Chapter 2 - PPF and TRADE

Question 1

CH2 The PPF Represents which economic concepts?

Answer 1

_SCARCITY of resources: The production possibilities frontier is a frontier between attainable and
unattainable combinations.
· OPPORTUNITY COST: The negative slope of the production possibilities frontier indicates that in order to
get more of one good, you must produce less of the other (a tradeoff).
· INCREASING opportunity cost: The bowed out production possibilities frontier represents the increasing
opportunity cost when more of a good or service is produced.
· EFFICIENCY: Points on the production possibilities frontier use all resources while points below the
production possibilities frontier represent unemployment or misallocated resources.

Question 2

#CH2 As long as the marginal benefit from a good is greater than its marginal cost, an
economy is operating efficiently.

Answer 2

False

Question 3

CH2 Explain how the production possibilities frontier illustrates scarcity

Answer 3

The PPF illustrates scarcity because we cannot attain the points outside the frontier.

Question 4

CH2 Production efficiency (cost-effectiveness) is achieved when

Answer 4

we produce goods and services at the lowest possible cost.

Question 5

CH2 Marginal cost is the opportunity cost

Answer 5

that arises from producing one more unit of a good or service

Question 6

CH2 If a factor of production can be used to produce either good A or good B, then A and B are

Answer 6

substitutes in production

Question 7

CH2 Which one of the following will shift the supply curve of good X leftward?

A) a technological improvement in the production of X
B) an increase in the cost of machinery used to produce X
C) a decrease in the wages of workers employed to produce X
D) a situation where quantity demanded exceeds quantity supplied
E) a decrease in the cost of capital used to produce X

Answer 7

B)

an increase in the cost of machinery used to produce X

Question 8

A decrease in the quantity supplied is shown by a
A) rightward shift of the supply curve.
B) rightward shift of the demand curve.
C) movement up along the supply curve.
D) movement down along the supply curve.
E) leftward shift of the supply curve.

Answer 8

D)

movement down along the supply curve.

Question 9

Which of the following will shift the supply curve of good X rightward?
A) the price of Y, a substitute in production for good X, rises
B) a decrease in the wages of workers employed to produce good X
C) an increase in the cost of capital used to produce good X
D) an increase in the price of energy
E) a decrease in the number of suppliers of good X

Answer 9

B)

a decrease in the wages of workers employed to produce good X

Question 10

Production efficiency is achieved when

Answer 10

we produce goods and services at the lowest possible cost.

Question 11

PPF Shifts because

Answer 11

• Human capital
• Technological progress
• Physical capital
• Natural conditions
• Anthropogenic events