Foundations of Macroeconomics Volume 1, 7th Edition By Robin Bade – Test Bank

Complete Test Bank With Answers

 

 

Sample Questions Posted Below

 

Chapter 3 The Economic Problem
3.1 Production Possibilities
1) The United States produced approximately ________ worth of goods and services in 2011.
A) $15 trillion
B) $15 billion
C) $150 trillion
D) $150 billion
E) $1,500 trillion
Answer: A
Topic: Production possibilities
Skill: Level 1: Definition
Section: Checkpoint 3.1
Status: Old
AACSB: Reflective thinking

2) Which of the following is an assumption used when drawing a production possibilities
frontier?
i. Human wants and desires are limited to what is available.
ii. Only two goods are considered.
iii. The level of technology is fixed and unchanging.
A) i only
B) ii only
C) i and iii
D) ii and iii
E) i, ii, and iii
Answer: D
Topic: Production possibilities frontier
Skill: Level 2: Using definitions
Section: Checkpoint 3.1
Status: Old
AACSB: Reflective thinking

3) In the production possibilities model, the vertical axis measures ________ and the horizontal
axis measures ________.
A) the quantity of a good or service; the quantity of another good or service
B) the price of a good or service; the quantity of the good or service
C) the price of a good or service; the price of another good or service
D) the quantity of a good or service; time
E) peopleʹs wants; the quantity of a good or service
Answer: A
Topic: Production possibilities frontier
Skill: Level 2: Using definitions
Section: Checkpoint 3.1
Status: Old
AACSB: Reflective thinking

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4) The production possibilities frontier illustrates the
A) maximum combinations of goods and services that can be produced.
B) resources the economy possess, but not its level of technology.
C) goods and services that people want.
D) limits to peopleʹs wants.
E) amount of each good that people want to buy.
Answer: A
Topic: Production possibilities frontier
Skill: Level 1: Definition
Section: Checkpoint 3.1
Status: Old
AACSB: Reflective thinking

5) When drawing a production possibilities frontier, which of the following is held constant?
A) the amount of money in the economy
B) the available factors of production and the state of technology
C) the prices of goods and services
D) the quantity of the goods and services that are produced
E) None of the above because nothing is held constant when drawing the production
possibilities frontier.
Answer: B
Topic: Production possibilities frontier
Skill: Level 1: Definition
Section: Checkpoint 3.1
Status: Old
AACSB: Reflective thinking

6) A production possibilities frontier shows
A) the various combinations of output a nation can produce a certain time, given its
available resources and technology.
B) the limits to future growth of a nation.
C) how money can be allocated among two kinds of goods.
D) that if price of one good decreases, the price of the other has to increase.
E) that it is impossible to produce inefficiently.
Answer: A
Topic: Production possibilities frontier
Skill: Level 1: Definition
Section: Checkpoint 3.1
Status: Old
AACSB: Reflective thinking

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7) The production possibilities frontier is the
A) maximum output that can be produced at an opportunity cost of zero.
B) minimum output that can be produced when resources are used inefficiently.
C) boundary between the combinations of goods and services that can be produced and the
combinations that cannot be produced, given the available factors of production and the
state of technology.
D) boundary between the combinations of goods and services that can be produced and the
combinations that cannot be produced when technology is changing.
E) maximum opportunity cost combinations of goods and services.
Answer: C
Topic: Production possibilities frontier
Skill: Level 1: Definition
Section: Checkpoint 3.1
Status: Old
AACSB: Reflective thinking

8) The production possibilities frontier is the boundary between the
A) goods and services that the economy can produce.
B) attainable and unattainable combinations of goods and services.
C) wanted and unwanted combinations of goods and services.
D) rational and irrational choices facing a society.
E) affordable and unaffordable combinations of production.
Answer: B
Topic: Production possibilities frontier
Skill: Level 3: Using models
Section: Checkpoint 3.1
Status: Old
AACSB: Reflective thinking

9) Consider a production possibility frontier with jeans on the vertical axis and shoes on the
horizontal axis. As the country moves along the frontier closer to the horizontal axis,
A) more jeans are produced.
B) the country eventually chooses an unattainable point.
C) free lunches occur.
D) more tradeoffs occur.
E) more shoes are produced.
Answer: E
Topic: Production possibilities frontier
Skill: Level 4: Applying models
Section: Checkpoint 3.1
Status: Old
AACSB: Analytical thinking

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10) While moving along a production possibilities frontier, the amount of labor ________, the
amount of capital ________, and the level of technology ________.
A) is fixed; is fixed; varies
B) varies; is fixed; varies
C) varies; is fixed; is fixed
D) is fixed; is fixed; is fixed
E) varies; varies; varies
Answer: D
Topic: Production possibilities frontier
Skill: Level 3: Using models
Section: Checkpoint 3.1
Status: Old
AACSB: Reflective thinking

Airplanes Cruise ships
Possibility (number)
(number)
A
100
0
B
80
20
C
50
40
D
0
60
11) The table above gives four production possibilities for airplanes and cruise ships. In possibility
A, how many resources are devoted to the production of airplanes?
A) 0
B) few
C) most
D) all
E) It is impossible to tell without more information about the prices of airplanes and cruise
ships.
Answer: D
Topic: Production possibilities frontier
Skill: Level 3: Using models
Section: Checkpoint 3.1
Status: Old
AACSB: Analytical thinking

12) The table above gives four production possibilities for airplanes and cruise ships. In possibility
A, how many resources are devoted to the production of cruise ships?
A) 0
B) few
C) most
D) all
E) It is impossible to tell without more information about the prices of airplanes and cruise
ships.
Answer: A
Topic: Production possibilities frontier
Skill: Level 3: Using models
Section: Checkpoint 3.1
Status: Old
AACSB: Analytical thinking

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13) Moving from one point to another on a production possibilities frontier implies
A) increasing the production of both goods.
B) decreasing the production of both goods.
C) increasing the production of one good and decreasing the production of another.
D) holding the production levels of both goods constant.
E) changing the amount of factors of production that are employed.
Answer: C
Topic: Production possibilities frontier
Skill: Level 3: Using models
Section: Checkpoint 3.1
Status: Old
AACSB: Reflective thinking

14) Assume that an association of young workers has lobbied Congress to require that all workers
retire once they reach the age of fifty. What impact would this law have on the nationʹs
production possibilities frontier?
A) no impact at all
B) The level of unemployment would decrease so the production possibilities frontier
would shift outward.
C) The nation would move to a new position on its production possibilities frontier but the
frontier itself would not shift.
D) The production possibilities frontier would shift inward.
E) The number of young workers would increase so the production possibilities frontier
would shift outward.
Answer: D
Topic: Production possibilities frontier
Skill: Level 4: Applying models
Section: Checkpoint 3.1
Status: Old
AACSB: Analytical thinking

15) A major earthquake occurs in the central part of the United States. What impact would this
have on the nationʹs production possibilities frontier and why?
A) It would shift outward because unemployment would be reduced.
B) Nothing would happen because the nation would still have the same capabilities.
C) A tradeoff would occur to replace the resources and goods destroyed.
D) It would shift inward because some of the nationʹs resources, such as capital and labor,
would be destroyed.
E) It would not shift because people would get to work to replace any capital that was
destroyed.
Answer: D
Topic: Production possibilities frontier
Skill: Level 4: Applying models
Section: Checkpoint 3.1
Status: Old
AACSB: Analytical thinking

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16) When all of the available factors of production are being efficiently employed, the
A) economy is producing at a point within its PPF.
B) economy is producing at a point on its PPF.
C) economy is producing at a point beyond its PPF.
D) PPF disappears.
E) opportunity cost of changing production is infinite.
Answer: B
Topic: Attainable points
Skill: Level 2: Using definitions
Section: Checkpoint 3.1
Status: Old
AACSB: Reflective thinking

17) In a production possibilities frontier diagram, the attainable production points are shown as
A) only the points on the production possibilities frontier.
B) only the points beyond the production possibilities frontier.
C) only the points inside the production possibilities frontier.
D) the points inside and the points on the production possibilities frontier.
E) any of the production points.
Answer: D
Topic: Attainable points
Skill: Level 1: Definition
Section: Checkpoint 3.1
Status: Old
AACSB: Reflective thinking

18) In the production possibilities frontier model, an unattainable point lies
A) only on the production possibilities frontier itself.
B) only inside the production possibilities frontier.
C) only outside the production possibilities frontier.
D) both on and outside the production possibilities frontier.
E) There are no unattainable points in the production possibilities model.
Answer: C
Topic: Unattainable points
Skill: Level 3: Using models
Section: Checkpoint 3.1
Status: Old
AACSB: Reflective thinking

19) Production efficiency is represented by ________ a production possibilities frontier.
A) all points on
B) all points inside
C) all points outside
D) a movement along
E) only one point on
Answer: A
Topic: Production efficiency
Skill: Level 2: Using definitions
Section: Checkpoint 3.1
Status: Old
AACSB: Reflective thinking

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20) If an economy cannot produce more of one good without producing less of another good, this
implies that which of the following has been achieved?
A) allocative efficiency
B) minimum marginal cost
C) PPF efficiency
D) production efficiency
E) maximum marginal benefit
Answer: D
Topic: Production efficiency
Skill: Level 2: Using definitions
Section: Checkpoint 3.1
Status: Old
AACSB: Reflective thinking

21) Production efficiency occurs
A) anywhere inside or on the production possibilities frontier.
B) when the total cost of production is minimized.
C) at all points on the production possibilities frontier.
D) at only one point on the production possibilities frontier.
E) at all points inside the production possibilities frontier.
Answer: C
Topic: Production efficiency
Skill: Level 2: Using definitions
Section: Checkpoint 3.1
Status: Old
AACSB: Reflective thinking

22) When production efficiency does NOT occur,
i. an economy is producing at a point within its PPF.
ii. there are unemployed resources.
iii. allocative efficiency cannot occur.
A) i only
B) i and ii
C) iii only
D) i and iii
E) i, ii, and iii
Answer: E
Topic: Production efficiency
Skill: Level 3: Using models
Section: Checkpoint 3.1
Status: Old
AACSB: Reflective thinking

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23) If there is unemployment in an economy, then the
A) production possibilities frontier will shift inwards.
B) economy is operating at an unattainable point.
C) production possibilities frontier will shift outwards.
D) economy is producing at a point inside the production possibilities frontier.
E) production possibilities frontier must be bowed inward.
Answer: D
Topic: Attainable points, unemployment
Skill: Level 1: Definition
Section: Checkpoint 3.1
Status: Old
AACSB: Reflective thinking

24) If a society moves from a period of time with significant unemployment to a time with full
employment, its production possibilities frontier will
A) shift leftward.
B) shift rightward.
C) not shift because the society moves from one point on the frontier to a point inside the
frontier.
D) not shift because the society moves from a point inside the frontier to a point on the
frontier.
E) not shift because the society moves from one point on the frontier to a point outside the
frontier.
Answer: D
Topic: Attainable points, unemployment
Skill: Level 3: Using models
Section: Checkpoint 3.1
Status: Old
AACSB: Analytical thinking

25) Suppose that an economy is currently producing at a point that lies inside of its production
possibilities set. Which of the following would best explain this circumstance?
A) The economy does not have enough resources to produce at a point closer to the frontier
of the production possibilities set.
B) The prevailing level of technology prevents the economy from producing at a point
closer to the frontier of the production possibilities set.
C) The economy is experiencing a high level of unemployment.
D) Any of the above statements could explain this situation.
E) None of the above statements could explain this situation.
Answer: C
Topic: Attainable points, unemployment
Skill: Level 3: Using models
Section: Checkpoint 3.1
Status: New
AACSB: Analytical thinking

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26) Which of the following statements is correct?
A) An increase in productivity moves the economy from inside the production possibilities
frontier to the frontier itself.
B) An increase in productivity shifts the economy from producing at a point on the
production possibilities frontier to a point outside the production possibilities frontier.
C) An increase in unemployment shifts the economy further inside its production
possibilities frontier.
D) An increase in unemployment shifts the economy from a point outside the production
possibilities frontier back to the production possibilities frontier.
E) A reduction in unemployment shifts the entire production possibilities frontier outward.
Answer: C
Topic: Attainable points, unemployment
Skill: Level 3: Using models
Section: Checkpoint 3.1
Status: New
AACSB: Analytical thinking

27) A point on the production possibilities frontier reflects an
A) attainable point with full employment of all resources.
B) attainable point without full employment of all resources.
C) unattainable point with full employment of all resources.
D) unattainable point without full employment of all resources.
E) None of the above answers is correct.
Answer: A
Topic: Attainable points, full employment
Skill: Level 2: Using definitions
Section: Checkpoint 3.1
Status: Old
AACSB: Reflective thinking

28) Suppose a country operates on its production possibility frontier when it produces 1000 books
and 1000 tables. The combination of ________ reflects ________
A) 500 books and 1000 tables; an inefficient but attainable point.
B) 1000 books and 500 tables; an efficient point.
C) 1000 books and 1000 tables; a free lunch.
D) 500 books and 500 tables; an attainable and efficient point.
E) 1000 books and 1500 tables; a free lunch.
Answer: A
Topic: Attainable points, inefficiency
Skill: Level 3: Using models
Section: Checkpoint 3.1
Status: Old
AACSB: Analytical thinking

