consumed. B) additional benefit from obtaining one more unit of a good or service increases as more of that good or service is consumed. C) total benefit from obtaining more of a good or service decreases as more is consumed. D) total benefit from obtaining more of a good or service remains the same as more is consumed. E) additional benefit from producing one more unit of a good or service decreases as more of that good or service is produced. Answer: A Diff: 1 Type: MC Topic: Using Resources Efficiently 17) 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 from a purse is A) $40. B) $50. C) $10. D) $20. E) $30. Answer: E Diff: 2 Type: MC Topic: Using Resources Efficiently 18) A marginal cost curve that is A) a horizontal line 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) vertical is derived from a PPF that has a bowed-out shape. D) downward sloping is derived from a PPF that has a bowed-out shape. E) a horizontal line is derived from a PPF that has a constant slope. Answer: E Diff: 2 Type: MC Topic: Using Resources Efficiently 19) 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) production; allocative B) allocative; allocative C) allocative; production D) unattainable; attainable E) productive; prominent Answer: A Diff: 1 Type: MC Topic: Using Resources Efficiently Source: MyLab Economics 104 Copyright © 2019 Pearson Canada Inc. 20) Microsoft’s marginal cost of the 100th copy of Microsoft Windows 10 is A) the maximum amount that someone is willing to pay for the 100th copy of Windows 10. B) equal to the marginal benefit from the 100th copy of Windows 10. C) the opportunity cost of producing the 100th copy of Windows 10. D) the maximum amount that someone is willing to pay Microsoft to obtain the code that supports Windows 10. E) greater than the marginal benefit from the 100th copy of Windows 10. Answer: C Diff: 2 Type: MC Topic: Using Resources Efficiently 2.3 Gains from Trade 1) Individuals A and B can both produce good X. We say that A has a comparative advantage in the production of good X if A) A has a lower opportunity cost of producing X than B. B) A has a higher opportunity cost of producing X than B. C) A can produce more units of X in a given time period than B. D) A can produce X using newer technology than B. E) A can produce less units of X in a given time period than B. Answer: A Diff: 3 Type: MC Topic: Gains from Trade 2) Individuals A and B can both produce goods X and Y. Individual A has a comparative advantage in the production of X if A) A is faster than B at producing X. B) the amount by which A must reduce production of Y is less than the amount by which B must reduce production of Y to produce an additional unit of X. C) B has superior knowledge about how to produce X. D) A has a preference to consume X. E) the amount by which A must reduce production of Y is more than the amount by which B must reduce production of Y to produce an additional unit of X. Answer: B Diff: 2 Type: MC Topic: Gains from Trade 3) Debra has an absolute advantage in producing a good when she A) has a comparative advantage in producing that good. B) can produce the good at lower opportunity cost than anyone else. C) can produce more of that good than anyone else, using the same quantity of inputs. D) has exclusive rights to sell that good. E) has better technology than anyone else. Answer: C Diff: 2 Type: MC Topic: Gains from Trade 105 Copyright © 2019 Pearson Canada Inc. 4) A person who has an absolute advantage in the production of all goods will A) also have a comparative advantage in the production of all goods. B) not be able to gain from specialization and trade. C) produce all goods at the lowest opportunity cost. D) not have a comparative advantage in the production of any goods. E) have a comparative advantage in the production of only some goods and not others. Answer: E Diff: 2 Type: MC Topic: Gains from Trade Use the information below to answer the following questions. Fact 2.3.1 In an eight-hour day, Andy can produce either 24 loaves of bread or 8 kilograms of butter. In an eight-hour day, Rolfe can produce either 8 loaves of bread or 8 kilograms of butter. 