Sample Test For Chapter 1 PDF

Assignment Print View Page 1 of 40
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········ ··········· Wi1ici1Cifihetolkiwiii9.is·r;Citoiieot tile ii1ree.core ·ec:aiiomic.issuestf1ai ;n·u sf5e ·resoivea?··· ···
r How to produce the goods and services we select.
_,I What to produce with unlimited resources.
I Who should get the goods and services we produce.
I What to produce with limited resources.
Resources are not unlimited.
Learning Objective: 01-03 The three

Multiple Choice Difficulty: 1 Easy core economic questions that every
society must answer.
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· · · ······the·lu·naa·m·entarjifObi'em··ot·e·concim·tcs··is·· ······························
( The law of increasing opportunity costs.
_,I The scarcity of resources relative to human wants.
I How to get government to operate efficiently.
( How to create employment for everyone.
Wants will always exceed resources.
Learning Objective: 01-01 How

Multiple Choice Difficulty: 1 Easy
scarcity creates opportunity costs.
awa rd :
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.... ...... ;;: conseq.uence oitlie ecoiia·m-ic problem of scardtYis ..that ...... .... . .....
_,I Choices have to be made about how resources are used.

I There is never too much of any good or service produced .
I The production of goods and services must be controlled by the government.
I The production possibilities curve is bowed outward.
Scarcity means choices must be made.

Multiple Choice Difficulty : 1 Easy
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·····\!Vhicticifiiletoilowin9 ..is.not·a·ta.ct'or·c;t'·pr:oc:iu'Ctioi1? .
I A psychiatrist
->(' The $100,000 used to start a new business.
(' A bulldozer.
I Six thousand acres of farmland .
Land , labor, capital , and entrepreneurship are the factors of production. Money does not fall under any category of the
factors of production . Factors of production are what are needed on a camping trip. Money is not needed on a
camping trip.

Multiple Choice Difficulty: 2 Medium
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(' Factors of production are also known as resources.

r In order to produce any good or service, it is necessary to have factors of production .
I Factors of production include land, labor, capital , and entrepreneurship.
->C Only those resources that are privately owned are counted as factors of production .
Even resources owned by governments count as factors of production.

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.... ..... .. · · Which ciftile toilowiii.9"i5'ihe.best"exampie..cif land?
I The ethanol refined from corn.
r A factory that produces new goods and services.
-+( The water used to make a soft drink.
I A barber's chair.
If it directly becomes a part of the final product, it is land or a raw material. Water used to float a boat is the same as a
delivery van. In this case it would be capital.

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·· ·cai:>itai, ·as economists use itie ierm: refers·1c;· ····· ·...........
r . The money needed to start a new business.
( ; The costs of operating a business.
(' Shares of stock issued by businesses.
--+r Final goods that are used to produce other goods and services .
Physical capital is used to produce other goods and services, including other capital goods. Hammers produce
houses. Forklifts move forklift parts around a forklift factory . Money is financial capital, which is a throughput. It is used
to acquire a hammer or physical capital.

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Which eCOnoni"iSfarg·uea·that'·free··markets unleash9Cfthe··,· ~:lf11i1ial spiriiS''"O"f·e·n"irtipren·eu·rs·,.PiOj:)Sinng. i·nn·ovatiOn I
technology, and growth?

r Lord Kelvin.
r Kenneth Olsen .
{ Irving Fisher.
--+r John Maynard Keynes.
Competition leads companies to always try to do something better and more efficiently in order to maximize profits.

Multiple Choice Difficulty : 1 Easy
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· · · · Economics.can.i:ie .definedasihe.stlid¥.ot
r For whom resources are allocated to increase efficiency.
{ How society spends the income of individuals.
--+r How scarce resources are allocated on a macro level to best meet society's goals or on a micro level to
best meet an individual's or firm's goals.
r None of the choices are correct.
Economics studies how we get the most we can out of what we have.

scarcity creates opportunity costs .
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········.................. Yhe "gu·n-sversus butter;; ·dilemma ttia'iaH nations.confront is..tilac··· ······· ...... ...............
r Guns and butter can be produced using the same resources at the same time.
-.r An increase in national defense implies more sacrifices of civilian goods and services.
r An increase in national defense is possible only if we produce more butter.

r All of the choices are correct.
To get more of one good , we must sacrifice production of other goods. "Guns versus butter" is a figurative way of
expressing the trade-off between defense and civilian goods and services.
Learning Objective: 01 -01 How

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liihicil··c;t·itietoilowing .is·a:;;· a'ssumptio·n ·under which the pr.odu'Ction .. p.o.sslbiiities ·c-c;;:;;e;--[5 drawn?······
r Total unemployment is zero.
-.r The supply of resources is fixed.
(' The price level is changing.

