chapter 4

Question 1

Which of the following is true?
Answers:
productive or technical efficiency occurs anywhere on the production possibilities curve

allocative efficiency occurs at a specific point (i.e. a specific mix of production) on the production possibilities curve (frontier) that is valued above all alternatives.

opportunity cost can be measured by the slope of the PPC curve (frontier)

all of the answers are correct

none of the answers are correct

Answer 1

all of the answers are correct

Question 2

If the United States can increase its production of automobiles without decreasing its production of any other good, the United States must have been producing at a point
Answers:
beyond its PPF.
on its PPF.
within its PPF.
None of the above is correct because increasing the production of one good without decreasing the production of another good is impossible.

Answer 2

within its PPF.

Question 3

Each point on the demand curve reflects
Answers:
all the wants of a given household.
the lowest-cost technology available to produce a good.
the highest price consumers are willing and able to pay for that particular unit of a good.
the highest price sellers will accept for all units they are producing.

Answer 3

the highest price consumers are willing and able to pay for that particular unit of a good.

Question 4

As a person consumes more and more of a good, the
Answers:
price of the good falls.
marginal benefit increases.
marginal benefit decreases.
marginal benefit increases or decreases depending whether or not the economy is on the PPF.

Answer 4

marginal benefit decreases.

Question 5

The double-coincidence of wants is a problem with:
Answers:	
the financial markets.
Christmas.
barter.
money exchanges.

Answer 5

barter.

Question 6

The tradeoff between current consumption and the production of capital goods also reflects a tradeoff between
Answers:
economic growth and technological change.
current consumption and future consumption.
satisfying today the needs of the poor and the wants of the wealthy.
the future production of capital goods and future consumption of goods.

Answer 6

current consumption and future consumption.

Question 7

Because of increasing marginal cost, most supply curves
Answers:
are horizontal.
have a positive slope (i.e. slope upward).
are vertical.
have a negative slope (i.e. slope downward).

Answer 7

have a positive slope (i.e. slope upward).

are vertical.

Question 8

A factor market is a market in which
Answers:
firms sell goods and services.
households sell the services of the factors of production they control.
firms sell the services of the factors of production.
households buy goods and services.

Answer 8

households sell the services of the factors of production they control.

Question 9

An expansion of the production possibilities frontier is
Answers:
proof that scarcity is not a binding constraint.
a free gift of nature.
something that has occurred only rarely in history.
called economic growth.

Answer 9

called economic growth.

Question 10

The opportunity cost of a good is the same as its
Answers:	
money price.
price index.
relative price.
none of the above.

Answer 10

relative price.

Question 11

Which of the following is true?
Answers:
opportunity cost can be measured by the slope of the PPC curve (frontier)

productive or technical efficiency occurs anywhere on the production possibilities curve

allocative efficiency occurs at a specific point (i.e. a specific mix of production) on the production possibilities curve (frontier) that is valued above all alternatives.

all of the answers are correct

none of the answers are correct

Answer 11

all of the answers are correct

Question 12

In our macro example using the PPC model, according to the Keynesian school of thought, the economy is typically:
Answers:
on the frontier of the PPC frontier implying 0% opportunity cost to government stabilization efforts.
on the frontier of the PPC frontier implying 100% opportunity cost to government stabilization efforts.
inside the PPC frontier implying 100% opportunity cost to government stabilization efforts.
inside the PPC frontier implying 0% opportunity cost to government stabilization efforts.

Answer 12

inside the PPC frontier implying 0% opportunity cost to government stabilization efforts.

Question 13

Per class discussion, if injections exceed leakages;
Answers:	
GDP decreases.
GDP remains unchanged.
GDP becomes zero.
GDP increases.

Answer 13

GDP increases.

Question 14

Per class discussion, injections in the circular flow model include:
Answers:
government spending, investment, and exports.
consumption spending.
leisure spending.
taxes, savings, and imports.

Answer 14

government spending, investment, and exports.

consumption spending.

Question 15

The “law of demand” states that changes in
Answers:
the quantity demanded of a good are inversely related to changes in its price.
the quantity demanded of a good are not related to changes in the quantity supplied.
demand are inversely related to changes in supply.
demand are related directly to changes in supply.

Answer 15

the quantity demanded of a good are inversely related to changes in its price.