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29) Consider a production possibility frontier with books and tables. A combination of 1000 books
and 500 tables is on the frontier. Which of the following are true?
i. Production of 700 books and 400 tables is attainable but inefficient.
ii. Production of 1000 books and 600 tables is unattainable.
iii. Production of 500 books and 1000 tables is inside the frontier.
A) i and ii
B) i, ii and iii
C) i and iii
D) ii and iii
E) i only
Answer: A
Topic: Attainable points
Skill: Level 3: Using models
Section: Checkpoint 3.1
Status: Old
AACSB: Analytical thinking

Possibility
A
B
C
D
E

Bread
(number)
0
100
200
300
400

Books
(number)
1,000
900
700
400
0

30) The table above shows a production possibilities frontier for an economy. Which of the
following combinations is unattainable?
A) 0 loaves of bread and 800 books
B) 100 loaves of bread and 800 books
C) 200 loaves of bread and 800 books
D) 300 loaves of bread and 200 books
E) 0 loaves of bread and 0 books
Answer: C
Topic: Unattainable points
Skill: Level 3: Using models
Section: Checkpoint 3.1
Status: Old
AACSB: Analytical thinking

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31) The table above shows a production possibilities frontier for an economy. If the economy tried
to produce a combination of 250 loaves of bread and 800 books,
A) there is some unemployment.
B) there is full employment.
C) the tradeoff between bread and books is inefficient.
D) it cannot produce this combination because it lacks enough resources or technology.
E) it is enjoying a free lunch.
Answer: D
Topic: Unattainable points
Skill: Level 3: Using models
Section: Checkpoint 3.1
Status: Old
AACSB: Analytical thinking

32) The figure above shows the production possibilities frontier for a country. A combination of 4
million gallons of milk and 4 million gallons of ice cream is
A) unattainable.
B) attainable and production efficient.
C) attainable and production inefficient.
D) unattainable and production efficient.
E) More information is needed to determine if the point is attainable or not.
Answer: A
Topic: Unattainable points
Skill: Level 3: Using models
Section: Checkpoint 3.1
Status: Old
AACSB: Analytical thinking

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33) The figure above shows the production possibilities frontier for a country. A combination of 3
million gallons of milk and 3 million gallons of ice cream is
A) unattainable.
B) attainable and production efficient.
C) attainable and production inefficient.
D) unattainable and production efficient.
E) More information is needed to determine if the point is attainable or not.
Answer: B
Topic: Attainable points, full employment
Skill: Level 3: Using models
Section: Checkpoint 3.1
Status: Old
AACSB: Analytical thinking

34) The figure above shows the production possibilities frontier for a country. A combination of 2
million gallons of milk and 2 million gallons of ice cream is
A) unattainable.
B) attainable and production efficient.
C) attainable and production inefficient.
D) attainable but more than production efficient.
E) More information is needed to determine if the point is attainable or not.
Answer: C
Topic: Attainable points, unemployment
Skill: Level 3: Using models
Section: Checkpoint 3.1
Status: Old
AACSB: Analytical thinking

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35) Point D in the above PPF figure is
A) an attainable production combination with unemployed resources.
B) a tradeoff.
C) an unattainable production combination.
D) a production combination that can be attained once resources are fully employed.
E) More information is needed to determine which of the above answers is correct.
Answer: C
Topic: Unattainable points
Skill: Level 3: Using models
Section: Checkpoint 3.1
Status: Old
AACSB: Analytical thinking

36) Which point in the figure above is an attainable combination that would have unemployed
resources?
A) point A
B) point B
C) point C
D) point D
E) point A and point B
Answer: C
Topic: Attainable points, unemployment
Skill: Level 3: Using models
Section: Checkpoint 3.1
Status: Old
AACSB: Analytical thinking

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37) The figure above shows a nationʹs production possibilities frontier. In the figure, point A
shows
A) the maximum quantity of pizza that can be produced.
B) the minimum quantity of pizza that the society must produce.
C) an unattainable point.
D) an attainable point with unemployed resources.
E) More information is needed to determine which of the above answers is correct.
Answer: A
Topic: Attainable points
Skill: Level 3: Using models
Section: Checkpoint 3.1
Status: Old
AACSB: Analytical thinking

38) The figure above shows a nationʹs production possibilities frontier. In the figure, point B
shows
A) an unattainable point.
B) an attainable point.
C) a point with a free lunch.
D) a point with no tradeoff.
E) a point at which there are unemployed resources.
Answer: A
Topic: Unattainable points
Skill: Level 3: Using models
Section: Checkpoint 3.1
Status: Old
AACSB: Analytical thinking

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39) The figure above shows the production possibilities frontier for a country. In order for it to
produce at point E, the
A) country would need to acquire more resources and/or more advanced technology.
B) production of compact cars would need to decrease.
C) production of SUVs would need to decrease.
D) country would need to use its resources more efficiently.
E) country would need to determine that compact cars and SUVs are equally important to
it.
Answer: A
Topic: Unattainable points
Skill: Level 3: Using models
Section: Checkpoint 3.1
Status: Old
AACSB: Analytical thinking

40) The figure above shows the production possibilities frontier for a country. If the country is
producing at point D, then the
A) resources are being used efficiently.
B) technology associated with producing SUVs and compact cars is advancing.
C) resources are not being used efficiently and/or are unemployed.
D) production of SUVs and compact cars is maximized.
E) None of the above answers is correct because it is not possible to produce at point D.
Answer: C
Topic: Attainable points, unemployment
Skill: Level 3: Using models
Section: Checkpoint 3.1
Status: Old
AACSB: Analytical thinking

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41) The above figure shows the production possibility frontier for an economy. The point or points
that are attainable and production efficient are
A) points B and C.
B) points A, B, and C.
C) point E.
D) points A, B, C, and D.
E) points A and D.
Answer: B
Topic: Production possibilities frontier
Skill: Level 2: Using definitions
Section: Checkpoint 3.1
Status: Old
AACSB: Analytical thinking

42) The above figure shows the production possibility frontier for an economy. The point or points
that are attainable are
A) points B and C.
B) points A, B, and C.
C) point E.
D) points A, B, C, and D.
E) points A and D.
Answer: D
Topic: Production possibilities frontier
Skill: Level 2: Using definitions
Section: Checkpoint 3.1
Status: Old
AACSB: Analytical thinking

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43) The above figure shows the production possibility frontier for an economy. The point or points
that are NOT attainable are
A) points B and C.
B) points A, B, and C.
C) point E.
D) points A, B, C, and D.
E) points A and D.
Answer: C
Topic: Production possibilities frontier
Skill: Level 2: Using definitions
Section: Checkpoint 3.1
Status: Old
AACSB: Analytical thinking

44) In order for Ireland to grow more potatoes, wool production must decrease. This situation is
an example of
A) producing at a point that lies beyond the PPF.
B) zero opportunity cost.
C) opportunity benefit.
D) a free lunch.
E) a tradeoff.
Answer: E
Topic: Tradeoffs
Skill: Level 1: Definition
Section: Checkpoint 3.1
Status: Old
AACSB: Reflective thinking

45) As we move along the production possibilities frontier,
A) the production of one good increases as the production of the other good decreases.
B) the possibilities of tradeoffs diminish.
C) a tradeoff is not possible because nations need all goods.
D) more of both goods can be produced.
E) less of both goods can be produced.
Answer: A
Topic: Tradeoffs
Skill: Level 4: Applying models
Section: Checkpoint 3.1
Status: Old
AACSB: Reflective thinking

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46) Which of the following statements is correct?
A) If capital is idle, the economy is producing at its full potential.
B) The production possibilities frontier shows that there are no limits to production.
C) A tradeoff is a limit that forces an exchange or a substitution of one thing for something
else.
D) Any point on or within the PPF is production efficient.
E) None of the above answers is correct.
Answer: C
Topic: Tradeoffs
Skill: Level 2: Using definitions
Section: Checkpoint 3.1
Status: Old
AACSB: Reflective thinking

47) When a nation is producing on its production possibilities frontier, if more resources are used
to produce one good, then the production of other goods
A) must increase.
B) must decrease.
C) must remain the same.
D) must change, but they might increase or decrease.
E) might increase if the nation can produce more efficiently.
Answer: B
Topic: Tradeoffs
Skill: Level 3: Using models
Section: Checkpoint 3.1
Status: Old
AACSB: Reflective thinking

48) The negative slope of the production possibilities frontier represents the idea
A) that free lunches are possible.
B) of tradeoffs, that in order to produce more of one good, the nation must produce less of
another.
C) of unemployment.
D) of inefficient production.
E) that prices rise as less is produced.
Answer: B
Topic: Tradeoffs
Skill: Level 4: Applying models
Section: Checkpoint 3.1
Status: Old
AACSB: Reflective thinking

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49) A movement from one point on a production possibilities frontier to another represents
A) a tradeoff.
B) a free lunch.
C) full employment of labor but not capital.
D) unemployment.
E) an advance in technology.
Answer: A
Topic: Tradeoffs
Skill: Level 3: Using models
Section: Checkpoint 3.1
Status: Old
AACSB: Reflective thinking

50) The saying ʺThereʹs no such thing as a free lunch,ʺ applies
A) when there is some unemployment.
B) on the production possibilities frontier.
C) to unattainable combinations of goods and services.
D) when more of one good can be produced without decreasing production of another.
E) at all points inside the PPF.
Answer: B
Topic: Tradeoffs
Skill: Level 2: Using definitions
Section: Checkpoint 3.1
Status: Old
AACSB: Reflective thinking

51) A free lunch (the absence of a tradeoff) when the production of a good is increased is possible
for the entire economy only if
A) less of some product is produced.
B) prices are decreased.
C) prices are increased.
D) resources are used inefficiently.
E) there is a movement along the PPF.
Answer: D
Topic: Free lunches
Skill: Level 2: Using definitions
Section: Checkpoint 3.1
Status: Old
AACSB: Reflective thinking

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52) A movement from a point inside the production possibilities frontier to a point on the
production possibilities frontier represents
A) a tradeoff.
B) a free lunch.
C) full employment of labor but not capital.
D) unemployment of labor but not capital.
E) an infinite opportunity cost.
Answer: B
Topic: Free lunches
Skill: Level 3: Using models
Section: Checkpoint 3.1
Status: Old
AACSB: Reflective thinking

53) A reason the production possibilities frontier exists is
A) unlimited resources and technology.
B) scarcity of resources.
C) scarcity of resources and unlimited technology.
D) unemployment.
E) that peopleʹs wants are unlimited.
Answer: B
Topic: Production possibilities frontier
Skill: Level 1: Definition
Section: Checkpoint 3.1
Status: Old
AACSB: Reflective thinking

54) The production possibilities frontier is a graph showing the
A) exact point of greatest efficiency for producing goods and services.
B) tradeoff between free lunches.
C) maximum combinations of goods and services that can be produced.
D) minimum combinations of goods and services that can be produced.
E) resources available for the economyʹs production use.
Answer: C
Topic: Production possibilities frontier
Skill: Level 1: Definition
Section: Checkpoint 3.1
Status: Old
AACSB: Reflective thinking

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55) The production possibilities frontier is a boundary that separates
A) the combinations of goods that can be produced from the combinations of services.
B) attainable combinations of goods and services that can be produced from unattainable
ones.
C) equitable combinations of goods and services that can be produced from inequitable
ones.
D) fair combinations of goods and services that can be consumed from unfair ones.
E) affordable production points from unaffordable points.
Answer: B
Topic: Production possibilities frontier
Skill: Level 1: Definition
Section: Checkpoint 3.1
Status: Old
AACSB: Reflective thinking

56) Points inside the PPF are all
A) unattainable and have fully employed resources.
B) attainable and have fully employed resources.
C) unattainable and have some unemployed resources.
D) attainable and have some unemployed resources.
E) unaffordable.
Answer: D
Topic: Attainable points, inefficiency
Skill: Level 2: Using definitions
Section: Checkpoint 3.1
Status: Old
AACSB: Reflective thinking

57) During a time of high unemployment, a country can increase the production of one good or
service
A) without decreasing the production of something else.
B) but must decrease the production of something else.
C) and must increase the production of something else.
D) by using resources in the production process twice.
E) but the opportunity cost is infinite.
Answer: A
Topic: Free lunches
Skill: Level 1: Definition
Section: Checkpoint 3.1
Status: Old
AACSB: Reflective thinking

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58) Moving along the production possibilities frontier itself illustrates
A) the existence of tradeoffs.
B) the existence of unemployment of some factors of production.
C) the benefits of free lunches.
D) how free lunches can be exploited through trade.
E) how tradeoffs need not occur if the economy is efficient.
Answer: A
Topic: Tradeoffs
Skill: Level 1: Definition
Section: Checkpoint 3.1
Status: Old
AACSB: Reflective thinking

59) The production possibilities frontier illustrates which of the following economic ideas?
A) efficiency
B) tradeoffs
C) opportunity cost
D) all of the above
E) none of the above
Answer: D
Topic: Production possibilities frontier
Skill: Level 3: Using models
Section: Checkpoint 3.1
Status: New
AACSB: Reflective thinking

60) Points on the PPF are all
A) unattainable and have fully employed resources.
B) free lunches.
C) inefficient.
D) attainable and have some unemployed resources.
E) production efficient.
Answer: E
Topic: Production efficiency
Skill: Level 1: Definition
Section: Checkpoint 3.1
Status: Old
AACSB: Reflective thinking

