Chapter 2

 Practice Questions

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

1) The production possibilities frontier is a graph that shows the combinations of goods and services 1)
A) an economy should produce.
B) will produce in the future.
C) an economy should consume.
D) an economy can produce.
E) an economy can consume.

Use the table for the question(s) below.

Guns (1000s) Butter (1000 lbs)
0 105
10 100
20 90
30 75
40 55
50 30
60 0

2) The opportunity cost of increasing gun production from 10,000 to 20,000 is 2)
A) $5,000.
B) Cannot be calculated with the information given.
C) 10,000 guns.
D) $10,000.
E) 10,000 lbs of butter.

3) Refer to the figure below. Moving from point C to point B, the opportunity cost of 25 3)
more salads is:

A) 5 pizzas. B) 15 pizzas. C) 10 pizzas. D) 30 pizzas.

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 4) Refer to the figure below. If this restaurant makes 75 salads in one hour, then what's 4)
the maximum number of pizzas it can make in that same hour?

A) 30 B) 20 C) 0 D) 10

Use the Figure for the question(s) below.

5) The combination A (45 Widgets, 20 Gizmos) represents a state of 5)
A) efficient production.
B) fully employed resources.
C) an unattainable output level.
D) unemployed resources.
E) most socially desired output.

6) The Principle of Increasing Opportunity Costs states that: 6)

A) opportunity costs increase when too little is produced.
B) productive people do the hardest tasks first.
C) when increasing production, resources with the lowest opportunity costs should be
used last.
D) when increasing production, resources with the lowest opportunity costs should be
used first.

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Use the Figure for the question(s) below.

7) The opportunity cost of increasing Widget production from 0 to 45 is 7)
A) 45 Widgets.
B) 10 Gizmos.
C) 40 Gizmos.
D) 30 Gizmos.
E) Cannot be calculated with the available information.

8) In the figure above, the opportunity cost of Gizmos is 8)
A) 20 Widgets.
B) 75 Widgets.
C) 100 Widgets.
D) 10 Widgets.
E) Cannot be calculated without knowing where the economy is along the PPF.

9) Which of the production possibilities frontiers shows increasing opportunity costs? 9)
A)

B)

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C)

D)

E)

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Use the Figure for the question(s) below.

10) The PPF in the figure above shows 10)

A) an economy with increasing opportunity costs.
B) an economy with decreasing opportunity costs.
C) an inefficient economy.
D) an economy with constant opportunity costs.
E) None of the above is correct.

11) The figure below shows the production possibilities curve for the island of Genovia: 11)

If 500 cars are produced in Genovia, a maximum of ________ tons of agricultural

products can be produced.
A) 45,000 B) 25,000 C) 40,000 D) 50,000

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12) The figure below shows the production possibilities curve for the island of Genovia: 12)

The opportunity cost of producing a car in Genovia is:

A) 50 tons of agricultural products. B) 5,000 tons of agricultural products.
C) 5 tons of agricultural products. D) 500 tons of agricultural products.

13) Comparative advantage exists 13)

A) if one individual or group compare well with another individual or group.
B) if one individual or group has a lower opportunity cost of pursuing an activity than another
individual or group.
C) when a shopper takes advantage of a temporary price reduction.
D) if one individual or group can exploit, or take advantage of, another individual or group’s
weakness.
E) when a comparison shopper sees a lower price in a particular store.

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 14) Refer to the figure below. The opportunity cost of producing one bushel of corn is: 14)

A) 500 bushels of wheat. B) 250 bushels of wheat.

C) 2 bushels of wheat. D) ½ of a bushel of wheat.

Use the Figure for the question(s) below.

15) Marlin and Michelle own a catering service. Their production possibilities frontier for one hour of 15)

work is shown in the figure above. Which statement is true regarding absolute advantage?
A) Both Marlin and Michelle have absolute advantages in preparing meals.
B) Marlin has the absolute advantage in dishwashing.
C) Neither Marlin nor Michelle have an absolute advantage in either task.
D) Michelle has the absolute advantage in dishwashing.
E) Both Marlin and Michelle have absolute advantages in dishwashing.

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Use the Figure  for the question(s) below.

16) April and Abigail sew quilts and pillows. Their production possibilities frontier for one day of 16)

work is shown in the figure above. Which statement is true regarding absolute advantage?
A) Neither April nor Abigail have absolute advantages in making quilts.
B) Abigail has the absolute advantage in pillows.
C) Productivity in quilt-making is unequitably distributed.
D) April has the absolute advantage in making pillows.
E) Both April and Abigail have absolute advantages in making pillows.

17) Refer to the figure below. If Pat and Chris were to specialize in the task in which each 17)
has a comparative advantage:

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 A) Pat and Chris would each spend half of their time each task.
B) both Pat and Chris would plant bulbs because they both have an absolute advantage
in that task.
C) Chris would remove trash and Pat would plant bulbs.
D) Chris would plant bulbs and Pat would remove trash.

Use the Figure for the question(s) below.

18) Tarzan and David Livingstoneʹs production possibilities frontiers are shown in the figure above. 18)

A) Tarzan has the absolute advantage in growing grain.
B) Tarzan has a comparative advantage in growing grain.
C) Livingstone has a comparative advantage in growing grain.
D) Livingstone has the absolute advantage in growing grain.
E) A and B are correct.

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19) If Tarzan and Livingstone both originally grow about 45 bushels of grain and catch about 45 fish, 19)
then
A) both would be better off if Tarzan specialized in fishing, Livingstone specialized in farming,
and both traded.
B) both would be better off if Tarzan specialized in farming, Livingstone specialized in fishing,
and both traded.
C) There are no gains from trade in this example.
D) There are no gains from specialization in this example.
E) both would be better off if Tarzan specialized in fishing, Livingstone specialized in farming,
and they did not trade.