5) Given Fact 2.3.1, the opportunity cost of producing 1 loaf of bread is A) 20 minutes (1/3 hour) for Andy and 1 hour for Rolfe. B) 1/3 kilogram of butter for Andy and 1 kilogram of butter for Rolfe. C) 3 kilograms of butter for Andy and 1 kilogram of butter for Rolfe. D) 8 kilograms of butter for both Andy and Rolfe. E) cannot be calculated. Answer: B Diff: 2 Type: MC Topic: Gains from Trade 6) From Fact 2.3.1, we know that A) Andy has the lower opportunity cost of producing bread, while Andy and Rolfe have equal opportunity costs of producing butter. B) Andy has the lower opportunity cost of producing both bread and butter. C) Andy has the lower opportunity cost of producing bread, while Rolfe has the lower opportunity cost of producing butter. D) Andy has the lower opportunity cost of producing butter, while Rolfe has the lower opportunity cost of producing bread. E) Andy has the higher opportunity cost of producing both bread and butter. Answer: C Diff: 3 Type: MC Topic: Gains from Trade 106 Copyright © 2019 Pearson Canada Inc. 7) Refer to Fact 2.3.1. Which one of the following statements is true? A) Andy has an absolute advantage in butter production. B) Rolfe has an absolute advantage in butter production. C) Andy has a comparative advantage in bread production. D) Andy has a comparative advantage in butter production. E) Rolfe has a comparative advantage in bread production. Answer: C Diff: 3 Type: MC Topic: Gains from Trade 8) Refer to Fact 2.3.1. The opportunity cost of producing 1 kilogram of butter is A) 20 minutes (1/3 hour) for Andy and 1 hour for Rolfe. B) 1 hour for Andy and 1 hour for Rolfe. C) 3 loaves of bread for Andy and 1/3 loaf of bread for Rolfe. D) 3 loaves of bread for Andy and 1 loaf of bread for Rolfe. E) 8 loaves of bread for Rolfe and 24 loaves of bread for Andy. Answer: D Diff: 2 Type: MC Topic: Gains from Trade 9) Given Fact 2.3.1, Andy and Rolfe A) can gain from trade if Andy specializes in butter production and Rolfe specializes in bread production. B) can gain from trade if Andy specializes in bread production and Rolfe specializes in butter production. C) cannot gain from trade. D) can trade, but only Rolfe will gain. E) can trade, but only Andy will gain. Answer: B Diff: 3 Type: MC Topic: Gains from Trade 10) Consider Fact 2.3.1. After specialization, total consumption A) depends on the preferences of Andy and Rolfe. B) is 8 loaves of bread and 24 kilograms of butter. C) is 32 loaves of bread and 16 kilograms of butter. D) is 8 loaves of bread and 8 kilograms of butter. E) is 24 loaves of bread and 8 kilograms of butter. Answer: E Diff: 2 Type: MC Topic: Gains from Trade 107 Copyright © 2019 Pearson Canada Inc. Use the information below to answer the following questions. Fact 2.3.2 Agnes can produce either 1 unit of X or 1 unit of Y in an hour, while Brenda can produce either 2 units of X or 4 units of Y in an hour. 11) Refer to Fact 2.3.2. Which one of the following statements is true? A) Brenda has an absolute advantage over Agnes in the production of both goods. B) Agnes has a comparative advantage in the production of Y. C) Brenda has a comparative advantage in the production of X. D) Brenda will not gain from trade. E) Agnes will not gain from trade. Answer: A Diff: 3 Type: MC Topic: Gains from Trade 12) Given Fact 2.3.2, the opportunity cost of producing a unit of X is A) 1 unit of Y for Agnes and 2 units of Y for Brenda. B) 1 unit of Y for Agnes and 1/2 unit of Y for Brenda. C) 1 hour for Agnes and 1/2 hour for Brenda. D) 1 hour for Agnes and 2 hours for Brenda. E) 1 hour for Agnes and 1/4 hour for Brenda. Answer: A Diff: 2 Type: MC Topic: Gains from Trade 13) Given Fact 2.3.2, the opportunity cost of producing a unit of Y is A) 1 unit of Y for Agnes and 2 units of Y for Brenda. B) 1 unit of Y for Agnes and 1/2 unit of Y for Brenda. C) 1 hour for Agnes and 1/2 hour for Brenda. D) 1 hour for Agnes and 2 hours for Brenda. E) 1 unit of X for Agnes and 1/2 unit of X for Brenda. Answer: E Diff: 2 Type: MC Topic: Gains from Trade 14) Complete the following sentence. Given Fact 2.3.2, A) there will be gains from trade, no matter what Brenda and Agnes specialize in, as long as they specialize. B) there will be gains from trade only if Agnes specializes in the production of Y and Brenda in X. C) there will be gains from trade only if Agnes becomes faster at producing X. D) there will be no gains from trade because Agnes has an absolute advantage. E) there will be gains from trade if Agnes specializes in the production of X and Brenda in Y. Answer: E Diff: 2 Type: MC Topic: Gains from Trade 108 Copyright © 2019 Pearson Canada Inc. 15) Given Fact 2.3.2, what would be the total output of X and Y in an eight-hour day if Agnes and Brenda each specialized in producing the good in which they have a comparative advantage? A) 3 units of X and 5 units