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3.2 Opportunity Cost
1) In a production possibilities frontier graph, the cost of producing more units of a good is
measured by the
A) dollar value of the resources used to produce the good.
B) amount of the other good or service that must be forgone.
C) dollar value of the additional output.
D) area in the arc between the PPF and a straight line drawn between the starting point and
the ending point.
E) None of the above answers is correct.
Answer: B
Topic: Opportunity cost
Skill: Level 2: Using definitions
Section: Checkpoint 3.2
Status: Old
AACSB: Reflective thinking

2) The opportunity cost of producing one more unit of a good is calculated by dividing the
A) increase in the quantity of that good by the decrease in the quantity of other good.
B) total quantity of that good by the total quantity of other good.
C) decrease in the quantity of the other good by the increase in the quantity of the good
whose opportunity cost weʹre calculating.
D) total quantity of the other good by the total quantity of the good whose opportunity cost
weʹre calculating.
E) price of the good whose opportunity cost we are calculating by the number of units of
the other good that are forgone.
Answer: C
Topic: Opportunity cost
Skill: Level 3: Using models
Section: Checkpoint 3.2
Status: Old
AACSB: Analytical thinking

3) To find the opportunity cost of producing one more unit of any product while on the
production possibilities frontier requires
A) setting the amounts of the two products equal to each other.
B) setting the change in one product equal to the change in the other product.
C) dividing the amount of the product forgone by the amount of the product gained.
D) subtracting the change in the product whose production increased from the change in the
product whose production decreased.
E) None of these describes how to find opportunity cost.
Answer: C
Topic: Opportunity cost
Skill: Level 3: Using models
Section: Checkpoint 3.2
Status: Old
AACSB: Analytical thinking

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4) To calculate the opportunity cost per unit, you divide the decrease in the quantity of the
forgone item by the
A) decrease in the quantity of the other item.
B) increase in the quantity of the other item obtained.
C) price of the item obtained.
D) price of the item forgone.
E) price of the item obtained and then multiply by the price of the item forgone.
Answer: B
Topic: Opportunity cost
Skill: Level 2: Using definitions
Section: Checkpoint 3.2
Status: Old
AACSB: Analytical thinking

5) On a production possibilities frontier, 500 pounds of apples and 1,200 pounds of bananas can
be produced while at another point on the same frontier, 300 pounds of apples and 1,300
pounds of bananas can be produced. Between these points, what is the opportunity cost of
producing a pound of bananas?
A) 2 pounds of bananas
B) 200 pounds of apples
C) 2 pounds of apples
D) 0.5 a pound of apples
E) 12/5 = 2.4 pounds of apples
Answer: C
Topic: Opportunity cost
Skill: Level 3: Using models
Section: Checkpoint 3.2
Status: Old
AACSB: Analytical thinking

6) On a production possibilities frontier, 500 pounds of apples and 1,200 pounds of bananas can
be produced while at another point on the same frontier, 300 pounds of apples and 1,300
pounds of bananas can be produced. Between these points, what is the opportunity cost of
producing a pound of apples?
A) 2 pounds of bananas
B) 100 pounds of bananas
C) 2 pounds of apples
D) 0.5 of a pound of bananas
E) 5/12 of a pound of bananas
Answer: D
Topic: Opportunity cost
Skill: Level 3: Using models
Section: Checkpoint 3.2
Status: Old
AACSB: Analytical thinking

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7) A country produces only apples and bananas. Moving from point A to point B along its
production possibilities frontier, 5 apples are forgone and 4 bananas are gained. What is the
opportunity cost of a banana?
A) 4 apples
B) 5/4 of an apple
C) 4/5 of an apple
D) 1 banana
E) None of the above answers is correct.
Answer: B
Topic: Opportunity cost
Skill: Level 3: Using models
Section: Checkpoint 3.2
Status: Old
AACSB: Analytical thinking

8) A country produces only apples and bananas. Moving from point A to point B along its
production possibilities frontier, 5 apples are gained and 4 bananas are forgone. What is the
opportunity cost of an apple?
A) 4 bananas
B) 5/4 of a bananas
C) 4/5 of a banana
D) 1 apple
E) None of the above answers is correct.
Answer: C
Topic: Opportunity cost
Skill: Level 3: Using models
Section: Checkpoint 3.2
Status: Old
AACSB: Analytical thinking

Possibility
A
B
C
D

Fish
(pounds)
37
31
20
9

Fruit
(pounds)
56
78
90
99

9) Robinson Crusoe divides his time between catching fish and gathering fruit. Part of his
production possibilities frontier is given in the above table. If Mr. Crusoe is on his PPF and he
increases the amount of fruit he gathers from 56 to 90 pounds, the opportunity cost is
A) 37 pounds of fish.
B) 31 pounds of fish.
C) 17 pounds of fish.
D) 34 pounds of fruit.
E) 90 pounds of fruit.
Answer: C
Topic: Opportunity cost
Skill: Level 2: Using definitions
Section: Checkpoint 3.2
Status: Old
AACSB: Analytical thinking

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10) Robinson Crusoe divides his time between catching fish and gathering fruit. Part of his
production possibilities frontier is given in the above table. Mr. Crusoe, while lonesome, is
efficient and always stays on his PPF. Mr. Crusoe is consuming 20 pounds of fish. Then he
decides to slowly become a vegetarian and decrease his consumption of fish to 9 pounds. This
decision means that Mr. Crusoe will
A) incur an opportunity cost of 9 pounds of fruit.
B) incur an opportunity cost of 20 pounds of fish.
C) be able to enjoy a gain of 9 pounds of fruit.
D) incur an opportunity cost of 99 pounds of fruit.
E) incur an opportunity cost of 9 pounds of fish.
Answer: C
Topic: Opportunity cost
Skill: Level 2: Using definitions
Section: Checkpoint 3.2
Status: Old
AACSB: Analytical thinking

Possibility
A
B
C
D
E
F
G

Robots
0
1
2
3
4
5
6

Pizza
40
39
37
34
30
20
0

11) The table above shows a nationʹs production possibilities frontier. If the nation wants to
produce 4 robots and 34 pizzas,
A) it will shift the production possibilities frontier.
B) the opportunity cost is 9 pizzas.
C) the nation will be producing inefficiently.
D) it will be unable to do so because the production point is unattainable.
E) the nation will then be producing at a production efficient point.
Answer: D
Topic: Unattainable points
Skill: Level 3: Using models
Section: Checkpoint 3.2
Status: Old
AACSB: Analytical thinking

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12) The table above shows a nationʹs production possibilities frontier. If the nation chooses to
increase the production of robots from 2 to 3 and it is on its PPF, it will have to forgo ________
pizzas.
A) 37
B) 34
C) 3
D) 35.5
E) None of the above answers is correct.
Answer: C
Topic: Opportunity cost
Skill: Level 3: Using models
Section: Checkpoint 3.2
Status: Old
AACSB: Analytical thinking

13) The table above shows a nationʹs production possibilities frontier. The opportunity cost of a
robot between combination D and E is
A) 4 pizzas.
B) 34 pizzas.
C) 30 pizzas.
D) 1/4 of a pizza.
E) undefined because neither point is production efficient.
Answer: A
Topic: Opportunity cost
Skill: Level 3: Using models
Section: Checkpoint 3.2
Status: Old
AACSB: Analytical thinking

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14) The figure above shows the production possibilities frontier for a country. The opportunity
cost of a gallon of milk between combination point A and B is
A) 4 gallons of ice cream for a gallon of milk.
B) 3 gallons of ice cream for a gallon of milk.
C) 1 gallon of ice cream for a gallon of milk.
D) 1/3 of a gallon of ice cream for a gallon of milk.
E) zero because at point A, zero milk is being produced.
Answer: D
Topic: Opportunity cost
Skill: Level 3: Using models
Section: Checkpoint 3.2
Status: Old
AACSB: Analytical thinking

15) The figure above shows the production possibilities frontier for a country. If the economy is
operating at point B, then the opportunity cost of another million gallons of milk is
A) 4 gallons of ice cream for a gallon of milk.
B) 3 gallons of ice cream for a gallon of milk.
C) 1 gallon of ice cream for a gallon of milk.
D) 1/3 of a gallon of ice cream for a gallon of milk.
E) zero because after producing another million gallons of milk, then zero gallons of ice
cream are produced.
Answer: B
Topic: Opportunity cost
Skill: Level 3: Using models
Section: Checkpoint 3.2
Status: Old
AACSB: Analytical thinking

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16) The above figure shows the production possibility frontier for a country. Suppose the country
is producing at point A. What is the opportunity cost of increasing the production of rice to 12
tons?
A) 15 thousand bottles of wine
B) 6 thousand bottles of wine
C) 9 thousand bottles of wine
D) 12 tons of rice
E) Nothing, it is a free lunch.
Answer: B
Topic: Opportunity cost
Skill: Level 3: Using models
Section: Checkpoint 3.2
Status: Old
AACSB: Analytical thinking

17) The above figure shows the production possibility frontier for a country. Suppose the country
is producing at point D. What is the opportunity cost of increasing the production of rice to 15
tons?
A) 9 thousand bottles of wine
B) 6 thousand bottles of wine
C) 15 thousand bottles of wine
D) 12 tons of rice
E) Nothing, it is a free lunch.
Answer: A
Topic: Opportunity cost
Skill: Level 3: Using models
Section: Checkpoint 3.2
Status: Old
AACSB: Analytical thinking

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18) The above figure shows the production possibility frontier for a country. Suppose the country
is producing at point E. What would be the opportunity cost to increase the production of
wine to 9 thousand bottles?
A) 12 tons of rice
B) 15 thousand bottles of wine
C) 9 thousand bottles of wine
D) 3 tons of rice
E) Nothing, it is a free lunch.
Answer: D
Topic: Opportunity cost
Skill: Level 3: Using models
Section: Checkpoint 3.2
Status: Old
AACSB: Analytical thinking

19) The above figure shows the production possibility frontier for a country. Suppose the country
is producing at point D. What would be the opportunity cost to move to point C?
A) 6 thousand bottles of wine
B) 15 thousand bottles of wine
C) 12 tons of rice
D) Nothing, it is a free lunch.
E) This movement is not possible without economic growth.
Answer: E
Topic: Opportunity cost
Skill: Level 3: Using models
Section: Checkpoint 3.2
Status: Old
AACSB: Analytical thinking

20) The above figure shows the production possibility frontier for a country. Suppose the country
is producing at point A. What would be the opportunity cost to increase the production of rice
to 12 tons?
A) 6 thousand bottles of wine
B) 15 thousand bottles of wine
C) 9 thousand bottles of wine
D) 6 tons of rice
E) Nothing, it is a free lunch.
Answer: E
Topic: Opportunity cost
Skill: Level 3: Using models
Section: Checkpoint 3.2
Status: Old
AACSB: Analytical thinking

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21) The above figure shows the production possibility frontier for a country. What is the
opportunity cost per ton of rice to move from point B to point D?
A) 1000 bottles of wine
B) 500 bottles of wine
C) 2 bottles of wine
D) 1/2 of a bottle of wine
E) None of the above answers is correct.
Answer: B
Topic: Opportunity cost
Skill: Level 3: Using models
Section: Checkpoint 3.2
Status: Old
AACSB: Analytical thinking

22) The above figure shows the production possibility frontier for a country. What is the
opportunity cost per ton of rice to move from point D to E?
A) 3000 bottles of wine
B) 333 bottles of wine
C) 3 bottles of wine
D) 1/3 of a bottle of wine
E) None of the above answers is correct.
Answer: A
Topic: Opportunity cost
Skill: Level 3: Using models
Section: Checkpoint 3.2
Status: Old
AACSB: Analytical thinking

23) The above figure shows the production possibility frontier for a country. What is the
opportunity cost to move from point D to point E?
A) 6 thousand bottles of wine
B) 15 thousand bottles of wine
C) 6 tons of rice
D) 9 thousand bottles of wine
E) Nothing, it is a free lunch.
Answer: D
Topic: Opportunity cost
Skill: Level 3: Using models
Section: Checkpoint 3.2
Status: Old
AACSB: Analytical thinking

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24) The above figure shows the production possibility frontier for a country. What is the
opportunity cost to move from point D to point B?
A) 12 tons of rice
B) 15 thousand bottles of wine
C) 6 thousand bottles of wine
D) 9 thousand bottles of wine
E) Nothing, it is a free lunch.
Answer: A
Topic: Opportunity cost
Skill: Level 3: Using models
Section: Checkpoint 3.2
Status: Old
AACSB: Analytical thinking

25) Moving from a point inside the production possibilities frontier to a point on the production
possibilities frontier, the opportunity cost of producing more of the good on the horizontal axis
A) increases.
B) decreases.
C) is constant.
D) is 0.
E) is infinite.
Answer: D
Topic: Opportunity cost
Skill: Level 3: Using models
Section: Checkpoint 3.2
Status: Old
AACSB: Analytical thinking

26) Consider a production possibility frontier with jeans on the vertical axis and shoes on the
horizontal axis. As a country moves along the frontier closer to the vertical axis,
A) the opportunity cost of producing jeans increases.
B) the opportunity cost of producing shoes increases.
C) there are fewer tradeoffs.
D) inefficient production occurs.
E) the opportunity cost of producing jeans decreases.
Answer: A
Topic: Opportunity cost
Skill: Level 4: Applying models
Section: Checkpoint 3.2
Status: Old
AACSB: Analytical thinking