20) An individual has an absolute advantage in producing pizzas if that individual: 20)
A) has a higher opportunity cost of producing pizzas than anyone else.
B) can produce more pizzas in a given amount of time than anyone else.
C) charges the lowest price for pizzas.
D) has a lower opportunity cost of producing pizzas than anyone else.

21) If
Les can produce two pairs of pants per hour while Eva can produce one pair per 21)
hour, then it must be true that:
A) Les has an absolute advantage in producing pants.
B) Les has a comparative advantage in producing pants.
C) Eva has a comparative advantage in producing pants.
D) Les has both comparative and absolute advantage in producing pants.

22) If you have a comparative advantage in a particular task, then: 22)

A) you give up more to accomplish that task than do others.
B) you are better at it than other people.
C) you have specialized in that task, while others have not.
D) you give up less to accomplish that task than do others.

23) If
Jane can produce 3 pairs of shoes per hour, while Bob can produce 2, then 23)
________ has a(n) ________ advantage in producing shoes.
A) Bob; comparative B) Bob; absolute
C) Jane; absolute D) Jane; comparative

24) Refer to the table below. Julia's opportunity cost of making a pie is: 24)

A) 6 cakes B) 5/6 of a cake C) 60 cakes D) 6/5 of a cake

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25) Refer to the table below. Julia's opportunity cost of making a cake is: 25)

A) 60 cakes B) 6/5 of a cake C) 6 cakes D) 5/6 of a cake

26) Refer
to the table above. ________ has the comparative advantage in making pies and 26)
________ the comparative advantage in making cakes.

A) Julia;
Martha B) Julia;
Julia
C) Martha; Martha D) Martha; Julia

27) Referto the table below. Based on their comparative advantage, Martha should 27)
specialize in ________ while Julia should specialize in _______.

A) cakes; pies
B) both pies and cakes; neither pies nor cakes
C) neither pies nor cakes; both pies and cakes
D) pies; cakes

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 28) Suppose Cathy and Lewis work in a bakery making pies and cakes. Suppose it takes 28)
Cathy 1.5 hours to make a pie and 1 hour to make a cake, and suppose it takes Lewis
2 hours to make a pie and 1.5 hours to make a cake. Which of the following
statements is correct?
A) Cathy has a comparative advantage in pies, and Lewis has an absolute advantage in
pies.
B) Lewis has a comparative advantage in pies, and Cathy has an absolute advantage in
pies.
C) Lewis has a comparative and absolute advantage in pies.
D) Cathy has a comparative and absolute advantage in pies.

29) Suppose Cathy and Lewis work in a bakery making pies and cakes. Suppose it takes 29)
Cathy 1.5 hours to make a pie and 1 hour to make a cake, and suppose it takes Lewis
2 hours to make a pie and 1.5 hours to make a cake. What is the opportunity cost to
Cathy of making a cake?
A) 1.33 pies. B) 2/3 of a pie. C) 1 pie. D) 1.5 pies.

Table 02-01

30) According to Table 02-01, Corey has the absolute advantage in: 30)
A) making pizza. B) making and delivering pizza.
C) neither making nor delivering pizza. D) delivering pizza.

31) According to Table 02-01, Pat has the absolute advantage in: 31)
A) delivering pizza. B) making and delivering pizza.
C) neither making nor delivering pizza. D) making pizza.

32) According to Table 02-01, Corey's opportunity cost of making of a pizza is 32)
delivering:
A) 1/2 of a pizza. B) 2 pizzas. C) 2/3 of a pizza. D) 3/2 of a pizza.

33) According to Table 02-01, Corey's opportunity cost of delivering of a pizza is 33)
making:
A) 6 pizzas. B) 2 pizzas. C) 12 pizzas. D) 1/2 of a pizza.

34) According to Table 02-01, Pat's opportunity cost of making a pizza is delivering: 34)
A) 2 pizzas B) 2/3 of a pizza C) 3/2 of a pizza D) 3 pizzas

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35) Refer to Table 02-01. Based on their comparative advantages, Pat should specialize 35)
in ________, and Corey should specialize in ________.
A) neither making pizza nor delivering pizza; both making pizza and delivering pizza
B) both making pizza and delivering pizza; neither making pizza nor delivering pizza
C) delivering pizza; making pizza
D) making pizza; delivering pizza

36) In
general, individuals and nations should specialize in producing those goods for 36)
which they have a(n):
A) comparative advantage.
B) absolute advantage.
C) absolute advantage and a comparative advantage.
D) absolutely comparative advantage.

37) The United States was unable to maintain its dominance in the production of 37)
televisions because:
A) the raw materials necessary to build televisions became scarce in the United States.
B) the highly technical skills necessary to produce televisions are greater in other
countries.
C) the product designs evolved too rapidly for engineers in the United States to keep
up.
D) automated techniques allowed production to be outsourced to countries with
less-skilled workers.

38) Youare the Minister of Trade for a small island country with the following annual 38)
PPC:

You are negotiating a trade agreement with a neighboring island with the following
annual PPC:

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If you offer to give the other island 1 coconut for every 4 fish they give you, then they
will:
A) refuse your offer because they can produce as many coconuts as you can.
B) refuse your offer because they have a comparative advantage in fish.
C) accept your offer because their opportunity cost of a coconut is greater than 4 fish.
D) accept your offer because your opportunity cost of a coconuts is less than 4 fish.

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