of Y B) 8 units of X and 16 units of Y C) 8 units of X and 32 units of Y D) 24 units of X and 40 units of Y E) 16 units of X and 8 units of Y Answer: C Diff: 3 Type: MC Topic: Gains from Trade 16) Any two individuals gain from trade A) unless one has an absolute advantage in producing all goods. B) if each specializes in the production of the good for which he has the higher opportunity cost. C) unless they have the same opportunity costs for producing all goods. D) unless they have different opportunity costs for producing all goods. E) unless they have the same absolute advantage in producing all goods. Answer: C Diff: 3 Type: MC Topic: Gains from Trade Use the figure below to answer the following questions. Table 2.3.1 The planets of Vulcan and Romulus each produce goods X and Y. The following table gives points on their production possibilities frontiers. 17) 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 Y. B) Romulus has both an absolute advantage and a comparative advantage in the production of X. C) Vulcan has a comparative advantage in the production of X. D) Romulus has a comparative advantage in the production of X. E) Vulcan should specialize in the production of X. Answer: D Diff: 3 Type: MC Topic: Gains from Trade 109 Copyright © 2019 Pearson Canada Inc. 18) Refer to Table 2.3.1. Which one of the following is true? A) The opportunity cost of producing more of good X is the same for both planets. B) The opportunity cost of producing more of good Y is the same for both planets. C) The opportunity cost of producing more of good X is lower in Vulcan. D) The opportunity cost of producing more of good Y is lower in Vulcan. E) Vulcans are smarter than Romulans. Answer: D Diff: 3 Type: MC Topic: Gains from Trade 19) Refer to Table 2.3.1. For Vulcan, the opportunity cost of producing an additional unit of X is A) 4 units of Y. B) 2 units of Y. C) 2/3 units of Y. D) 1 unit of Y. E) zero. Answer: B Diff: 2 Type: MC Topic: Gains from Trade 20) Refer to Table 2.3.1. For Romulus, the opportunity cost of producing an additional unit of X is A) 4 units of Y. B) 2 units of Y. C) 2/3 units of Y. D) 1 unit of Y. E) 3/2 units of Y. Answer: E Diff: 2 Type: MC Topic: Gains from Trade 21) Refer to Table 2.3.1. For Romulus, the opportunity cost of producing an additional unit of Y is A) 2/3 units of X. B) 1/2 unit of X. C) 2 units of X. D) 3 units of X. E) 3/2 units of Y. Answer: A Diff: 2 Type: MC Topic: Gains from Trade 110 Copyright © 2019 Pearson Canada Inc. 22) Refer to Table 2.3.1. For Vulcan, the opportunity cost of producing an additional unit of Y is A) 2/3 units of X. B) 1/2 units of X. C) 2 units of X. D) 3 units of X. E) 4 units of X. Answer: B Diff: 2 Type: MC Topic: Gains from Trade 23) Refer to Table 2.3.1. Each country gains from trade if A) Romulus specializes in both goods. B) Vulcan specializes in both goods. C) they both produce the goods in which they have an absolute advantage. D) Vulcan specializes in good X and Romulus specializes in good Y. E) Romulus specializes in good X and Vulcan specializes in good Y. Answer: E Diff: 3 Type: MC Topic: Gains from Trade 24) If individuals A and B can both produce only goods X and Y, and A does not have a comparative advantage in the production of either X or Y, then we know A) B has an absolute advantage in the production of X and Y. B) A and B have the same opportunity costs of production for X and for Y. C) B has a comparative advantage in the production of both X and Y. D) the gains from trade will be large but only in one direction. E) A must have lower opportunity costs of production for both goods. Answer: B Diff: 3 Type: MC Topic: Gains from Trade 25) Consider the following household. In 5 hours, Bob can cook 5 meals or clean 6 rooms. In 5 hours, Mary can cook 30 meals or clean 10 rooms. Select the best statement. A) Bob has an absolute advantage in the production of both goods. B) Since Mary is better at producing both goods, she should produce both. C) Bob has a comparative advantage in cooking. D) Mary has a comparative advantage in cooking. E) Mary has a comparative advantage in cooking and cleaning. Answer: D Diff: 3 Type: MC Topic: Gains from Trade 111 Copyright © 2019 Pearson Canada Inc. Use the table below to answer the following questions. Table 2.3.2 Production for one week by Sheila and Bruce 26) 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) No, not under the given circumstances. C) It depends on the wages each earns. D) Only if they are married