("' Technology is changing .
The production possibilities curve is a snapshot of a short time frame when resources are fixed .
Learning Objective: 01-02 What the

Multiple Choice Difficulty: 1 Easy production-possibilities curve
represents.
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.. ················ Which of thefoiiCiwing correctiy ch.aracterizes.the shape of a 'coris'i ant'opportu'riity''C:ost'produCiiori .pos.sibi'iitiesC'urve? ... .
r A straight line indicating that the law of increasing opportunity costs applies.
-.r A straight line when there is constant opportunity costs.
r A line that curves outward when resources are perfectly adaptable in the production of different goods.
r A line that curves inward when resources are perfectly adaptable in the production of different goods .
A straight-line production possibilities curve means resources are equally adaptable to producing either good .
Learning Objective : 01-02 What the

Multiple Choice Difficulty : 2 Medium production-possibilities curve
represents.
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........................... Accordin9.io.the .iaw.<:i'f·i·nc.reasin9 .of)portunity·c:asts, ··· · ·.. . . . . . . . ... . . ...............................
(" Greater production leads to greater inefficiency.
(" Greater production means factor prices rise.
__.(" Greater production of one good requires increasingly larger sacrifices of other goods.
(" Higher opportunity costs induce higher output per unit of input
The opportunity cost rises incrementally as more of one particular good is produced.

Multiple Choice Difficulty : 1 Easy production-possibilities curve
represents.
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· · ira.,:;--e;c:oiiorliY'e:XiJ.9i:re·nc:es. inc.reasin9··c,r;i)oitlii1i!y·c:as.is··-witii.respeCi.ia.iWo.9oods:·iilen.iile.i> roduction. possitii'iiiies·· · ·
curve between the two goods will be
__.(" Bowed outward or concave from below.
(" A straight, downward-sloping line.
(" Bowed inward or convex from below.
r Bowed outward until the two goods are equal, and then bowed inward.
A bowed-out production possibilities curve means opportunity costs are increasing as we move from one point to
another along the curve.

Multiple Choice Difficulty: 2 Medium production-possibilities curve
represents.
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· · · · · · ·ittiia··uilited.staies.ci'ecici'es'ia·c:c;n¥eit··a.uiomoi:ii'le . iaCiories.!o.iani<. produc:tioii·:·as. ii'did'durii19.waria·war·il:·t>ut·ti'ii'ds
that some auto manufacturing facilities are not well suited to tank production, then
r The production possibilities curve between tanks and automobiles will appear as a straight line.
r The production possibilities curve between tanks and automobiles will shift outward .
(" Decreasing opportunity costs will occur with greater automobile production .
__.(" Increasing opportunity costs will occur with greater tank production .
Factors of production, including capital, are specialized , meaning they are generally better suited for one use.
Learning Objective : 01-02 What the

Multiple Choice Difficulty : 3 Hard production-possibilities curve
represents.
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........... i'he .poinis c)'il''a 'productionpossibilities curve''stiow ..... .. ........ ..
I Desired output
I Actual output
__,! Potential output
r None of the choices are correct
Potential output is the maximum attainable output with our limited resources, and the production possibilities curve
shows the limits of our options.

Multiple Choice Difficulty: 1 Easy production-possibilities curve
represents.
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··iran .economy.is .iJroCilicin9 .. i.i i.side.. ttie ..i>roduci'ior1iJ.655ibiiities...cur:ve,ttier1
I There is full employment of resources.
I It is operating efficiently.
__,! It can produce more of one good without giving up some of another good .
r There are not enough resources available to produce more output
No goods must be given up to move from an inefficient to an efficient level of production. Hence, there is no sacrifice
or opportunity cost
Learning Objective: 01 -02 What the

represents.
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18. 10.00
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...................................... '"'""'""' "'"'"" ................................... .
The market mechanism
r Is not a very efficient means of communicating consumer demand to the producers of goods and
services.
( Works through central planning by government
I Eliminates market failures created by government
__,! Works because prices serve as a means of communication between consumers and producers.
Buyers choose how much to buy based on price; profitability and therefore production are driven by prices.

Multiple Choice Difficulty : 1 Easy market and government approaches
to economic problems differ.
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········Adiy;s -dedsi.o il'tolimit.siTioi<i.n9.ii1..p.ubiic .areas ·r;; ·an·ex:ample..af···
I The invisible hand at work.
r The market mechanism at work.
I Market success.
_,(" Government intervention.
Governments can sometimes improve market outcomes.

Multiple Choice Difficulty: 2 Medium market and government approaches
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economy
(" Is justified by the superiority of laissez faire over government intervention .
_,(" Utilizes both market and nonmarket signals to allocate goods and services.
I Relies on the use of central planning by private firms rather than the government.
(' Is one that allows trade with other countries.
Most industrialized economies are mixed economies: they are based on market principles but still have significant
roles for government intervention in the allocation of goods and services .

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'W tien the invisibie' iland. does not produce o'ptimai ciu'icomes .. for the !iconomy: there 'is -evidence of . . . . .....
_,I Market failure.
I Government failure .
(" Macroeconomic failure .
I Scarcity.
Market failure situations call for possible government action to hopefully improve the outcome toward a socially
optimal or socially efficient outcome.

Multiple Choice Difficulty: 1 Easy market and government approaches
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............1/iihidi cif'thefollowing' is 'n oia macroeccinom'ic'siiitem'e ilt?''''"''"''''"''
r The unemployment rate for the United States rose to 5 percent in the last quarter.
r The Federal Reserve lowered interest rates at its last meeting .
r Congress increased the minimum wage rate in January.
__,r Jenny's wage rate rose, and in response, she decided to work more hours.
The wages of a particular worker are a microeconomics topic.

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.......... file study Ofmicroec·o-n omictheory focuses c;·n the
__,C: Structure and performance of individual markets and the operation of the price system.
r Operation of the entire economy.
r, Role of the banking system in the economy.
r Interaction of international trade and domestic production of goods and services.
Microeconomics studies how the foundation of an economy and individual markets work.