Question 16

If a country must decrease current consumption to increase the amount of capital goods it produces today, then it
Answers:
must not have private ownership of property and will have to follow planning authorities decisions today and in the future.
must be producing outside the production possibilities frontier and will continue to do so in the future.
must be using resources inefficiently today, but will be more efficient in the future.
must be producing along the production possibilities frontier today and will see a shift outward of the frontier in the future if produces more capital goods.

Answer 16

must be producing along the production possibilities frontier today and will see a shift outward of the frontier in the future if produces more capital goods.

Question 17

After Hurricane Katrina devastated parts of Mississippi and New Orleans in 2005, we can be sure that the production possibilities frontier for that area temporarily
Answers:	
became flatter.
became steeper.
shifted inward, toward the origin.
shifted outward, away from the origin.

Answer 17

shifted inward, toward the origin.

Question 18

Which of the following will shift the production possibilities rightward?
Answers:
an increase in the capital stock.
an increase in technology.
increase in labor and other natural resources.
all of the answers in the question are true.

Answer 18

all of the answers in the question are true.

Question 19

The term “market” refers to
Answers:
any arrangement that enables buyers and sellers to get information and trade with one another.
trading arrangements that have been approved by the government.
physical structures only.
locations where buyers and sellers physically meet.

Answer 19

any arrangement that enables buyers and sellers to get information and trade with one another.

Question 20

Marginal cost is the opportunity cost
Answers:
that your activity imposes on someone else.
that arises from producing one more unit of a good or service.
of a good or service divided by the number of units produced.
of a good or service that exceeds its benefit.

Answer 20

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

Question 21

One of the opportunity costs of increasing current savings to promote economic growth is
Answers:	
capital accumulation.
technological change.
reduced current consumption.
the gain in future consumption.

Answer 21

reduced current consumption.

Question 22

Marginal cost is the opportunity cost
Answers:
of a good or service that exceeds its benefit.
that arises from producing one more unit of a good or service.
that your activity imposes on someone else.
of a good or service divided by the number of units produced.

Answer 22

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

Question 23

Using a production possibilities frontier, economic growth is illustrated by a
Answers:
rightward shift of the curve.
point on the curve.
point inside the curve.
movement from one point on the curve to another point on the curve.

Answer 23

rightward shift of the curve.

Question 24

The principle of increasing opportunity cost occurs because
Answers:
resources are not equally suited to all activities.
we must give up something to get something else.
resources are being used inefficiently.
scarcity exists.

Answer 24

resources are not equally suited to all activities.

Question 25

Per class discussion, the Keynesian school holds the economy is likely (at any given time) to be:
Answers:
inside the production possibility frontier or curve, which makes activist fiscal policies to stabilize the economy ineffective.
on the production possibility frontier or curve, which makes activist fiscal policies to stabilize the economy ineffective.
inside the production possibility frontier or curve, which makes activist fiscal policies to stabilize the economy effective.
on the production possibility frontier or curve, which makes activist fiscal policies to stabilize the economy effective.

Answer 25

inside the production possibility frontier or curve, which makes activist fiscal policies to stabilize the economy effective.

Question 26

Resource use is allocative efficient:
Answers:
when the maximum possible quantity is being produced.
whenever marginal cost exceeds marginal benefit.
when marginal benefit equals marginal cost.
whenever marginal benefit exceeds marginal cost.

Answer 26

when marginal benefit equals marginal cost.

Question 27

Economic growth is the result of which of the following?
Answers:	
capital accumulation.
All of the answers are correct.
investment in human capital.
technological change.

Answer 27

All of the answers are correct.

Question 28

Individual economic decisions are coordinated by
Answers:
markets through adjustments in prices.
government through adjustments in sales taxes.
government through adjustments in income taxes.
markets through adjustments in sales levels.

Answer 28

markets through adjustments in prices.

Question 29

List the determinants of demand. The shifters and non shifters.

Answer 29

1. Price ( non sifter )
2. Incomes ( Shifter )
3. Prices and related goods ( Shifter )
4. Population ( Shifter )
5. Tastes/ Preferences ( Shifter )
6. Expectation of future price ( Shifter )

Question 30

List the determines of supply. Then shifter or non shifter

Answer 30

1. Price ( Shifter )
2. Incomes ( Shifter )
3. Price of related goods ( Shifter )
4. Number of sellers ( Shifter )
5. State of nature ( Shifter )