to each other. E) Yes, if each specializes in the good in which they have a comparative advantage. Answer: E Diff: 2 Type: MC Topic: Gains from Trade 27) Given the information in Table 2.3.2, choose the correct statement. A) Sheila has a comparative advantage in good X. B) Bruce has a comparative advantage in good X. C) The opportunity cost to Bruce of an additional unit of X is 0.4 units of Y. D) A and B are true. E) B and C are true. Answer: E Diff: 3 Type: MC Topic: Gains from Trade 28) 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. Select the best 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) As a result, it is possible that John and Joe will switch the goods in which they specialize. D) There will be no change to the goods in which John and Joe specialize, because John’s comparative advantage has not changed. E) There will be a change to the goods in which John and Joe specialize, because John’s opportunity cost of corn has decreased. Answer: D Diff: 3 Type: MC Topic: Gains from Trade 112 Copyright © 2019 Pearson Canada Inc. 29) It benefits people to specialize and trade with each other because A) otherwise they would not survive. B) they can take advantage of the fact they have an absolute advantage in the production of something. C) with specialization and trade, they can consume outside their production possibilities frontiers. D) with specialization and trade, absolute advantage increases. E) specialization and trade lead to a linear PPF. Answer: C Diff: 2 Type: MC Topic: Gains from Trade 30) There are two goods, X and Y. If the opportunity cost of producing good X is lower for Pam than for Gino, then A) Pam has an absolute advantage in the production of X. B) Gino has an absolute advantage in the production of Y. C) Pam has a comparative advantage in the production of X. D) Gino has a comparative advantage in the production of Y. E) Both C and D are correct. Answer: E Diff: 3 Type: MC Topic: Gains from Trade 31) 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 an absolute advantage in wool production. C) Portugal has a comparative advantage in wine production. D) Portugal has a comparative advantage in wool production. E) no trade will occur. Answer: C Diff: 3 Type: MC Topic: Gains from Trade 32) 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) Jane can type 50 words per minute, and Joe can type 60 words per minute. 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) 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. E) Bill can read one book in a week, but it takes Jeannie 10 days to read the same book. Answer: D Diff: 1 Type: MC Topic: Gains from Trade 113 Copyright © 2019 Pearson Canada Inc. 33) 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) Fire David because he is not as productive as John. John will produce both pasta and pizza. B) David will make pizza because he has a comparative advantage in making pizza. C) John and David will each spend half their time making pizza and half their time making pasta. D) John will make pizza because he has a comparative advantage in making pizza. E) Increase David’s salary because with encouragement, he can increase his output. Answer: B Diff: 1 Type: MC Topic: Gains from Trade 34) 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) they each lose because they are no longer able to produce and consume both goods. B) one of them will gain and one of them will lose. C) each will gain because each can consume a combination of goods that is outside his production possibilities frontier. D) each will produce a combination of goods that is outside his production possibilities frontier. E) each will produce a combination of goods that is inside his production possibilities frontier. Answer: C Diff: 2 Type: MC Topic: Gains from Trade 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. 