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·M·i·croe·cono·m·ics··i·s··ca·n·cernea·wiih. issues·· s·u·ch··as ·························
__,r The demand for bottled water by individuals.
r The level of inflation in the economy.
r Maintaining a strong level of economic growth .
r All of the choices are correct.
The demand for a particular product is a microeconomic topic.

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Economic models are.. useCi by.economists to
r Predict economic behavior.
r Develop economic policies.
("" Explain economic behavior.
_,r All of the choices are correct.
The economic models are designed to benefit society and prevent us from doing things that lead to lower living
standards.

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A
•
D Housing
Figu•·e 1.1
P1·oduction Possibilities Curve
At which point is society employing some of its available technology but not all of it? (See Figure 1.1.)
( A
r s.
_,r c.
r D.
We could produce more by using the resources we have more efficiently.

represents.
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.8
PP1 .PP2
OUTPUT OF PLASMA TELEVISIONS
Figure 1.4
A movement from point C to point A in Figure 1.4 results in
(" More efficient production.
(" Permanent unemployment of workers producing plasma televisions.
(" A reallocation of resources from MP3 player production to plasma television production.
___.(' A reallocation of resources from plasma television production to MP3 player production.
Moving from one point to another on the same production possibilities curve represents changing the combination of
the two goods.

Multiple Choice Difficulty: 3 Hard production-possibilities curve
represents.
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.s
PPl PP2
OUTPUT OF PlASMA TELEVISIONS
Figure 1.4
In Figure 1.4, a shift of the production possibilities curve from PP1 to PP2 could be caused by
(' An increase in the unemployment rate.
_,('· Implementation of training programs that improve the skills of workers .
r A flu epidemic that makes many workers sick.

(' Tougher pollution controls for the producers of plasma televisions and MP3 players .
An increase in any resource, including physical or human capital, increases the production possibilities curve.

represents.
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D
•
A
•
PP1 PP2
OUTPUT OF DOUGHNUTS
Figu1·e 1.5
Using Figure 1.5, if an economy is currently producing on PP2, which of the following would shift the production
possibilities curve toward PP1?
(' An increase in the quantity of labor available.
--->(' A decrease in the amount of capital available.
r An increase in the level of unemployment above the normal level.

I An advancement in technology.
If resources decrease, the production possibilities curve will shift inward toward the origin .

represents .
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u..
0
t-
::)
a.
t-
::>
0
PP1 PP2
OUTPUT OF SUVs
Figure 1.6
Using Figure 1.6, if an economy has the capacity to produce represented by PP1 , then point E represents
I A combination of cars and SUVs that is not attainable.
( A constant trade-off between cars and SUVs.
I A change in technology.
_.I An efficient use of resources.
Any point on the production possibilities curve is considered efficient.

represents.
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........................... ., ..........................................
PP1 PP2
OUTPUT OF SUVs
Figure 1.6
In Figure 1.6, at which of the following points would the opportunity cost of producing one more car be the lowest?
-.r F.
r s.
r c.
r D.
Since most of the economy is devoted to SUV production at point F, allowing more resources to go toward car
production would result in only a small loss of SUVs (a low opportunity cost) . Since point "D" is not on a PPC, its
slope cannot not be determined .

Multiple Choice Difficulty : 3 Hard production-possibilities curve
represents.
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.,,. , ... ,. ....... .
PP1 PP2
OUTPUT OF SUVs
Figure 1.6
In Figure 1.6, at which of the following points would the opportunity cost of producing one more SUV be highest?
C A.
r s.
r c.
_.r F.
Opportunity cost is determined by the slope of the production possibilities curve. The slope is steepest at point "F" for
all of the possible answers. Since point "A" is not on a PPC, its slope cannot be determined .

represents.
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1-
:;:)
a.. Q)
-\....
tO A '
. I •~
1- >
:::»
0
\....
Q)
0.
B: -------- tE
! I
0 J!l
0 .....
.c:
:1
!I I
0u..
-:;, - - - - - - - - t:- ---
IF IH
I I
I I
I I
0 K L M
ClOTHING OUTPUT
(units per year)
Refer to Figure 1.7. This economy will achieve efficiency in production at

I Point D only.
I Point G only.
r Point J only.
_.r Points D, G, and J.
Any point along the production possibilities curve is considered an efficient point.

represents.
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I
BI --- ----- ff
'
I
I I
--------!p:-----
IF IH
l I
l I
I I
0 K L M
CLOTHING OUTPUT
(units per year)
Figu1·e 1.7
Refer to Figure 1.7. The cost of producing at point G rather than point Dis
r OA units of food .
I KL units of clothing .
_.r AB units of food.
r OL units of clothing .
To get additional clothing, food must be given up as resources are shifted out of the food industry.

represents.
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I
--------t,-
IE I
I
I I
-- ------t:- _,_
IF tH
I
I
I
0 K L M
ClOTHING OUTPUT
{units per year)
Figu•·e 1.7
Refer to Figure 1.7. The benefit of producing at point G rather than point Dis
r OA units of food .
_.r KL units of clothing.
r AB units of food .
r OL units of clothing.
By moving resources out of the food industry and into the clothing industry, more clothing may be produced .