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27) Suppose that in a PPF graph, wheat is on the vertical axis and jets are on the horizontal axis.
Moving down along the PPF, the
A) number of jets increases and the opportunity cost of jets increases.
B) amount of wheat increases and the opportunity cost of wheat increases.
C) number of jets increases and the opportunity cost of jets decreases.
D) amount of wheat increases and opportunity cost of wheat decreases.
E) opportunity cost of jets and wheat both increase.
Answer: A
Topic: Opportunity cost
Skill: Level 4: Applying models
Section: Checkpoint 3.2
Status: Old
AACSB: Reflective thinking

28) Why is a production possibilities frontier bowed out (concave)?
A) The bowed shape reflects constant opportunity cost.
B) The bowed shape reflects decreasing opportunity cost.
C) The bowed shape indicates that opportunity cost at first decreases at a decreasing rate,
and then begins to decrease at an increasing rate.
D) The bowed shape indicates that opportunity cost at first increases at a decreasing rate,
and then begins to increase at an increasing rate.
E) The bowed shape reflects increasing opportunity cost.
Answer: E
Topic: Increasing opportunity costs
Skill: Level 2: Using definitions
Section: Checkpoint 3.2
Status: Old
AACSB: Reflective thinking

29) The bowed out (concave) shape of the production possibilities curve implies that as
production of one good
A) increases, society must forgo increasing amounts of another good.
B) increases, society must forgo decreasing amounts of another good.
C) decreases, production of other goods decreases as well.
D) increases, production of other goods increases as well.
E) increases, society can obtain a free lunch.
Answer: A
Topic: Increasing opportunity costs
Skill: Level 2: Using definitions
Section: Checkpoint 3.2
Status: Old
AACSB: Reflective thinking

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30) The idea of increasing opportunity cost is reflected in the
A) bowed out shape of the production possibilities frontier.
B) bowed in shape of the production possibilities frontier.
C) linear shape of the production possibilities frontier.
D) positive slope of the production possibilities frontier.
E) fact that the PPF shows there are unattainable production points.
Answer: A
Topic: Increasing opportunity costs
Skill: Level 2: Using definitions
Section: Checkpoint 3.2
Status: Old
AACSB: Reflective thinking

31) A bowed out production possibilities frontier shows
A) that resources are equally productive in all uses.
B) increasing opportunity cost.
C) that resources are not equally productive in all uses.
D) Both answers B and C are correct.
E) Both answers A and B are correct.
Answer: D
Topic: Increasing opportunity costs
Skill: Level 2: Using definitions
Section: Checkpoint 3.2
Status: Old
AACSB: Reflective thinking

32) The opportunity cost of a good increases as more of it is produced because
A) there is no such thing as a free lunch.
B) resources are not equally productive in all activities.
C) producing more of a good requires additional resources.
D) the number of forgone alternatives also increases.
E) people want the good less as more is produced.
Answer: B
Topic: Increasing opportunity costs
Skill: Level 2: Using definitions
Section: Checkpoint 3.2
Status: Old
AACSB: Reflective thinking

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33) As an economy increasingly specializes in producing one good, the opportunity cost of that
good increases. The opportunity cost increases because
A) resources are not equally productive in all activities.
B) what must be paid to resources increases.
C) human wants are virtually unlimited.
D) not all goods are equally valuable.
E) as more of a good is produced, the profit from its production must rise.
Answer: A
Topic: Increasing opportunity costs
Skill: Level 2: Using definitions
Section: Checkpoint 3.2
Status: Old
AACSB: Reflective thinking

34) As an economy produces more of one of the goods on a bowed out production possibilities
frontier, what happens to the opportunity cost of producing the good?
A) It remains constant.
B) It decreases.
C) It increases.
D) It might increase, decrease, or remain constant depending on how much people value the
additional units of the good.
E) None of these depicts what happens to opportunity cost.
Answer: C
Topic: Increasing opportunity costs
Skill: Level 3: Using models
Section: Checkpoint 3.2
Status: Old
AACSB: Reflective thinking

35) When a production possibilities frontier is bowed outward, as more of one good is produced,
its opportunity cost
A) increases.
B) decreases.
C) remains constant.
D) might increase, decrease, or remain constant depending on how much people value the
additional units of the good.
E) cannot be predicted.
Answer: A
Topic: Increasing opportunity costs
Skill: Level 3: Using models
Section: Checkpoint 3.2
Status: Old
AACSB: Reflective thinking

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36) A bowed out PPF reflects which of the following ideas?
i. Increasing opportunity cost
ii. Resources are not equally productive in all activities.
iii. Prices of goods increase over time.
A) i only
B) i and ii
C) i and iii
D) ii and iii
E) i, ii, and iii
Answer: B
Topic: Increasing opportunity costs
Skill: Level 3: Using models
Section: Checkpoint 3.2
Status: Old
AACSB: Reflective thinking

37) If there is increasing opportunity cost, then when moving downward on a production
possibilities frontier, the opportunity cost of the good on the horizontal axis ________ as more
of the good is produced.
A) increases and the PPF gets steeper
B) increases and the PPF gets flatter
C) decreases and the PPF gets steeper
D) decreases and the PPF gets flatter
E) does not change and the PPF gets steeper
Answer: A
Topic: Increasing opportunity costs
Skill: Level 3: Using models
Section: Checkpoint 3.2
Status: Old
AACSB: Analytical thinking

38) A bowed out production possibility frontier shows that the
A) opportunity cost of a good is constant as more of the good is produced.
B) opportunity cost of a good decreases as more of the good is produced.
C) opportunity cost of a good increases as more of the good is produced.
D) opportunity cost relationship is linear.
E) opportunity cost of producing another good is negative.
Answer: C
Topic: Increasing opportunity costs
Skill: Level 2: Using definitions
Section: Checkpoint 3.2
Status: Old
AACSB: Reflective thinking

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39) Why does a nation experience increasing opportunity cost?
A) As the nation moves from a production point within the PPF to one on the PPF,
opportunity costs increase.
B) As the nation moves from a production point within the PPF to another point also within
the PPF, opportunity costs increase.
C) When the amount of resources increases, the opportunity cost of all goods and services
increases.
D) Resources are not equally productive in producing different kinds of goods and services.
E) Because the nation cannot produce at the unattainable production points that lie beyond
the PPF.
Answer: D
Topic: Increasing opportunity costs
Skill: Level 2: Using definitions
Section: Checkpoint 3.2
Status: Old
AACSB: Reflective thinking

40) The fact of increasing opportunity cost when moving on the PPF means that
A) to increase the production of one product requires larger and larger sacrifices of the other
good.
B) to decrease the production of one product requires smaller and smaller sacrifices of the
other good.
C) to increase the production of one product requires smaller and smaller sacrifices of the
other good.
D) when the government forces a movement from one point on the PPF to another point, no
production is lost.
E) the PPF will be a negatively sloped straight line.
Answer: A
Topic: Increasing opportunity costs
Skill: Level 3: Using models
Section: Checkpoint 3.2
Status: Old
AACSB: Reflective thinking

41) Production possibilities frontiers usually curve out and away from the origin. The implication
of this curvature is that
A) as resources are used to produce one good, fewer resources are available to produce
another good.
B) the opportunity cost of producing a good goes down as more of that good is produced.
C) technological change is present.
D) the opportunity cost of producing a good stays the same regardless of how much of that
good is produced.
E) some resources are better at producing one good while other resources are better at
producing alternative goods.
Answer: E
Topic: Increasing opportunity costs
Skill: Level 3: Using models
Section: Checkpoint 3.2
Status: New
AACSB: Reflective thinking

Page 248
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42) If the production possibilities frontier between two goods were a straight line, then the
opportunity cost of one good in terms of another would be
A) constant.
B) increasing.
C) decreasing.
D) zero.
E) either constant, increasing, or decreasing but more information is needed to determine
which.
Answer: A
Topic: Increasing opportunity costs
Skill: Level 4: Applying models
Section: Checkpoint 3.2
Status: Old
AACSB: Reflective thinking

43) If the production possibilities frontier between two goods is a straight line, then the
A) opportunity cost is not a ratio.
B) resources are equally productive in both goods.
C) line does not qualify as a production possibilities frontier because the unattainable
production points are too close to the inefficient production points.
D) Both answers A and C are correct.
E) Both answers A and B are correct.
Answer: B
Topic: Increasing opportunity costs
Skill: Level 4: Applying models
Section: Checkpoint 3.2
Status: Old
AACSB: Reflective thinking

44) As an economy moves down along a straight line production possibilities frontier, what
happens to the opportunity cost of producing the good on the horizontal axis?
A) It remains constant.
B) It decreases.
C) It increases.
D) Above the midpoint it decreases until it equals 1 at the midpoint, and then it increases.
E) None of these depict what happens to opportunity cost.
Answer: A
Topic: Opportunity cost
Skill: Level 4: Applying models
Section: Checkpoint 3.2
Status: Old
AACSB: Analytical thinking

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45) If the production possibilities frontier between bottled water and water in a jug is a straight
line, which of the following statements would be correct?
A) A large amount of unemployment must exist.
B) Resources are equally productive at producing either product.
C) There is no tradeoff between the two goods.
D) There is no decrease in the production of one good when the production of the other is
increased.
E) Producing more of one good gives the economy a free lunch.
Answer: B
Topic: Opportunity cost
Skill: Level 4: Applying models
Section: Checkpoint 3.2
Status: Old
AACSB: Reflective thinking

Possibility
A
B
C
D
E

Bread
(number)
0
100
200
300
400

Books
(number)
1,000
900
700
400
0

46) The table above shows the production possibilities for an economy. Drawing a PPF with books
on the vertical axis and bread on the horizontal axis, a movement from possibility B to
possibility C to possibility D shows the opportunity cost of ________ moving down along the
PPF.
A) books is decreasing
B) bread is decreasing
C) bread is increasing
D) books is constant
E) books and bread are both increasing
Answer: C
Topic: Increasing opportunity costs
Skill: Level 4: Applying models
Section: Checkpoint 3.2
Status: Old
AACSB: Analytical thinking

Page 250
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47) The table above shows the production possibilities for an economy. The opportunity cost of a
loaf of bread is ________ when moving from possibility B to possibility C.
A) 1/2 of a book
B) 2 books
C) 200 books
D) 100 loaves of bread
E) 1 loaf of bread
Answer: B
Topic: Increasing opportunity costs
Skill: Level 4: Applying models
Section: Checkpoint 3.2
Status: Old
AACSB: Analytical thinking

Possibility
A
B
C
D
E

Capital goods
0
2
4
6
8

Consumption goods
60
55
45
25
0

48) The table above presents the production possibilities frontier for a nation. Using the
information in the table, moving from possibility C to B means that
A) 4 units of capital goods are given up to get 55 units of consumption goods.
B) 2 units of capital goods are given up to get 55 additional units of consumption goods.
C) 4 units of capital goods are given up to get 10 additional units of consumption goods.
D) 4 units of capital goods are given up to get 45 units of consumption goods.
E) 2 units of capital goods are given up to get 10 additional units of consumption goods.
Answer: E
Topic: Opportunity cost
Skill: Level 3: Using models
Section: Checkpoint 3.2
Status: Old
AACSB: Analytical thinking

49) The table above presents the production possibilities frontier for a nation. Using the
information in the table, when moving from possibility C to D, the cost of 1 unit of a capital
good in terms of the consumption goods forgone is ________ consumption goods per capital
good.
A) 25
B) 15
C) 20
D) 10
E) an undefined amount of
Answer: D
Topic: Opportunity cost
Skill: Level 3: Using models
Section: Checkpoint 3.2
Status: Old
AACSB: Analytical thinking

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50) The table above presents the production possibilities frontier for a nation. Using the
information in the table, when moving from possibility A to B to C to ultimately E, the cost of a
unit of capital goods in terms of consumption goods
A) increases.
B) decreases.
C) remains the same.
D) decreases from possibility A to C, and then increases from possibility C to D.
E) cannot be calculated.
Answer: A
Topic: Increasing opportunity costs
Skill: Level 3: Using models
Section: Checkpoint 3.2
Status: Old
AACSB: Analytical thinking

51) The figure above illustrates a small countryʹs production possibilities frontier. Based on the
figure, we can tell that the nationʹs resources are
A) equally productive in all tasks because the slope is negative.
B) equally productive in all tasks because the production possibilities frontier is bowed out.
C) not equally productive in all tasks because the slope is negative.
D) not equally productive in all tasks because the production possibilities frontier is bowed
out.
E) unlimited because the slope is negative and the PPF is bowed out.
Answer: D
Topic: Increasing opportunity costs
Skill: Level 4: Applying models
Section: Checkpoint 3.2
Status: Old
AACSB: Analytical thinking

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52) The figure above illustrates a small countryʹs production possibilities frontier. Moving from
point A to point B, the per unit opportunity cost of a tablet is ________ per tablet.
A) 2 computers
B) 4/3 of a computer
C) 100 computers
D) 1/2 of a computer
E) 1 tablet
Answer: A
Topic: Opportunity cost
Skill: Level 3: Using models
Section: Checkpoint 3.2
Status: Old
AACSB: Analytical thinking