35) 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) 10; 7 B) 5; 0.1 C) 0.1; 0.2 D) 0.2; 0.1 E) 0.2; 1.0 Answer: D Diff: 3 Type: MC Topic: Gains from Trade Source: MyLab Economics 114 Copyright © 2019 Pearson Canada Inc. 36) 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 7 caps, ________. A) Sue; Tessa gains but Sue loses B) Tessa; Sue loses but Tessa gains C) Sue; both Sue and Tessa gain D) Tessa; both Sue and Tessa gain E) Tessa; Tessa loses but Sue gains Answer: D Diff: 3 Type: MC Topic: Gains from Trade Source: MyLab Economics 2.4 Economic Growth 1) A technological improvement is represented by A) an outward shift of the production possibilities frontier. B) a movement along the production possibilities frontier. C) a point inside the production possibilities frontier. D) a point outside the production possibilities frontier. E) a movement from a point inside the production possibilities frontier to a point on the production possibilities frontier. Answer: A Diff: 1 Type: MC Topic: Economic Growth 2) In general, if country A is accumulating capital at a faster rate than country B, then country A A) will soon have a comparative advantage in the production of most goods. B) is using a larger proportion of resources to produce consumption goods. C) will have a production possibilities frontier that is shifting outward faster than country B’s. D) will have a higher rate of inflation than country B. E) will have more unemployment than country B. Answer: C Diff: 2 Type: MC Topic: Economic Growth 3) The principal reason that production possibilities have grown more rapidly in Hong Kong than in Canada over the last 50 years is because A) of cheap Hong Kong labour. B) of foreign aid to Hong Kong. C) Hong Kong has fewer workers. D) Hong Kong has more natural resources. E) Hong Kong has devoted a larger proportion of its resources to capital accumulation. Answer: E Diff: 2 Type: MC Topic: Economic Growth 115 Copyright © 2019 Pearson Canada Inc. 4) Which one of the following would cause a production possibilities frontier to shift outward? A) an increase in the stock of capital B) an increase in the production of consumption goods C) bad weather D) a decision to fully utilize unemployed resources E) a decrease in the population Answer: A Diff: 1 Type: MC Topic: Economic Growth 5) The development of new goods and better ways of producing goods and services is A) capital accumulation. B) technological change. C) the big tradeoff. D) allocative efficiency. E) production efficiency. Answer: B Diff: 1 Type: MC Topic: Economic Growth 6) The growth of capital resources, including human capital is A) technological change. B) capital accumulation. C) depreciation. D) opportunity cost. E) shown by a movement along the PPF. Answer: B Diff: 1 Type: MC Topic: Economic Growth 7) Which one of the following would likely shift a production possibilities frontier inward? A) technological change B) a drought C) a decrease in the price of natural resources D) an increase in human capital E) None of the above, because production possibilities frontiers do not shift inward. Answer: B Diff: 2 Type: MC Topic: Economic Growth 116 Copyright © 2019 Pearson Canada Inc. Use the figure below to answer the following question. Figure 2.4.1 8) 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 Diff: 2 Type: MC Topic: Economic Growth 9) A production possibilities frontier shifts outward FOR ALL OF THE FOLLOWING REASONS EXCEPT A) a technological improvement. B) an increase in capital stock. C) an increase in the labour force. D) an increase in opportunity cost. E) an increase in human capital. Answer: D Diff: 1 Type: MC Topic: Economic Growth 117 Copyright © 2019 Pearson Canada Inc. 10) A movement along the production possibilities frontier results from A) technological change. B) a change in capital stock. C) a change in the size of the labour force. D) a change in the quantity of human capital. E) 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. Answer: E Diff: 1 Type: MC Topic: Economic Growth 11) The opportunity cost of shifting the production possibilities frontier outward is A) capital accumulation. B) technological change. C) reduced current consumption. D) reduced future consumption. E) increased future consumption. Answer: C Diff: 2 Type: MC Topic: Economic Growth 12) In general, the greater the proportion of resources devoted to technological research in an economy, the A) greater is current consumption. B) faster the production possibilities frontier shifts outward. C) faster the production possibilities frontier shifts inward. D) closer it comes to having a comparative advantage in the production of all goods. E) more bowed out is the shape of the production possibilities frontier. Answer: B Diff: 2 Type: MC Topic: Economic Growth 13) 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 inward of the production possibilities frontier. B) a parallel shift outward of the production possibilities frontier. C) the production possibilities frontier rotating, with the wild rice intercept increasing, and the wheat intercept decreasing. D) the production possibilities frontier rotating, with the wild rice intercept decreasing, and the wheat intercept increasing. E) the production possibilities frontier becoming linear. Answer: C Diff: 3 Type: MC Topic: Economic Growth 118 Copyright © 2019 Pearson Canada Inc. 14) 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) It shifts outward at all points. B) It shifts inward at all points. C) There is a movement along the existing production possibilities frontier towards a less capitalintensive point. 