represents.
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I , ,N
B -------·- t.-
,E
I
I I
·- - - ··- - - - - f:- ---
IF IH
I
I
I
0 K L M
CLOTHING OUTPUT
(units per year)
Figu•·e 1.7
Refer to Figure 1.7. The cost of producing at point D rather than point J is
_.('" KM units of clothing .
('" AC units of food.
('" OM units of clothing .
('" OA units of food .
Additional food may be produced by giving up the opportunity to produce clothing.

represents.
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1-"'C"
~ tO
0.. Q) I
1->
~ i B --- - --- - tE-
Oc. l
Cl ~· I
0 c: I I
0 :::s ·- - -·- - - ·- - t: - -.~
u..- IF .:a
I
I
I
0 K L M
ClOTHING OUTPUT
(units per year)
Figu•·e 1.7
Refer to Figure 1.7. If this economy is currently producing at point F, then by employing more resources this economy
r Can move to point D, but not points G or J .
__.r Can move to points D, G, or J .
! Can move to point G, but not points D or J.

(' Will remain at point F.
Inefficient production results when resources are not being fully used . Using more resources moves us toward-in
this case, onto-the production possibilities curve.

represents.
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...................................................................................................
A
I
B --------t:E
I
I
I I
,_ - _,- - - - - t: -:- -ti-
,F IH
I
I
I
0 K L M
ClOT:HII NG OUTPUT
(units per year)
Figut·e 1.7
Refer to Figure 1.7. Which of the following points are considered to be inefficient?
r D.
->('" E.
('" G.
('" D, G, and J.
Production choices that fall inside the production possibilities curve are considered inefficient.

represents.
Assignment Print View Page 22 of40
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................. ..
, ..... , ,,, . ,
10.00
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... ,. ...
f •N
--------t,-
,E
:J
I I
- - - - - - - - f: - ---
IF IH
I J
I I
I I
0 K L M
CLOTHING OUTPUT
(units per year)
Figu1·e 1.7
Refer to Figure 1.7. Which of the following points show unemployment of resources above the normal rate?
_.r H.
r J.
r N.
r D.
Resources must be unemployed at production levels below the production possibilities curve.

represents.
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.
······· ial:>ie1 : fstiowsiile. tiypott1etiC:afirade~oH.I:>eiWeen dH'fe.renlcom5iriaiiorisofsleaHh.hom5ersand ·s~1 ·boml:>ers .ttiai
might be produced in a year with the limited U.S. capacity, ceteris paribus. Complete the table by calculating the
required opportunity costs for both the B-1 and Stealth bombers.
Opportunity cost Opportunit~·

Number ofSt ~:!a lth Cost ofB-ls in
of Stealth Bombers in Number Tenus of Stealth
Combination Bombers Terms ofB-l s ofB -l s Bombers
s 10 0
T 9 1
')
lJ 7
.-..,.
v ..J. _
Table 1.1
Production Possibilities fm· Bombers
In the production range of 7 to 9 Stealth bombers, the opportunity cost of producing 1 more Stealth bomber in terms of B
-1s is
r o.
r 3.
_.r o.s.
c 2.
In this production range, 2 additional stealth bombers require us to forgo the opportunity to produce one entire B-1
bomber, or half a B-1 bomber for each Stealth bomber.
Opportunity cost Opportunity

Number of Stealth Cost ofB-ls li1
of Stealth Bombers in Number Tenus of Stealth
Combination Bombers Terms ofB-ls ofB-ls Bombers
s 10 0
T 9 1 1= 1 1 1 -T 1 :::::;:
1
tT 7 l + 2 = 0.5 2 2 -;- 1 :::::;: ')
y .., .., ..,

4 t 1 "';" ·' = 0,.),)
""""'
0 ....
·' ., -;- J = ,)
Table 1.1 An~wer·s

Multiple Choice Difficulty: 3 Hard
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....................... i'ahie.. 1.: fsii.ows ..iile. tiypoiiieti'ca·i·i rade-otfhetvie.en··artterent·c:amhl.riai ions.Cif'steartii.hom5ers.aria .. s~·f bomhers .iilai·--··········
requ ired opportunity costs for both the B-1 and Stealth bombers.

Number of Stealth Cost ofB-1 sin
of Stealth Bombers in Number Terms of Stealth
Combination Bombers Terms of B-ls ofB -ls Bombers
s 10 0
T 9 1
lT 7 2
\" .J ·"'"'
Table l.l
Pt·oducti.otrl Possibilities f oli· Bo111bers
The highest opportunity cost anywhere in Table 1.1 for Stealth bombers in terms of B-1 bombers is
__,r 1 B-1 bomber per Stealth bomber.
r 3 B-1 bombers per Stealth bomber.

r 2 B-1 bombers per Stealth bomber.
r 0.5 B-1 bomber per Stealth bomber.
This is one of the extreme points on the production possibilities curve where it meets the axis on the Stealth bomber
end.
Opportunity c.o st Opportunity

Number of Stealth Co ·t of B-l s in
of Stealth Bombers in Number Tenn.: of Stealth
Combination Bombers Tenus ofB-ls ofB -ls Bombers
s !0 0
T 9 1 1= 1 1 1 1= 1
,.lT 7
4
1 + 2 = 0.5
J -:-. -"'_,\ -- 0 . . .
~
,.) .)
2
"',
_
2+ 1= 2
_..., -:- 1 = .i
Table 1.1 A nswet·s