53) The figure above illustrates a small countryʹs production possibilities frontier. Moving from
point C to point B, the per unit opportunity cost of computers is ________ per computer.
A) 4 tablets
B) 5/4 of a tablet
C) 4/5 of a tablet
D) 1/4 of a tablet
E) 1 computer
Answer: D
Topic: Opportunity cost
Skill: Level 3: Using models
Section: Checkpoint 3.2
Status: Old
AACSB: Analytical thinking

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54) The figure above shows the production possibilities frontier for a country. In order for it to
move from producing at point A to producing at point B, the country would need to
A) decrease SUV production by 1 million.
B) decrease SUV production by 3 million.
C) decrease SUV production by 4 million.
D) decrease compact car production by 3 million.
E) acquire more resources and/or more advanced technology.
Answer: A
Topic: Opportunity cost
Skill: Level 2: Using definitions
Section: Checkpoint 3.2
Status: Old
AACSB: Analytical thinking

55) The figure above shows the production possibilities frontier for a country. In order for it to
move from producing at point A to producing at point B, the country would need to incur an
opportunity cost of
A) 1 million SUVs.
B) 3 million SUVs.
C) 4 million SUVs.
D) 3 million compact cars.
E) 0 because the gain in compact cars exceeds the loss in SUVs.
Answer: A
Topic: Opportunity cost
Skill: Level 2: Using definitions
Section: Checkpoint 3.2
Status: Old
AACSB: Analytical thinking

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56) The figure above shows the production possibilities frontier for a country. How does the
opportunity cost of compact cars forgone per SUV gained moving from point C to point B
compare with the movement from point B to point A?
A) The opportunity cost of moving from point C to point B is greater than the movement
from point B to point A.
B) The opportunity cost of moving from point C to point B is the same as the movement
from point B to point A.
C) The opportunity cost of moving from point C to point B is less than the movement from
point B to point A.
D) The opportunity costs cannot be compared because the units of moving from point C to
point B differ from the units of moving from point B to point A.
E) More information is needed to determine how the two opportunity costs compare.
Answer: C
Topic: Increasing opportunity costs
Skill: Level 2: Using definitions
Section: Checkpoint 3.2
Status: Old
AACSB: Analytical thinking

57) Once you find the opportunity cost of producing one unit of a good, to find the opportunity
cost of producing the other good, you must
A) take the inverse.
B) multiply by the total amount produced of the second good.
C) divide by the total amount produced of the second good.
D) do nothing because the opportunity cost for the first good is the same as the opportunity
cost for the second good.
E) None of the answers is correct.
Answer: A
Topic: Opportunity cost is a ratio
Skill: Level 3: Using models
Section: Checkpoint 3.2
Status: Old
AACSB: Analytical thinking

58) While moving on the production possibilities frontier, if the opportunity cost of producing one
good is 1/2, the opportunity cost of producing the other good (in the same range) is
A) 1/2.
B) 1/4.
C) 2.
D) 4.
E) an amount that cannot be calculated without more information.
Answer: C
Topic: Opportunity cost is a ratio
Skill: Level 3: Using models
Section: Checkpoint 3.2
Status: Old
AACSB: Analytical thinking

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59) The opportunity cost of producing more of one good on a production possibilities frontier is
A) a dollar amount.
B) a ratio of quantities.
C) a ratio of prices.
D) equal to the area inside the production possibilities frontier.
E) a theoretical concept which cannot be measured.
Answer: B
Topic: Opportunity cost is a ratio
Skill: Level 2: Using definitions
Section: Checkpoint 3.2
Status: Old
AACSB: Analytical thinking

60) The opportunity cost of one more slice of pizza in terms of sodas is the
A) number of pizza slices we have to give up in order to get one extra soda.
B) number of sodas we have to give up in order to get one extra pizza slice.
C) total number of sodas that we have divided by the total number of pizza slices that we
have.
D) total number of pizza slices that we have divided by the total number of sodas that we
have.
E) price of a pizza slice minus the price of a soda.
Answer: B
Topic: Opportunity cost
Skill: Level 1: Definition
Section: Checkpoint 3.2
Status: Old
AACSB: Reflective thinking

61) Moving between two points on a PPF, a country gains 6 automobiles and forgoes 3 trucks. The
opportunity cost of 1 automobile is
A) 3 trucks.
B) 6 automobiles – 3 trucks.
C) 2 trucks.
D) 1/2 of a truck.
E) 1 automobile.
Answer: D
Topic: Opportunity cost
Skill: Level 3: Using models
Section: Checkpoint 3.2
Status: Old
AACSB: Analytical thinking

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62) Moving between two points on a PPF, a country gains 8 desktop computers and forgoes 4
laptop computers. The opportunity cost of 1 desktop computer is
A) 4 laptops.
B) 8 desktops.
C) 1 desktop.
D) 2 laptops.
E) 1/2 of a laptop.
Answer: E
Topic: Opportunity cost
Skill: Level 3: Using models
Section: Checkpoint 3.2
Status: Old
AACSB: Analytical thinking

63) A country produces only cans of soup and ink pens. If the country produces on its bowed
outward PPF and increases the production of cans of soup, the opportunity cost of additional
A) cans of soup is increasing.
B) cans of soup is decreasing.
C) cans of soup remains unchanged.
D) ink pens is increasing.
E) More information is needed to determine what happens to the opportunity cost.
Answer: A
Topic: Increasing opportunity costs
Skill: Level 2: Using definitions
Section: Checkpoint 3.2
Status: Old
AACSB: Reflective thinking

64) Moving along a countryʹs PPF, a reason opportunity costs increase is that
A) unemployment decreases as a country produces more and more of one good.
B) unemployment increases as a country produces more and more of one good.
C) technology declines as a country produces more and more of one good.
D) some resources are better suited for producing one good rather than the other.
E) technology must advance in order to produce more and more of one good.
Answer: D
Topic: Increasing opportunity costs
Skill: Level 2: Using definitions
Section: Checkpoint 3.2
Status: Old
AACSB: Reflective thinking

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65) Increasing opportunity cost exists
A) in the real world.
B) as long as there is high unemployment.
C) only in theory but not in real life.
D) for a country but not for an individual.
E) inside the PPF but not on the PPF.
Answer: A
Topic: Increasing opportunity costs
Skill: Level 1: Definition
Section: Checkpoint 3.2
Status: Old
AACSB: Reflective thinking

3.3 Economic Growth
1) Which of the following is the best definition of economic growth?
A) the investment in capital and consumption goods by an economy
B) the opportunity cost of capital
C) the opportunity cost of consumption
D) increased development of land and entrepreneurship
E) the sustained expansion of production possibilities
Answer: E
Topic: Economic growth
Skill: Level 1: Definition
Section: Checkpoint 3.3
Status: Old
AACSB: Reflective thinking

2) The sustained expansion of production possibilities is called
A) economic investment.
B) production expansion.
C) opportunity cost of growth.
D) economic growth.
E) production possibilities.
Answer: D
Topic: Economic growth
Skill: Level 1: Definition
Section: Checkpoint 3.3
Status: Old
AACSB: Reflective thinking

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3) Which of the following would most likely cause a countryʹs production possibilities set to shift
outward at every point along the frontier?
A) a decrease in idle capital
B) a decrease in unemployment
C) a technological advance in only one sector of the economy
D) a general technological advance that affects all sectors of the economy
E) none of the above
Answer: D
Topic: Economic growth and the PPF
Skill: Level 3: Using models
Section: Checkpoint 3.3
Status: New
AACSB: Analytical thinking

4) Consider a PPF with consumption goods on the horizontal axis and capital goods on the
vertical axis. If the country operates on its PPF near its ________ axis, this country ________.
A) vertical; will experience greater economic growth
B) vertical; will not face opportunity costs
C) horizontal; will have a larger chance at economic growth
D) horizontal; faces larger tradeoffs
E) vertical; is operating at an inefficient point
Answer: A
Topic: Economic growth and the PPF
Skill: Level 3: Using models
Section: Checkpoint 3.3
Status: Old
AACSB: Analytical thinking

5) Economic growth depends upon which of the following?
i. Increasing the quantity of labor
ii. Lowering the prices of goods and services
iii. Advancing technology
A) i only
B) ii only
C) iii only
D) i and iii
E) i, ii, and iii
Answer: D
Topic: Economic growth
Skill: Level 1: Definition
Section: Checkpoint 3.3
Status: Old
AACSB: Reflective thinking

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6) Economic growth depends upon which of the following?
i. Improving the quality of labor
ii. Technological advancement
iii. Increasing the amount of capital
A) i only
B) ii only
C) iii only
D) i and iii
E) i, ii, and iii
Answer: E
Topic: Economic growth
Skill: Level 1: Definition
Section: Checkpoint 3.3
Status: Old
AACSB: Reflective thinking

7) As an economy grows,
A) its PPF shifts outward.
B) it can eliminate scarcity.
C) the opportunity cost of production will approach 0.
D) the opportunity cost of production will increase.
E) its PPF does not shift; instead, the production point moves from inside the PPF to be
closer to the PPF.
Answer: A
Topic: Economic growth and the PPF
Skill: Level 1: Definition
Section: Checkpoint 3.3
Status: Old
AACSB: Reflective thinking

8) The opportunity cost of economic growth is
A) 0, because it means an expansion of production possibilities.
B) the decrease in the current production of productive factors.
C) a slower accumulation of human capital.
D) the decrease in the current production of consumption goods.
E) the increase in the nationʹs capital stock and/or its technology.
Answer: D
Topic: Economic growth, opportunity cost
Skill: Level 1: Definition
Section: Checkpoint 3.3
Status: Old
AACSB: Reflective thinking

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9) What is the opportunity cost of economic growth?
A) current period consumption goods
B) current period capital goods
C) land
D) both current period consumption and capital goods
E) both current period capital goods and land
Answer: A
Topic: Economic growth, opportunity cost
Skill: Level 2: Using definitions
Section: Checkpoint 3.3
Status: Old
AACSB: Reflective thinking

10) The above figure shows the PPF for a country that produces computers and computer
factories. Which of the following would most likely shift the PPF from PPF0 in one year to
PPF1 in the next?
A) Nothing, because the PPF does not shift.
B) Increase the production of computers from 9 million (at point C) to 11 million (at point
B).
C) Decrease the production of computers from 11 million (at point B) to 9 million (at point
C) and build 9 new computer factories.
D) Increase consumption of both computers and computer factories.
E) Decrease production of both computers and computer factories by moving into the
interior of the PPF.
Answer: C
Topic: Economic growth
Skill: Level 3: Using models
Section: Checkpoint 3.3
Status: Old
AACSB: Analytical thinking

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11) The above figure shows the PPF for a country that produces computers and computer
factories. The nationʹs production possibilities frontier is PPF0 . At which of the following
production points would the economy grow most rapidly?
A) Point A
B) Point B
C) Point C
D) It makes no difference among the three points because they are all production efficient.
E) More information is needed to answer the question.
Answer: A
Topic: Economic growth
Skill: Level 3: Using models
Section: Checkpoint 3.3
Status: Old
AACSB: Analytical thinking

12) Suppose Puerto Rico and Hawaii currently have the same production possibilities so that the
above figure is the PPF for hotels and consumption goods in the two areas. Hotels are a capital
good that,once built, will help produce still more consumption goods. If Puerto Rico produces
more hotels than Hawaii,
A) Hawaiiʹs PPF will shift outward further than Puerto Ricoʹs PPF.
B) Hawaiiʹs PPF will shift inward.
C) Puerto Ricoʹs PPF will not shift.
D) Puerto Ricoʹs and Hawaiiʹs PPF will shift outward by the same amount.
E) Puerto Ricoʹs PPF will shift outward further than Hawaiiʹs PPF.
Answer: E
Topic: Economic growth
Skill: Level 3: Using models
Section: Checkpoint 3.3
Status: Old
AACSB: Analytical thinking

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13) Suppose Puerto Rico and Hawaii currently have the same production possibilities so that the
above figure is the PPF for hotels and consumption goods in the two areas. Hotels are a capital
good that,once built, will help produce still more consumption goods.. According to the figure,
which island will have more rapid economic growth?
A) Hawaii
B) Both Hawaii and Puerto Rico will grow at the same speed.
C) Puerto Rico
D) Neither Hawaii nor Puerto Rico will grow.
E) More than one of the above answers is correct.
Answer: C
Topic: Economic growth
Skill: Level 3: Using models
Section: Checkpoint 3.3
Status: Old
AACSB: Analytical thinking

14) Suppose India and France have the same PPF, shown in the figure above. Based on their
current production points, which is Indiaʹs most likely future PPF?
A) PPF2
B) PPF1
C) PPF0
D) either PPF0 or PPF 1
E) None of the above because economic growth will not happen in India.
Answer: A
Topic: Economic growth
Skill: Level 3: Using models
Section: Checkpoint 3.3
Status: Old
AACSB: Analytical thinking

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15) Suppose India and France have the same PPF, shown in the figure above. Based on their
current production points, which is Franceʹs most likely future PPF?
A) PPF2
B) PPF1
C) PPF0
D) either PPF0 or PPF 1
E) None of the above because economic growth will not happen in India.
Answer: B
Topic: Economic growth
Skill: Level 3: Using models
Section: Checkpoint 3.3
Status: Old
AACSB: Analytical thinking