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 Diff: 2 Type: MC Topic: Economic Growth 15) Economic growth ________ overcome scarcity because ________. A) does; with economic growth the PPF rotates outward and eventually becomes a horizontal line B) does; we will eventually reach the point where we have too much C) does not; we can produce more goods and services but it is still impossible to satisfy all our wants D) does not; economic growth requires capital accumulation and technological change E) does; with economic growth the PPF rotates outward and eventually becomes a vertical line Answer: C Diff: 2 Type: MC Topic: Economic Growth Source: MyLab Economics 16) In 1966, the production possibilities per person in Canada were ________ than those in Hong Kong. Between 1966 and 2016, Hong Kong’s production possibilities have ________ Canada’s production possibilities. A) smaller; expanded more quickly than B) smaller; not expanded as quickly as C) greater; not expanded as quickly as D) greater; expanded more quickly than E) greater; expanded at the same rate as Answer: D Diff: 2 Type: MC Topic: Economic Growth Source: MyLab Economics 119 Copyright © 2019 Pearson Canada Inc. 17) The production possibilities frontier shifts outward when A) tastes and preferences change. B) the quantity of money in the economy grows. C) prices rise. D) human capital accumulates. E) the political party in power changes. Answer: D Diff: 2 Type: MC Topic: Economic Growth 18) 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 horizontal intercept of the PPF rightward and the vertical intercept of the PPF upward. B) the horizontal intercept of the PPF rightward but does not shift the vertical intercept of the PPF. C) the vertical intercept of the PPF upward but does not shift the horizontal intercept of the PPF. D) neither the horizontal intercept nor the vertical intercept of the PPF. E) the vertical intercept of the PPF downward and the horizontal intercept of the PPF leftward. Answer: C Diff: 2 Type: MC Topic: Economic Growth 2.5 Economic Coordination 1) Trade is organized using the social institutions of all of the following except A) firms. B) property rights. C) money. D) markets. E) labour unions Answer: E Diff: 3 Type: MC Topic: Economic Coordination 120 Copyright © 2019 Pearson Canada Inc. 2) 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) III only C) I and III only D) II and III only E) I, II and III Answer: C Diff: 3 Type: MC Topic: Economic Coordination 3) 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) any arrangement that enables buyers and sellers to get information and to do business with each other. D) a social arrangement that governs the ownership, use, and disposable of anything that people value. E) a medium of exchange. Answer: D Diff: 1 Type: MC Topic: Economic Coordination Source: MyLab Economics 4) 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 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 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 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 E) all flowing through factor markets; all flowing through goods markets Answer: B Diff: 3 Type: MC Topic: Economic Coordination Source: MyLab Economics 121 Copyright © 2019 Pearson Canada Inc. 5) The main functions of markets include A) promoting the social interest, but not the self-interest. B) selling goods, but not factors of production. C) enabling buyers and sellers to get information about each other. D) establishing a physical location for business transactions. E) promoting the self-interest, but not the social interest. Answer: C Diff: 2 Type: MC Topic: Economic Coordination Source: MyLab Economics 6) 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) more difficult; less B) more difficult; more C) easier; less D) easier; more E) none of the above Answer: A Diff: 3 Type: MC Topic: Economic Coordination 7) 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 Diff: 2 Type: MC Topic: Economic Coordination 122 Copyright © 2019 Pearson Canada Inc.