Multiple Choice Difficulty : 3 Hard
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42. 10.00
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· Tat>ie; ··:; :fsh.ows tlle.tiypotheti'C:afirade-otf"t>etvie.en di.fferentcoilihi'riaiioils. of'.s!ea'iih..b'ombers.ai1Cis~·:;··bombe.rs .ttiat··· ..···· ·

Number of SteaJth Cost f B-1 H in
Combination Bombers. Tenns. of B-1 s ofB -ls Bombers
s 10 0
T 9 1
u 7 ')
.._
v 4 ,"'
T4tble 1.1
P1·oducdon Possibilities fot· Bombers
The highest opportunity cost anywhere in Table 1.1 for B-1 bombers in terms of Stealth bombers is
I 1 Stealth bomber per B-1 bomber.
--->r 3 Stealth bombers per B-1 bomber.
( 2 Stealth bombers per B-1 bomber.
I 0.5 Stealth bomber per B-1 bomber.
This is one of the extreme points on the production possibilities curve where it meets the axis on the B-1 bomber end.
Opportunit~· cost Opportunity

Nmnber of Stealth Cost of B-l s in
Combination Bombers Terms ofB-ls ofB -ls Bombers
s [0 0
T 9 I+ l ; ;: ; 1 1 1 -7- 1 = 1
lT 7 1 + 2 = 0.5 ')
27 1=2
... ... + l - ...
\. 4 I 1 _:.,_ _,.'\. . . -- 0-.,'.
... ~ _.) ;) - ·'
Table 1.1 Answers
Learning Objective : 01-01 How

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·················::rabie· :, ·: 1"stiowstile' il'Yi>othetic~i'itrade~ofi..between..difierent.combil1aiiol15. oisieahh.t>ombers .iif1d· s~1·bambers .fi1ai····
Opp()I'tlmity cost O pportunity

Number of Stealth Cost of B-1 s in
Combination Bombers Tenus ofB-l s ofB -ls Bombers
s 10 0
T 9 1
tT 7 2
v 4
Table 1.1
Production Possibilities fm· Bontbers
The lowest opportunity cost anywhere in Table 1.1 for B-1 bombers in terms of Stealth bombers is
r 0 Stealth bombers per B-1 bomber.
C, 2 Stealth bombers per B-1 bomber.
_.r 1 Stealth bomber per B-1 bomber.
( 0.5 Stealth bomber per B-1 bomber.
This is one of the extreme points on the production possibilities curve where it meets the axis on the Stealth bomber
end.
Opportunit~· cost Oppotiunity

Number of Stealth Cost of B-1 s in
Combination Bombers Terms of B-ls ofB -ls Bombers
s 10 0
T 9 1+ 1 = 1 1 1+ 1= 1
u 7 I 1 -;- 2 = 0.5 2 2+ 1= 2
I

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.......... fabie 1.2.. sil.ows..tileilypottieticaiirade~otf"between··aitterent c.oiTi6inatioii.s ofstealth..bombersanCi .. s~·fboiTi5ers .. tilai"·········
Opportunity Cost of
l Number of
Stea lth
Skalth Bomb<:.rs in
Terms ofB-1
Number of
B-J
Opportunity Cost ofB-
I. Bombers in Te rms of
Combination Bombers Bombers Bombers Stealth Bombers
A 195 20
B 180 l :15
c J:o 1
1 45
D 100 '
i 50
------. -
Tabl(' l.2
I~roducriou Possibilities fot· Bombers
On the basis of your calculations in Table 1.2, what is gained by producing at point B rather than point C?
I 45 B-1 bombers.
-+1 30 Stealth bombers.
I 180 Stealth bombers.
I 10 B-1 bombers.
Reallocating resources to Stealth bombers will allow 30 (180- 150) additional Stealth bombers to be produced .
Ot portun.ity Cost of
Number of Stealth Bomb~:rs in Number of Oppottunity Cost ofB -
Stealth Terms ofB-l B-1 l Bombers in Terms of
Combination I Bombc.::rs Bombers Bomb~rs Stealth Bombers
c\ J 195 20
J 5 -:- t::- - 1 -.-
B 180 . "'~) I 5 -:- !5 - I
- --
c 150 10 + 30 = 0.33 45 30 + 10 = 3
D I 100 5 -:- 50 = 0.1 50 50 + 5 = 10
Table- 1.2 .-\.DS\H~t·s

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······ ··················fable 1:2"5ilows..ii1e ilypotileticaTiraCie~otf5etv:ieen .aifierentcom"b i ii·aticiiis. of' .siea'iihhombei-s.ana· s~1 bomhe.rs .iilat
might be produced in a year with the limited U.S. capacity , ceteris paribus. Complete the table by calculating the
Opportunity Cost of
Nu m her of Sh!alth Bombers in Number of Opportunity Cost ofR -
Stealth Terms ofB-1 B-1 1 Bombers in Tenns of
Combination Bombers Bombers Bombers Stealth Bombers
--\. 195 20
B 180 35
(' 150 45
'-----
D 100 -.
50
Ta ble 1.1
rrod uction P ossibilities fot· Bombers
On the basis of your calculations in Table 1.2, what is gained by producing at point B rather than point A?
r 35 B-1 bombers.
("' 195 Stealth bombers.
-.r 15 B-1 bombers.
("' 15 Stealth bombers.
Reallocating resources to B-1 bombers will allow 15 (35- 20) B-1 bombers to be produced .
Opportunity Co~t of
umber of Stealth Bombers in Number of Opportunity Cost ofB -
Combination
_\
II Stealth
Bombers
195
Tenus ofB-1
Bombers
B-1
Bombers
20
l Bombers in Tenns of
Stealth Bombers
B 180 15 + 15- 1 -..