16) Suppose India and France have the same PPF, shown in the figure above. Based on their
current production points, Indiaʹs most likely future PPF is ________, and Franceʹs most likely
future PPF is ________.
A) PPF1 ; PPF1
B) PPF2 ; PPF2
C) PPF0 ; PPF0
D) PPF2 ; PPF1
E) PPF1 ; PPF2
Answer: D
Topic: Economic growth
Skill: Level 3: Using models
Section: Checkpoint 3.3
Status: Old
AACSB: Analytical thinking

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17) Suppose that Germany, France, Estonia, and India all have the same production possibilities,
illustrated in the figure above. Based on the production points in the figure, which country is
most likely to expand its PPF to PPF3 ?
A) India
B) Germany
C) Estonia
D) France and Germany equally
E) France
Answer: B
Topic: Economic growth
Skill: Level 3: Using models
Section: Checkpoint 3.3
Status: Old
AACSB: Analytical thinking

18) Suppose that Germany, France, Estonia, and India all have the same production possibilities,
illustrated in the figure above. Based on the production points in the figure, which country is
most likely to expand its PPF to PPF1 ?
A) France and Germany equally
B) India
C) Estonia
D) France
E) Germany
Answer: B
Topic: Economic growth
Skill: Level 3: Using models
Section: Checkpoint 3.3
Status: Old
AACSB: Analytical thinking

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19) Suppose that Germany, France, Estonia, and India all have the same production possibilities,
illustrated in the figure above. Based on the production points in the figure, India is most
likely to expand its PPF to
A) PPF3 or PPF2.
B) PPF3 .
C) PPF1 .
D) PPF1 . or PPF2.
E) PPF2 .
Answer: C
Topic: Economic growth
Skill: Level 3: Using models
Section: Checkpoint 3.3
Status: Old
AACSB: Analytical thinking

20) Suppose that Germany, France, Estonia, and India all have the same production possibilities,
illustrated in the figure above. Based on the production points in the figure, Germany is most
likely to expand its PPF to
A) PPF3 or PPF2.
B) PPF3 .
C) PPF1 .
D) PPF1 . or PPF2.
E) PPF2 .
Answer: B
Topic: Economic growth
Skill: Level 3: Using models
Section: Checkpoint 3.3
Status: Old
AACSB: Analytical thinking

21) To increase its economic growth, a nation should
A) limit the number of people in college because they produce nothing.
B) encourage spending on goods and services.
C) encourage education because that increases the quality of labor.
D) increase current consumption.
E) eliminate expenditure on capital goods.
Answer: C
Topic: Economic growth
Skill: Level 2: Using definitions
Section: Checkpoint 3.3
Status: Old
AACSB: Reflective thinking

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22) Other things equal, if Mexico devotes more resources to train its population than Spain,
A) Mexico will be able to eliminate opportunity cost faster than Spain.
B) Mexico will be able to eliminate scarcity faster than Spain.
C) Spain will grow faster than Mexico.
D) Mexico will have more current consumption than Spain.
E) Mexico will grow faster than Spain.
Answer: E
Topic: Economic growth
Skill: Level 3: Using models
Section: Checkpoint 3.3
Status: Old
AACSB: Reflective thinking

23) If a nation devotes a larger share of its current production to consumption goods, then
A) its economic growth will slow down.
B) its PPF will shift outward.
C) its PPF will shift inward.
D) some productive factors will become unemployed.
E) it must produce at a point within its PPF.
Answer: A
Topic: Economic growth
Skill: Level 3: Using models
Section: Checkpoint 3.3
Status: Old
AACSB: Reflective thinking

24) Which of the following statements is correct?
i. As the economy grows, the opportunity costs of economic growth decrease.
ii. Economic growth has no opportunity cost.
iii. The opportunity cost of economic growth is current consumption forgone.
A) i only
B) ii only
C) iii only
D) i and iii
E) i and ii
Answer: C
Topic: Economic growth
Skill: Level 3: Using models
Section: Checkpoint 3.3
Status: Old
AACSB: Reflective thinking

25) When a countryʹs production possibilities frontier shifts outward over time, the country is
experiencing
A) no opportunity cost.
B) economic growth.
C) higher unemployment of resources.
D) a decrease in unemployment of resources.
E) an end to opportunity cost.
Answer: B
Topic: Economic growth
Skill: Level 1: Definition
Section: Checkpoint 3.3
Status: Old
AACSB: Reflective thinking

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26) The opportunity cost of economic growth is ________ and the benefit of economic growth is
________.
A) increased current consumption; increased future consumption
B) increased current consumption; decreased future consumption
C) decreased current consumption; increased future consumption
D) decreased current consumption; decreased future consumption
E) nothing; increased future consumption
Answer: C
Topic: Economic growth
Skill: Level 1: Definition
Section: Checkpoint 3.3
Status: Old
AACSB: Reflective thinking

3.4 Specialization and Trade
1) If Wendy can produce more of all goods than Tommy in an hour, then
A) Wendy has an absolute advantage in all goods.
B) Wendy does not need to trade with Tommy in order to achieve the gains from trade.
C) Wendy has a comparative advantage in all goods.
D) Tommy has an absolute advantage in all goods.
E) Only Tommy, but not Wendy, can benefit from trade between the two of them.
Answer: A
Topic: Absolute advantage
Skill: Level 1: Definition
Section: Checkpoint 3.4
Status: Old
AACSB: Reflective thinking

2) Mac can bake more cookies than Monica per hour. It must be true that
A) Monica has an absolute advantage in cookie baking.
B) Mac has an absolute advantage in baking cookies.
C) Mac has a comparative advantage in baking cookies.
D) Monica has a comparative advantage in baking cookies.
E) Mac cannot benefit by trade between the two of them.
Answer: B
Topic: Absolute advantage
Skill: Level 3: Using models
Section: Checkpoint 3.4
Status: Old
AACSB: Reflective thinking

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3) When Mik has an absolute advantage in the production of two goods over Tommy, Mik
A) is less productive than Tommy.
B) is better off if he does not engage in specialization and trade with Tommy.
C) is more productive in producing both goods than Tommy.
D) always has a comparative advantage over Tommy in the production of both goods.
E) cannot gain from trade with Tommy.
Answer: C
Topic: Absolute advantage
Skill: Level 1: Definition
Section: Checkpoint 3.4
Status: Old
AACSB: Reflective thinking

4) If John can produce 10 chairs or 20 lamps during a week while Mary can produce 12 chairs or
22 lamps in the same time, who has the absolute advantage in producing each good?
A) Mary in producing both goods
B) John in producing both goods
C) Mary in producing chairs, John in producing lamps
D) John in producing chairs, Mary in producing lamps
E) Both Mary and John in both goods
Answer: A
Topic: Absolute advantage
Skill: Level 2: Using definitions
Section: Checkpoint 3.4
Status: Old
AACSB: Analytical thinking

5) If Toni has an absolute advantage in both sewing and ironing when compared to Tom, then
A) they might benefit from trading, but we need more information to determine in which
task they should specialize.
B) neither Toni nor Tom can benefit from trading with each other.
C) Toni should specialize in sewing, and Tom should specialize in ironing.
D) Toni cannot benefit from trading with Tom, but Tom can benefit from trading with Toni.
E) Tom cannot benefit from trading with Toni, but Toni can benefit from trading with Tom.
Answer: A
Topic: Absolute advantage
Skill: Level 3: Using models
Section: Checkpoint 3.4
Status: Old
AACSB: Reflective thinking

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6) If a country has
A) an absolute advantage in producing a good, it definitely also has a comparative
advantage in producing that good.
B) an absolute advantage in producing a good, it might or might not have a comparative
advantage in producing that good.
C) a comparative advantage in production of a good, it must also have an absolute
advantage in producing that good.
D) an absolute advantage in producing a good, it definitely will not have a comparative
advantage in producing that good.
E) None of the above answers is correct.
Answer: B
Topic: Absolute advantage
Skill: Level 2: Using definitions
Section: Checkpoint 3.4
Status: Old
AACSB: Reflective thinking

7) Hank requires 1 hour to cut the grass and 3 hours to clean the house. His sister Holly requires
1 hour to cut the grass and 4 hours to clean the house. Which of the following statements is
true?
A) Hank has a comparative advantage in both cutting the grass and cleaning the house.
B) Hank and Holly both have a comparative advantage in cutting the grass.
C) Hank has a lower opportunity cost of cutting the grass.
D) Hank has an absolute advantage in both cutting the grass and cleaning the house.
E) Holly has a comparative advantage in cutting the grass.
Answer: E
Topic: Opportunity cost
Skill: Level 2: Using definitions
Section: Checkpoint 3.4
Status: Old
AACSB: Analytical thinking

8) The United States can use all its resources to produce 250 DVDs or 500 shoes. China can use all
of its resources to produce 30 DVDs or 300 shoes. The opportunity cost of producing a DVD in
the United States is
A) 2 shoes.
B) 1/2 of a shoe.
C) 20 shoes.
D) 500 shoes.
E) 1 DVD.
Answer: A
Topic: Opportunity cost
Skill: Level 3: Using models
Section: Checkpoint 3.4
Status: Old
AACSB: Analytical thinking

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Maryʹs production in 1 day
Dresses
8
Jackets
12

Markʹs production in 1 day
Dresses
24
Jackets
16

9) In the table above, how many jackets must Mary forgo for every dress she makes?
A) 12 jackets
B) 3/4 of a jacket
C) 2/3 of a jacket
D) 1 1/2 jackets
E) 8 jackets
Answer: D
Topic: Opportunity cost
Skill: Level 3: Using models
Section: Checkpoint 3.4
Status: Old
AACSB: Analytical thinking

10) In the table above, how many jackets must Mark forgo for every dress he makes?
A) 1 jacket
B) 16 jackets
C) 2/3 of a jacket
D) 1 1/2 jackets
E) 24 dresses
Answer: C
Topic: Opportunity cost
Skill: Level 3: Using models
Section: Checkpoint 3.4
Status: Old
AACSB: Analytical thinking

11) In the above table, for Mary the opportunity cost of producing a dress is ________ and the
opportunity cost for Mark of producing a dress is ________.
A) 1 1/2 jackets; 2/3 of a jacket
B) 1 1/2 jackets; 2 1/2 jackets
C) 1 1/4 jackets; 1/2 of a jacket
D) 1 jacket; 1 jacket
E) 1 dress; 1 dress
Answer: A
Topic: Opportunity cost
Skill: Level 3: Using models
Section: Checkpoint 3.4
Status: Old
AACSB: Analytical thinking

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12) A country has a comparative advantage in the production of a good if it can
A) produce more of the good than another country.
B) produce more of the good most efficiently.
C) produce the good on and remain on its production possibilities frontier.
D) trade off producing the good for another good.
E) produce the good at the lowest opportunity cost.
Answer: E
Topic: Comparative advantage
Skill: Level 1: Definition
Section: Checkpoint 3.4
Status: Old
AACSB: Reflective thinking

13) Having a comparative advantage means a nation can
A) benefit from trade.
B) produce at a higher opportunity cost.
C) produce more of the good.
D) produce without incurring an opportunity cost.
E) produce the good at a point beyond its PPF.
Answer: A
Topic: Comparative advantage
Skill: Level 1: Definition
Section: Checkpoint 3.4
Status: Old
AACSB: Reflective thinking

14) When a person has a comparative advantage in producing a good or service, the person has
A) a higher opportunity cost in producing that product than someone else.
B) a constant opportunity cost in producing that product.
C) a decreasing opportunity cost in producing that product.
D) a lower opportunity cost in producing that product than someone else.
E) an increasing marginal benefit in producing the good.
Answer: D
Topic: Comparative advantage
Skill: Level 1: Definition
Section: Checkpoint 3.4
Status: Old
AACSB: Reflective thinking

15) Which of the following best describes comparative advantage?
A) being able to produce more output than any other country
B) using the fewest number of resources to produce a given amount of output
C) having the largest number of resources compared to other countries
D) forgoing the fewest units of one product to produce a unit of another product
E) It is the same as absolute advantage.
Answer: D
Topic: Comparative advantage
Skill: Level 2: Using definitions
Section: Checkpoint 3.4
Status: Old
AACSB: Reflective thinking

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16) Which of the following is correct about comparative advantage?
A) Some countries will have a comparative advantage in everything.
B) Having a comparative advantage without an absolute advantage is impossible.
C) A comparative advantage in a good means that the country can produce more of the
good than any other country.
D) A country has a comparative advantage in the production of a good if it can produce the
good at lower opportunity cost than any other country.
E) None of the above answers is correct.
Answer: D
Topic: Comparative advantage
Skill: Level 3: Using models
Section: Checkpoint 3.4
Status: Old
AACSB: Reflective thinking

17) John can make pizza at a lower opportunity cost than Allen, but Allen can make more pizzas
per day than John. Therefore,
A) John cannot benefit from trade with Allen.
B) Allen cannot benefit from trade with John.
C) John has a comparative advantage in pizza.
D) John has an absolute advantage in pizza.
E) Allen has a comparative advantage in pizza.
Answer: C
Topic: Comparative advantage
Skill: Level 2: Using definitions
Section: Checkpoint 3.4
Status: Old
AACSB: Reflective thinking

18) Alice and Gene work in the mailroom, sorting and delivering mail. In order for them to benefit
from specialization and trade, Alice must
A) be able to both sort and deliver faster than Gene.
B) be equally productive in both sorting and delivering.
C) have a comparative advantage in both sorting and delivering.
D) have a comparative advantage in one task and Gene must have a comparative advantage
in the other task.
E) be equally productive as Gene in both sorting and delivering.
Answer: D
Topic: Comparative advantage
Skill: Level 2: Using definitions
Section: Checkpoint 3.4
Status: Old
AACSB: Reflective thinking

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Copyright © 2015 Pearson Education, Inc.