~") 15+15- 1
c 150 10 + 30:::: 0.33 4'5 30 + 10 = 3
D 100 5 + 50= O.l 50 50 + 5 = 10
Table 1.2 Answers

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· i'a&i9'1:3'5ti.ows"if1e..Fiyi)oif1eiicaiiraCie~of:r&e;t:.:ve;e;i1 ·aifie·r:e ni·c:·on;hrria:iians. ofhrus.fle5"ariCI"comhs"if1at.ii1i9tit'he. proCJucea·
in a year with the limited capacity for Country X, ceteris paribus. Complete the table by calculating the required
opportunity costs for brushes and combs.
Opportunity Cost
Number of Brushes in Opportunity Cost
of Terms :-lumber of Combs in Terms
Combination Bmshes of Combs of Combs of Brushes
J 0 4
..,
K 10
L 17 "2
M 21 1
N 23 0
Table 1.3
Production Possibilities for Brushes and Combs
On the basis of your calculations in Table 1.3, what is gained by producing at point M rather than point N?
r 23 combs.
r 21 combs.
_,r 1 comb.
(" 2 combs.
Sh ifting resources toward production of combs allows for greater comb production (1 - 0) .
Opportunity Cost
Number of Br ushes in Opportunity Cost
of T <:!rtllS ~umber of Combs in Terms
Combiltation Bmsltes of Combs of Combs of Brushes
J 0 4 i
K 10 1-:-1 0 = 0.10 3 10 -:- 1 = 10
I
L ]7 1 -:-7 = 0.1 4 2 7-:-1 = 7
i
M 21 1 + 4 = 0.25 1 I 4+ 1=4
N
__,
? "" 1 + 2 = 0.50 0 2+ 1= 2
Table l.J Answers

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· · · tabie·1:3.5tiows.itie..ilypoitietk:afirade~ofi .betweeil· ·aYfieren(corlibfr1aiior15oihrus·ties .ar1a··c:c;rr;t,5itiaf·rr;i9hi.59.. proauc:ea
Opportunity Cost
Number ofBnn:hes in Oppm1unity Cost
of Terms ~umber of Combs in Terms
Combi11ation Brushes of Combs of Combs of Brushes
J 0 4
K 10 3
L 17 2
M 21 1
?~
N -·" 0
Table 1.3
Production Possibilities for Brushes ami Combs
On the basis of your calculations in Table 1.3, what is gained from producing at point L rather than point K?
I 17 combs.
r 10 combs.
r 1 brush .
__.(' 7 brushes.
Shifting resources toward production of brushes allows for greater brush production (17- 10).
Opportunity Cost
Number ofBrushes in Opportunity Cost
of Terms ~umber ofCombs in Tenus
Combination B111sltes of Combs of Combs ofBnlshes
J 0 4
K 10 1710 = 0.10 3 I 10 7 1 = 10
L 17 177 =0.14 2 iI 7+1=7
M 21 1 + 4 = 0.25 1 I 4 .;. 1 = 4
N 23 1 + 2 = 0.50 0 !
2+1 =2
Table 1.3 Answers

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· · · ······················ 'Ta6ie1:35tiow5. iileil'Yi>oiiletiC:afirade~oHbetwe.en··aifiere.ni·e:·ombinaiion·s--oThrlis.f1es. and.com55.if1afmi911i·b·e·proa·ucea·
opportunity costs for brushes and combs .
Opportunity Cost
of Terms )Jumber of Combs in Terms
Combination Bntshe$ of Combs of Combs of Brushes
J 0 4
..,_,
K 10
L 17 2
M 21 1
')"'
N 0
-·'
Table 1.3
Prmluction Possibilities for Brushes and Combs
On the basis of your calculations in Table 1.3, the law of increasing opportunity costs applies to
->r Both brushes and combs.
r Combs but not brushes.
r Brushes but not combs.
I Neither brushes nor combs.
A production possibilities curve will be bowed out from the origin where there are increasing opportunity costs.
Opportunity Cost
Number of Bt1lshe s in Opportunity Cost
of Terms )Jumber ofCombs in Terms
Combittation Brushes of Combs of Combs of Brushes
J 0 4 i
K 10 1-7-10 = 0.10 3 10 -7- l = 10
L 17 1-7- 7=0. 14 2 7-7-1=7
~v( 21 1 .;. 4 = 0.25 1 4+ 1 =4
N 23 1 .;. 2 = 0.50 0 I I 2.;.1=2
Table 1.3 Answers