19) When one personʹs opportunity cost of producing a good is lower than another personʹs
opportunity cost of producing the same good, it is called
A) an absolute advantage.
B) a comparative advantage.
C) specialization.
D) production possibilities.
E) a tradeoff.
Answer: B
Topic: Comparative advantage
Skill: Level 1: Definition
Section: Checkpoint 3.4
Status: Old
AACSB: Reflective thinking

20) For country Gamma the opportunity cost for producing 1 computer is 10 tons of steel. For
country Beta the opportunity cost for producing 1 computer is 6 tons of steel. Which country
has the comparative advantage in the production of steel?
A) Gamma
B) Beta
C) Both have the comparative advantage in the production of steel.
D) Neither country has the comparative advantage in the production of steel.
E) More information is needed to determine which of the two nations has the comparative
advantage.
Answer: A
Topic: Comparative advantage
Skill: Level 2: Using definitions
Section: Checkpoint 3.4
Status: Old
AACSB: Analytical thinking

21) For country North, the opportunity cost incurred when 3 tractors are produced is 21 watches.
For country South, the opportunity cost incurred when 5 tractors are produced is 100 watches.
Which country has the comparative advantage in the production of tractors?
A) North
B) South
C) Both have the comparative advantage in the production of tractors.
D) Neither country has the comparative advantage in the production of tractors.
E) More information is needed about which country has the comparative advantage in the
production of watches.
Answer: A
Topic: Comparative advantage
Skill: Level 2: Using definitions
Section: Checkpoint 3.4
Status: Old
AACSB: Analytical thinking

Page 274
Copyright © 2015 Pearson Education, Inc.

22) If Country A can produce an extra plane by giving up two boats, and Country B can produce
an extra plane by giving up three boats, then
A) Country A has a comparative advantage over Country B in the production of planes.
B) Country B has a comparative advantage over Country A in the production of planes.
C) The two countries have no incentive to trade with one another.
D) Country A would like to trade with B, but B cannot gain by trading with A.
E) Country A has an absolute advantage in producing planes and a comparative advantage
in producing boats.
Answer: A
Topic: Comparative advantage
Skill: Level 3: Using models
Section: Checkpoint 3.4
Status: Old
AACSB: Analytical thinking

23) David takes 10 minutes to process a customer, and 20 minutes to stock the shelves. Danny
takes 15 minutes to process a customer, and 15 minutes to stock the shelves. Which of the
following statements is true?
A) David has an absolute advantage in performing both tasks.
B) Danny has an absolute advantage in performing both tasks.
C) David has a comparative advantage in processing customers but not in stocking shelves.
D) Danny has a comparative advantage in processing customers but not in stocking shelves.
E) Danny has a comparative advantage in processing customers and in stocking shelves.
Answer: C
Topic: Comparative advantage
Skill: Level 3: Using models
Section: Checkpoint 3.4
Status: Old
AACSB: Analytical thinking

24) Rikaʹs opportunity cost of producing 100 t-shirts is 50 jackets. Jeffʹs opportunity cost of
producing 75 t-shirts is 25 jackets. Who should specialize in jackets?
A) Rika
B) Jeff
C) neither
D) both
E) More information is needed about their production possibilities frontiers to determine
who should specialize in jackets.
Answer: A
Topic: Comparative advantage
Skill: Level 3: Using models
Section: Checkpoint 3.4
Status: Old
AACSB: Analytical thinking

Page 275
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25) On a typical acre of land, Iowa can produce either 300 pounds of beef or 100 pounds of
soybeans in a year. On a typical acre of land, Nebraska can produce 150 pounds of beef or 200
pounds of soybeans. Which of the following is correct?
A) Nebraska should produce soybeans because its opportunity cost of soybeans is lower.
B) Nebraska should produce soybeans because its opportunity cost of soybeans is higher.
C) Iowa should produce soybeans because its opportunity cost of soybeans is lower.
D) Iowa should produce soybeans because its opportunity cost of soybeans is higher.
E) Nebraska and Iowa should divide each acre evenly between soybean and beef
production.
Answer: A
Topic: Achieving the gains from trade
Skill: Level 5: Critical thinking
Section: Checkpoint 3.4
Status: New
AACSB: Analytical thinking

Huey
Steve

Potatoes
Tomatoes
(pounds)
(pounds)
12
or
8
6
or
2

26) Huey and Steve can grow potatoes or tomatoes. The table above shows the pounds of potatoes
and tomatoes Huey and Steve can grow in a week. Based on the table, Hueyʹs opportunity cost
of producing one pound of tomatoes is
A) 1.5 pounds of potatoes.
B) 0.66 pound of potatoes.
C) 0, because he has an absolute advantage in it.
D) 0, because he has a comparative advantage in it.
E) 1.0 pound of potatoes.
Answer: A
Topic: Opportunity cost
Skill: Level 3: Using models
Section: Checkpoint 3.4
Status: Old
AACSB: Analytical thinking

27) Huey and Steve can grow potatoes or tomatoes. The table above shows the pounds of potatoes
and tomatoes Huey and Steve can grow in a week. Based on the table, Steve has a comparative
advantage in
A) both potatoes and tomatoes.
B) neither potatoes nor tomatoes.
C) potatoes.
D) tomatoes.
E) More information is needed about Hueyʹs comparative advantage in order to determine
Steveʹs comparative advantage.
Answer: C
Topic: Comparative advantage
Skill: Level 3: Using models
Section: Checkpoint 3.4
Status: Old
AACSB: Analytical thinking

Page 276
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28) Huey and Steve can grow potatoes or tomatoes. The table above shows the pounds of potatoes
and tomatoes Huey and Steve can grow in a week. Based on the table, which of the following
statements is correct?
A) Steve has an absolute advantage in both potatoes and tomatoes.
B) Steve has a comparative advantage in both potatoes and tomatoes.
C) Steve has an absolute advantage in potatoes only.
D) Huey has an absolute advantage in potatoes only.
E) Huey has an absolute advantage in both potatoes and tomatoes.
Answer: E
Topic: Absolute advantage
Skill: Level 3: Using models
Section: Checkpoint 3.4
Status: Old
AACSB: Analytical thinking

29) If Tom can wax a car in fewer hours than Jerry, then Tom definitely has
A) a comparative advantage in car waxing.
B) an absolute advantage in car waxing.
C) both a comparative and an absolute advantage in car waxing.
D) neither a comparative nor an absolute advantage in car waxing.
E) an undetermined advantage because we do not know how long it takes Tom and Jerry to
wash a car.
Answer: B
Topic: Comparative advantage versus absolute advantage
Skill: Level 2: Using definitions
Section: Checkpoint 3.4
Status: New
AACSB: Analytical thinking

Jackʹs production possibilities
Jillʹs production possibilities
Production
Food
Clothing Production
Food
Clothing
point
(pounds)
(pounds)
point
(pounds)
(pounds)
A
24
and
0
A
45
and
0
B
16
and
4
B
30
and
5
C
8
and
8
C
15
and
10
D
0
and
12
D
0
and
15
30) In the table above, Jackʹs opportunity cost for 1 pound of food is ________ and his opportunity
cost for 1 pound of clothing is ________.
A) 1 pound of clothing; 4 pounds of food
B) 1/2 of a pound of clothing; 2 pounds of food
C) 1/3 of a pound of clothing; 3 pounds of food
D) 2 pounds of clothing; 2 pounds of food
E) 1 pound of food; 1 pound of clothing
Answer: B
Topic: Opportunity cost
Skill: Level 4: Applying models
Section: Checkpoint 3.4
Status: Old
AACSB: Analytical thinking

Page 277
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31) In the table above, Jillʹs opportunity cost for 1 pound of food is ________ and her opportunity
cost for 1 pound of clothing is ________.
A) 1 pound of clothing; 4 pounds of food
B) 1/2 of a pound of clothing; 2 pounds of food
C) 1/3 of a pound of clothing; 3 pounds of food
D) 2 pounds of clothing; 2 pounds of food
E) 1 pound of food; 1 pound of clothing
Answer: C
Topic: Opportunity cost
Skill: Level 4: Applying models
Section: Checkpoint 3.4
Status: Old
AACSB: Analytical thinking

32) In the table above, Jackʹs comparative advantage is producing ________ and Jillʹs comparative
advantage is producing ________.
A) clothing; food
B) clothing and food; nothing
C) nothing; clothing and food
D) food; clothing
E) clothing; clothing
Answer: A
Topic: Comparative advantage
Skill: Level 4: Applying models
Section: Checkpoint 3.4
Status: Old
AACSB: Analytical thinking

Page 278
Copyright © 2015 Pearson Education, Inc.

33) Deb and Pete have volunteered to help their favorite charity mail out fundraiser information.
The figure above shows their production possibilities frontiers for assembling packets and
stuffing envelopes. If Deb spends all her time assembling packets, how many can she
assemble?
A) 32
B) 40
C) 64
D) 160
E) 22
Answer: B
Topic: Production possibilities frontier
Skill: Level 3: Using models
Section: Checkpoint 3.4
Status: Old
AACSB: Analytical thinking

34) Deb and Pete have volunteered to help their favorite charity mail out fundraiser information.
The figure above shows their production possibilities frontiers for assembling packets and
stuffing envelopes. What is Debʹs opportunity cost of assembling 1 packet?
A) 160 envelopes
B) 40 envelopes
C) 4 envelopes
D) 1/4 of an envelope
E) 4 packets
Answer: C
Topic: Opportunity cost
Skill: Level 3: Using models
Section: Checkpoint 3.4
Status: Old
AACSB: Analytical thinking

Page 279
Copyright © 2015 Pearson Education, Inc.

35) Deb and Pete have volunteered to help their favorite charity mail out fundraiser information.
The figure above shows their production possibilities frontiers for assembling packets and
stuffing envelopes. Which of the following statements is correct?
A) Deb has a comparative advantage in assembling packets.
B) Pete has an absolute advantage in both assembling packets and stuffing envelopes.
C) Deb has a comparative advantage in stuffing envelopes.
D) Deb has an absolute advantage in both assembling packets and stuffing envelopes.
E) Deb has a comparative advantage in both assembling packets and stuffing envelopes.
Answer: C
Topic: Comparative advantage
Skill: Level 3: Using models
Section: Checkpoint 3.4
Status: Old
AACSB: Analytical thinking

36) Deb and Pete have volunteered to help their favorite charity mail out fundraiser information.
The figure above shows their production possibilities frontiers for assembling packets and
stuffing envelopes. If Deb and Pete specialize and trade, how many packets will be assembled?
A) 40
B) more than 40 and less than 80
C) 80
D) 160
E) more than 80 and less than 160
Answer: D
Topic: Achieving the gains from trade
Skill: Level 3: Using models
Section: Checkpoint 3.4
Status: Old
AACSB: Analytical thinking

Page 280
Copyright © 2015 Pearson Education, Inc.

37) Gabriel operates a ranch in Idaho where he raises cattle and grows potatoes. The figure above
illustrates his production possibilities frontier. What is Gabrielʹs opportunity cost of growing
another ton of potatoes?
A) 400 cows
B) 80 cows
C) 100 cows
D) 0 cows
E) 1 ton of potatoes
Answer: B
Topic: Opportunity cost
Skill: Level 3: Using models
Section: Checkpoint 3.4
Status: Old
AACSB: Analytical thinking

38) Gabriel operates a ranch in Idaho where he raises cattle and grows potatoes. The figure above
illustrates his production possibilities frontier. What is Gabrielʹs opportunity cost of raising
another 100 cows?
A) 1.25 tons of potatoes
B) 5.0 tons of potatoes
C) 3.0 tons of potatoes
D) 1.0 ton of potatoes
E) 100 cows
Answer: A
Topic: Opportunity cost
Skill: Level 3: Using models
Section: Checkpoint 3.4
Status: Old
AACSB: Analytical thinking

Page 281
Copyright © 2015 Pearson Education, Inc.

39) In the above figure, Jackʹs opportunity cost of producing 1 gallon of soda is ________ of bottled
water.
A) 1 gallon
B) 1/2 of a gallon
C) 6 gallons
D) 1/4 of a gallon
E) 2 gallons
Answer: E
Topic: Opportunity cost
Skill: Level 3: Using models
Section: Checkpoint 3.4
Status: Old
AACSB: Analytical thinking

40) In the above figure, Jackʹs opportunity cost of producing 1 gallon of bottled water is ________
of soda.
A) 2 gallons
B) 1/2 of a gallon
C) 6 gallons
D) 1/4 of a gallon
E) 1 gallon
Answer: B
Topic: Opportunity cost
Skill: Level 3: Using models
Section: Checkpoint 3.4
Status: Old
AACSB: Analytical thinking

Page 282
Copyright © 2015 Pearson Education, Inc.