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············ --······------·· fabie 1.3. 5ti.ow5.ifle tiyi)otheticaffraCie~o1f6etween dittererit.comhi.riations. of'·5-rus'hes--anci"com55 .i i1at"mi9'h't.he--proCiucea·
in a year with the limited capacity for Country X , ceteris paribus. Complete the table by calculating the required
Opportunity Cost
of Terms ::.lumber of Combs in Tenus
J 0 4
K 10 3
L 17 2
M 21 1
')~
N -·' 0
Table 1.3
Production Possibilities for Brushes anc:l Combs
On the basis of your calculations in Table 1.3, in the production range of 2 to 3 combs the opportunity cost of producing
1 more comb in terms of brushes is
r 3.33.
____.(" 7.0.
r o.67.
r o.14.
Shifting resources toward more combs requires a drop in the production of brushes.
Opportunity Cost
of Terms Number of Combs in Tenus
Combination Bm sh es of Combs of Combs of Brushes
J 0 4
K 10 1-:-1 0 = 0.10 3 I I 10-:-1 = 10
L 17 1-:-7 = 0.14 2 I 7-:- 1 = 7
lvf 21 1 ..;. 4 = 0.25 1 I 4 .;.. 1 = 4
N 2"' I . ;. 2 = 0.50 0 I 2 .;.. 1 = 2
·' '
T11ble 1.3 Answers

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........... ra5i9"1·:3.5iiows'tfie..iiyi>othetiC:aTirade~ott.between· ·aiife·r:e;·r,t'e:·c;n;brr1atior15"ofb'riJs.iies .ar1Ci. com5s .tiiat"mi~i'h'i . 5e . i>roduced.
Opportunity Cost
Number of Brush~ s in Oppmiunity Cost
of Terms ~umber of Combs in Tenus
J 0 4
K 10 3
L 17 2
1v[ 21 1
N 23 0
Table 1.3
Production Possibilities for Brushes anti Combs
On the basis of your calculations in Table 1.3, in the production range of 21 to 23 brushes the opportunity cost of
producing more comb in terms of brushes is
r 1/21 .
r 21/23.
_.r 1/2.
r 4.
Shifting resources toward more brushes (2) requires a drop in the production of combs (1 ). Therefore for each 1
brush , Y. a comb is given up (1 divided by 2).
Opportunity Cost
Number ofBrushes in Opportunity Cost
of Terms ~umber of Combs in Terms
J 0 4
K 10 1-:-10 =0 .10 3 I 10 -i- 1 = 10
I
L 17 1+7 =0.14 2 I 7-:-1=7
}..;{ 21 1 ..;. 4 = 0.25 1 I 4+1=4
N 23 1..;. 2 = 0.50 0 I 2+1 = 2
Table 1.3 Answers

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. . .... ...... i'abie 1.3shows..the hypotheticaf trade~off between different'combinations' of hrus.hes"and' comtis"that 'might be-produced
Opportunity Cost
of Terms :.Iumber of Combs in Terms
Combination Bmshes of Combs. of Combs of Brushes
J 0 4
K 10 3
L 17 ..
·' )
M 21 1
N 23 . 0
Table 1.3
On the basis of your calculations in Table 1.3, in the production range of 1 to 2 combs the opportunity cost of producing
1 more comb in terms of brushes is
_.r 4.
(' 1/2.
r 2111 .
(' 1/7.
Shifting resources toward more combs requires a drop in the production of brushes.
Opportunity Cost
Numbet· ofBrushes in Opportunity Cost
of Terms :.Iumber ofCombs in Terms
Combination Bmsltes of Combs of Combs I of Brushes
J 0 4
K 10 1..;-10 =0.10 3 I I 10..;-1 = 10
L 17 1..;-7 =0. 14 2 7..;-1 = 7
lvf 21 1.;. 4 = 0.25 1 I I 4.;.1=4
N 2~ l.;. 2 = 0.50 0 I I I 2+1=2
T~lble 1.3 Answers

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.............................. faiJie '1 Ssti.ows..ttie tiypotileticai"trad'e~oifiJetween. di'fferent'ccimbinations.. ot'b'ru s'hes .and combs.ttiat'.mi9'hi.tie produced.
in a year with the limited capacity for Country X , ceteris paribus. Complete the table by calculating the requ ired
Opportunity Cost
Number ofBru shes in Oppmiunity Cost
of Terms :.lumber of Combs in Tenus
Combination Brushes of Combs of Combs of Brushes
J 0 4
K 10 "'_,
L 17 2
M 21 1
N ...
?'"~ 0
T able 1.3
On the basis of your calculations in Table 1.3, the highest opportunity cost for brushes in terms of combs is
(" 0.10 comb per brush .
(" 23 combs per brush.
__.(" 0.50 comb per brush .
(" 0.29 comb per brush.
This is a point where the production possibilities curve touches the axis. The opportunity costs are 0.10, 0.14, 0.25,
and 0.5, respectively , as we increase brush production.
Oppormnity Cost
of Terms :Jumber of Combs in Tenus
Combination Brushes of Combs of Combs of Brushes
J 0 4
K 10 1 7 10 = 0. 10 3 1071 = 10
L 17 17 7 = 0.14 2 I 771 = 7
l'vf
,.
21 1 7 4 = 0.25 1 I 4+ 1 = 4
N ~-' 1 + 2 = 0. 50 0 I 2+ 1 = 2
T~lble 1.3 Answers

represents.
·~---- ~- · ·
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............................ ffibi9"1.3 ShOWS..ih9"hYPOihE!tiC8firade-otfbetwe·en different co·m'binaiiO.rl'S..Ofhr·u·sh9S"8nd . COrrlbS. ihat might b9·. p·roau·c·ed
Opportunity Cost
of Tenns ~umber of Combs in Terms
Combi1t<ltion Brushes of Combs of Combs of Brushes
J 0 4
K 10 3
L 17 2
M 21 1
?~
N --~ 0
Table 1.3
Pr(){luction Possibilities for Brushes and Combs
On the basis of your calculations in Table 1.3, the lowest opportunity cost for combs in terms of brushes is
r 10 brushes per comb.
->r 2 brushes per comb.
r 0.33 brush per comb.

r 8.5 brushes per comb.
This is a point where the production possibilities curve touches the axis. For each combination , the opportunity costs
for 1 comb are 10, 7, 4, and 2.
Oppl)ft\lnity Cost
of Tenns :'-Jumber of Combs in Terms
Combination Bntshes of Combs of Combs I of Brushes
J 0 4 ! I
K 10 1-;-1 0=0.10 3 I 10-;- 1 = 10
L 17 }-;-7 =0. 14 2 7-;-1 = 7
}v( 21 1 .;. 4 = 0.25 1 4-;-1=4
I
N 2:1 1 .;. 2 = 0.50 0 I 2-;-1=2
T~lble 1.3 Answers

represents.
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.,.,.., ....... ,., ...... ..
4.5
4.0
3.5
3.0
2.5
2.0
l.S
l.O
.5
10 20 30 40 5(]
STUDY TIME
Figure 1.8
Rehding Gt~des and Hours Studied
Figure 1.8 suggests that
r The law of increasing opportunity cost does not apply.
r Resources can be perfectly adapted between study time and grade point average.
_,r The relationship between study time and grade point average is first linear, then nonlinear.
r The relationship between study time and grade point average is constant.
The function beg ins with a constant positive slope, and then it becomes nonconstant.

represents.
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y
80 - - - .. - - - - - - - - - - Ivf
50
30
15
0 25 50 75 100 x·
Figure 1.9
In Figure 1.9, the slope of the line between points K and L is
r 1.25.
_.ro.8o.
r o.75.
r o.6o.
The slope is calculated as the change in the vertical variable divided by the change in the horizontal variable (0.80 =
20/25) .

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.......... .......... .......... ......... ........ .
y
80 - - - - .... - - - - - - - - -
50
30
15
0 25 50 75 100 X
Figure 1.9
In Figure 1.9 the slope of the line is
r Greater at point K than point L.
r Equal to zero at all points.
r The same at points J and K.
___,(", Greater at point M than point L.
The slope increases a's we move from left to right because the curve is getting steeper.

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'iiius.ii19'a'9i.Ji1s. alid'6liiter.proauc:Hc;·ii·possibiiiiiescuiVe. wiifl.increasii19.opportui1iiY·c:ost,·p;.oaudil9··;:nc;;.9·ar;a·;:nc:i;.e
tanks
(' Lowers the cost of each individual tank.
r Can be done at a constant opportunity cost.
_,r Requires us to give up larger and larger amounts of butter per tank produced.
r Is not possible due to scarcity.
This is because of the law of increasing opportunity cost.

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.......... G.reaier.re9Liiaiion.io.. correc:tiile.i'm5alai1ces .iii.. ttie.economy:··-a;;;ei(9overnmeili .ii1teiVentioii.io ·;:naintaintull
employment, was associated primarily with the work of
-.1 John Maynard Keynes.
I Adam Smith.
I Karl Marx.
I Ronald Reagan.
This forms the basis of the Keynesian school of economics.

Multiple Choice Difficulty : 2 Medium market and government approaches
---~------
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Assignment Print View Page 1 of 40

Resources are not unlimited.

Learning Objective: 01-03 The three

Wants will always exceed resources.

Learning Objective: 01-01 How

_,I Choices have to be made about how resources are used.

Scarcity means choices must be made.

Learning Objective: 01-01 How

Learning Objective: 01-01 How

(' Factors of production are also known as resources.

Even resources owned by governments count as factors of production.

Learning Objective: 01-01 How

Learning Objective: 01-01 How

Learning Objective: 01-01 How

technology, and growth?

Learning Objective: 01-01 How

Learning Objective: 01-01 How

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r An increase in national defense is possible only if we produce more butter.

Learning Objective: 01 -01 How

(' The price level is changing.

Learning Objective: 01-02 What the

Learning Objective : 01-02 What the

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Learning Objective: 01-02 What the

Learning Objective: 01-02 What the

Learning Objective : 01-02 What the

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Learning Objective: 01-02 What the

Learning Objective: 01 -02 What the

Learning Objective: 01-04 How

Governments can sometimes improve market outcomes.

Learning Objective: 01-04 How

Learning Objective: 01-04 How

Learning Objective: 01-04 How

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The wages of a particular worker are a microeconomics topic.

Learning Objective: 01-04 How

Learning Objective: 01-04 How

The demand for a particular product is a microeconomic topic.

Learning Objective: 01-04 How

Learning Objective: 01-04 How

We could produce more by using the resources we have more efficiently.

Learning Objective: 01-02 What the

OUTPUT OF PLASMA TELEVISIONS

Learning Objective: 01-02 What the

r A flu epidemic that makes many workers sick.

Learning Objective: 01-02 What the

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r An increase in the level of unemployment above the normal level.

Learning Objective: 01-02 What the

Any point on the production possibilities curve is considered efficient.

Learning Objective: 01 -02 What the

Learning Objective: 01-02 What the

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Learning Objective: 01 -02 What the

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Refer to Figure 1.7. This economy will achieve efficiency in production at

Learning Objective: 01-02 What the

Learning Objective: 01-02 What the

Learning Objective: 01-02 What the

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Additional food may be produced by giving up the opportunity to produce clothing.