41) In the above figure, Jillʹs opportunity cost of producing 1 gallon of soda is ________ of bottled
water.
A) 2 gallons
B) 1/2 of a gallon
C) 4 gallons
D) 1 gallon
E) 1/4 of a gallon
Answer: D
Topic: Opportunity cost
Skill: Level 3: Using models
Section: Checkpoint 3.4
Status: Old
AACSB: Analytical thinking

42) In the above figure, Jillʹs opportunity cost of producing 1 gallon of bottled water is ________ of
soda.
A) 2 gallons
B) 1/2 of a gallon
C) 4 gallons
D) 1 gallon
E) 1/4 of a gallon
Answer: D
Topic: Opportunity cost
Skill: Level 3: Using models
Section: Checkpoint 3.4
Status: Old
AACSB: Analytical thinking

43) Using the figure above, if Jack and Jill specialize and gain from trade, then
A) Jack produces equal amounts of gallons of water and bottled water.
B) Jack specializes in the production of bottled water.
C) Jack and Jill produce beyond their PPF.
D) Jack specializes in the production of soda.
E) Jack specializes on the production of soda and water.
Answer: B
Topic: Achieving the gains from trade
Skill: Level 3: Using models
Section: Checkpoint 3.4
Status: Old
AACSB: Analytical thinking

Page 283
Copyright © 2015 Pearson Education, Inc.

44) The figure above shows the production possibilities frontiers for the United Kingdom and
France. What is the opportunity cost of one bushel of wheat in France?
A) 1/4 of a pound of fish
B) 4 pounds of fish
C) 1 pound of fish
D) 100 pounds of fish
E) 2 pounds of fish
Answer: A
Topic: Opportunity cost
Skill: Level 3: Using models
Section: Checkpoint 3.4
Status: Old
AACSB: Analytical thinking

45) The figure above shows the production possibilities frontiers for the United Kingdom and
France. What is the opportunity cost of one bushel of wheat for the United Kingdom?
A) 1/4 of a pound of fish
B) 1/2 of a pound of fish
C) 1 pound of fish
D) 200 pounds of fish
E) 2 pounds of fish
Answer: C
Topic: Opportunity cost
Skill: Level 3: Using models
Section: Checkpoint 3.4
Status: Old
AACSB: Analytical thinking

Page 284
Copyright © 2015 Pearson Education, Inc.

46) The figure above shows the production possibilities frontiers for the United Kingdom and
France. If the United Kingdom and France specialize and engage in trade, the United Kingdom
will produce ________ and France will produce ________.
A) wheat; wheat
B) wheat; fish
C) fish; wheat
D) fish; fish
E) both wheat and fish; both wheat and fish
Answer: C
Topic: Achieving the gains from trade
Skill: Level 3: Using models
Section: Checkpoint 3.4
Status: Old
AACSB: Analytical thinking

47) The figure above shows the production possibilities frontiers for the United Kingdom and
France. If the United Kingdom and France specialize and engage in trade, the United Kingdom
will export ________ and France will export ________.
A) wheat; wheat
B) wheat; fish
C) fish; wheat
D) fish; fish
E) nothing; nothing
Answer: C
Topic: Achieving the gains from trade
Skill: Level 3: Using models
Section: Checkpoint 3.4
Status: Old
AACSB: Analytical thinking

48) What is gained when people engage in specialization and trade?
A) Specialization and trade allow people to consume outside their individual production
possibilities frontiers.
B) Specialization and trade allow people to consume inside their production possibilities
frontiers.
C) Specialization and trade allow people to consume at a point on their production
possibilities frontiers.
D) Specialization and trade allow people to produce outside their individual production
possibilities frontiers.
E) There are no gains from specialization and trade.
Answer: A
Topic: Achieving the gains from trade
Skill: Level 2: Using definitions
Section: Checkpoint 3.4
Status: Old
AACSB: Reflective thinking

Page 285
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49) Gains from trade
A) occur when one party to the trade has an absolute advantage in both goods.
B) result in being able to consume beyond the trading individualsʹ production possibilities
frontiers.
C) occur when people do not specialize.
D) occur when opportunity costs are equal.
E) always benefit one party but not the other party of any trade.
Answer: B
Topic: Achieving the gains from trade
Skill: Level 3: Using models
Section: Checkpoint 3.4
Status: Old
AACSB: Reflective thinking

50) Consider the United Statesʹ production of soy beans and running shoes. If the United States
has an absolute advantage in the production of both goods compared to China,
A) both countries can gain from trade.
B) only the United States can gain from trade.
C) only China can gain from trade.
D) each country will be able to produce at a point beyond its PPF.
E) only the United States will be able to operate beyond its PPF.
Answer: A
Topic: Achieving the gains from trade
Skill: Level 3: Using models
Section: Checkpoint 3.4
Status: Old
AACSB: Reflective thinking

51) To achieve gains from trade, a country
A) needs to have an absolute advantage in the production of all goods.
B) specializes in the producing a good in which it has a lower opportunity cost.
C) must produce at a point beyond its PPF.
D) should produce at the midpoint of its PPF.
E) needs to have an absolute advantage in the production of at least one good.
Answer: B
Topic: Achieving the gains from trade
Skill: Level 2: Using definitions
Section: Checkpoint 3.4
Status: Old
AACSB: Reflective thinking

Page 286
Copyright © 2015 Pearson Education, Inc.

52) Specialization and trade
A) does not benefit anyone.
B) allows nations to produce inside their individual production possibilities frontier.
C) allows nations to consume combinations of products that are outside their individual
production possibilities frontier.
D) shifts the production possibilities frontier inward.
E) shifts the production possibilities frontier outward.
Answer: C
Topic: Achieving the gains from trade
Skill: Level 2: Using definitions
Section: Checkpoint 3.4
Status: Old
AACSB: Reflective thinking

53) The United States is one of the richest nations in the world,
A) so it does not need to trade with poor nations in order to achieve any gains from trade.
B) so it might not have a comparative advantage in producing any goods.
C) but it can still benefit from specialization and trade.
D) so it must have a comparative advantage in the production of all goods.
E) so it must have an absolute advantage in the production of all goods.
Answer: C
Topic: Achieving the gains from trade
Skill: Level 4: Applying models
Section: Checkpoint 3.4
Status: Old
AACSB: Reflective thinking

54) Specialization and trade make a country better off because with trade, the country can
consume at a point
A) outside its production possibilities frontier.
B) inside its production possibilities frontier.
C) on its production possibilities frontier.
D) on its trading partnerʹs production possibilities frontier.
E) inside its trading partnerʹs production possibilities frontier.
Answer: A
Topic: Achieving the gains from trade
Skill: Level 2: Using definitions
Section: Checkpoint 3.4
Status: Old
AACSB: Reflective thinking

Page 287
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55) By specializing and trading, a country is able to
A) obtain the absolute advantage in the goods it produces.
B) consume but not to produce combinations of goods that lie beyond its production
possibilities frontier.
C) produce but not to consume combinations of goods that lie beyond its production
possibilities frontier.
D) both produce and consume combinations of goods that lie beyond its production
possibilities frontier.
E) neither produce nor consume combinations of goods that lie beyond its production
possibilities frontier.
Answer: B
Topic: Achieving the gains from trade
Skill: Level 3: Using models
Section: Checkpoint 3.4
Status: Old
AACSB: Reflective thinking

56) With no international trade, a country ________ consume at a point outside of its PPF; with
international trade, a country ________ consume at a point outside of its PPF.
A) cannot; can
B) can; cannot
C) can; can
D) cannot; cannot
E) None of the above answers is correct because the presence or absence of international
trade has nothing to do with where a country consumes in comparison to its PPF.
Answer: A
Topic: Achieving the gains from trade
Skill: Level 3: Using models
Section: Checkpoint 3.4
Status: Old
AACSB: Reflective thinking

57) In terms of a nationʹs production possibilities frontier, what impact does international trade
have?
A) International trade shifts the nationʹs production possibilities frontier outward.
B) International trade shifts the nationʹs production possibilities frontier inward.
C) International trade allows the nation to consume at a point outside its production
possibilities frontier.
D) International trade shifts the production possibilities frontier outward for the goods that
are exported and inward for the goods that are imported.
E) International trade shifts the production possibilities frontier outward for the goods that
are imported and inward for the goods that are exported.
Answer: C
Topic: Achieving the gains from trade
Skill: Level 3: Using models
Section: Checkpoint 3.4
Status: Old
AACSB: Reflective thinking

Page 288
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58) The gains from trade include:
i. lower prices from competition
ii. greater output from specialization
iii. greater variety of goods and services available
A) i and iii only
B) ii and iii only
C) i and ii only
D) i, ii, and iii
E) ii only
Answer: D
Topic: Achieving the gains from trade
Skill: Level 3: Using models
Section: Checkpoint 3.4
Status: New
AACSB: Reflective thinking

59) If a nation has an absolute advantage in producing a good, then it
A) will have a comparative advantage in producing that good.
B) will have no need to trade with other nations.
C) will always specialize in that good.
D) might or might not have a comparative advantage in producing that good.
E) will not have a comparative advantage in producing that good.
Answer: D
Topic: Comparative advantage versus absolute advantage
Skill: Level 3: Using models
Section: Checkpoint 3.4
Status: Old
AACSB: Reflective thinking

60) In one hour John can produce 20 loaves of bread or 8 cakes. In one hour Phyllis can produce 30
loaves of bread or 15 cakes. Which of the following statements is true?
A) Phyllis has a comparative advantage in producing bread.
B) John has a comparative advantage in producing cakes.
C) Phyllis has an absolute advantage in both goods.
D) John has an absolute advantage in both goods.
E) Phyllis has a comparative advantage in producing both cakes and bread.
Answer: C
Topic: Absolute advantage
Skill: Level 3: Using models
Section: Checkpoint 3.4
Status: Old
AACSB: Analytical thinking

Page 289
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61) ʺComparative advantageʺ is defined as a situation in which one person can produce
A) more of all goods than another person.
B) more of a good than another person.
C) a good for a lower dollar cost than another person.
D) a good for a lower opportunity cost than another person.
E) all goods for lower opportunity costs than another person.
Answer: D
Topic: Comparative advantage
Skill: Level 1: Definition
Section: Checkpoint 3.4
Status: Old
AACSB: Reflective thinking

62) Scott and Cindy both produce only pizza and tacos. In one hour, Scott can produce 20 pizzas
or 40 tacos. In one hour, Cindy can produce 30 pizzas or 40 tacos. Scottʹs opportunity cost of
producing 1 taco is
A) 1/2 of a pizza.
B) 1 pizza.
C) 2 pizzas.
D) 20 pizzas.
E) 2 tacos.
Answer: A
Topic: Opportunity cost
Skill: Level 2: Using definitions
Section: Checkpoint 3.4
Status: Old
AACSB: Analytical thinking

63) Scott and Cindy both produce only pizza and tacos. In one hour, Scott can produce 20 pizzas
or 40 tacos. In one hour, Cindy can produce 30 pizzas or 40 tacos. Cindyʹs opportunity cost of
producing 1 taco is
A) 3/4 of a pizza.
B) 1 pizza.
C) 30 pizzas.
D) 40 pizzas.
E) 1 1/3 tacos.
Answer: A
Topic: Opportunity cost
Skill: Level 2: Using definitions
Section: Checkpoint 3.4
Status: Old
AACSB: Analytical thinking

Page 290
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64) Scott and Cindy both produce only pizza and tacos. In one hour, Scott can produce 20 pizzas
or 40 tacos. In one hour, Cindy can produce 30 pizzas or 40 tacos. Based on these data,
A) Cindy has a comparative advantage at producing tacos.
B) Scott has a comparative advantage at producing tacos.
C) Cindy and Scott have the same comparative advantage in producing tacos.
D) neither Cindy nor Scott has a comparative advantage in producing tacos.
E) Cindy and Scott have the same comparative advantage in producing pizzas.
Answer: B
Topic: Comparative advantage
Skill: Level 3: Using models
Section: Checkpoint 3.4
Status: Old
AACSB: Analytical thinking

65) In one hour John can produce 20 loaves of bread or 16 cakes. In one hour Phyllis can produce
30 loaves of bread or 15 cakes. Which of the following statements is true?
A) Phyllis has a comparative advantage in producing bread.
B) John has a comparative advantage in producing cakes.
C) Phyllis has an absolute advantage in both goods.
D) John has an absolute advantage in both goods.
E) Phyllis has a comparative advantage in producing both cakes and bread.
Answer: B
Topic: Comparative advantage
Skill: Level 3: Using models
Section: Checkpoint 3.4
Status: Old
AACSB: Analytical thinking

66) Comparative advantage is most closely related to which of the following concepts?
A) productivity
B) efficiency
C) opportunity cost
D) competition
E) fairness
Answer: C
Topic: Comparative advantage
Skill: Level 2: Using definitions
Section: Checkpoint 3.4
Status: New
AACSB: Reflective thinking

Page 291
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67) If workers in Mexico produce fewer goods and services per hour than workers in the United
States in all areas of production, then
A) the United States will benefit from trade with Mexico, but Mexico will not.
B) Mexico will benefit from trade with the United States, but the United States will not.
C) neither Mexico nor the United States will benefit from trade with the other.
D) both the United States and Mexico will benefit from trade with the other.
E) it is unknown whether either country can benefit from trade with the other.
Answer: D
Topic: Achieving the gains from trade
Skill: Level 3: Using models
Section: Checkpoint 3.4
Status: New
AACSB: Reflective thinking

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