Department of Economics
College of Business Administration
Kuwait University
Econ 110: Principles of
Microeconomics
Problem Set
Introduction & PPF
True or False :
1) The economizing problem arises from the conflict between having relatively
unlimited resources and relatively limited wants.
2) The fundamental economic problem is that productive resources are scarce in
relation to the demand for them.
3) The four factors of production are land, labor, capital, and government services.
4) Productive efficiency means that goods and services are being produced by society
in the least costly way.
5) Allocative efficiency means achieving the optimal or most desired point on the
production possibilities curve.
6) A point inside the production possibilities curve illustrates that resources are not
being used as efficiently as possible.
7) Economic rationale for the law of increasing opportunity cost is that economic
resources are not fully adaptable to alternative uses.
8) A technological advance that lowers production costs would shift the production
possibilities curve to the right.
Essay Questions :

“The relative scarcity of resources makes the operation of any economy a
matter of choosing between alternatives.” Explain.

“The relative scarcity of resources makes the operation of any economy a
matter of choosing between alternatives.” Explain.

Explain how increasing opportunity costs are reflected graphically in the
production possibilities curve. How would the curve appear if opportunity
costs were constant? (Answer verbally or illustrate your response with
diagrams.)
Multiple Choice Questions:
(1) The term scarcity in economics refers to the fact that:
A)
economic wants are limited and resources are abused .
B)
even in the richest country some people go hungry .
C)
no country can produce enough products to satisfy everybody's
economic wants .
D)
it is impossible to produce too much of any particular good or service .
(2) As a student of economics, when you speak of scarcity, you are referring to the
ability of society to :
A)
employ all of its resources .
B)
consume all that is produced .
C)
satisfy economic wants given limited resources .
D)
continually make technological breakthroughs and increase production .
(3) As a consequence of the condition of scarcity :
A)
there is never enough of anything.
B)
production has to be centrally planned.
C)
things which are plentiful have relatively high prices .
D)
individuals and communities have to make choices from among
alternatives .
(4) The individual who brings together economic resources and assumes the risk in a
capitalist economy is called the :
A)
manager .
B)
entrepreneur .
C)
stockbroker .
D)
banker.
(5) Which is not considered to be an economic resource ?
A)
land (or natural resources(
B)
money
C)
labor
D)
tools and machinery
(6) If an economy is being "productively efficient," then that means the economy is :
A)
producing the products most wanted by society .
B)
fully employing all economic resources .
C)
maximizing the returns to factors of production .
D)
using the least costly production techniques.
(7) With allocative efficiency:
A)
the state of technology, or methods used to produce output, do not change.
B)
the available supplies of factors of production are fixed in both
quantity and quality.
C)
there is production of any particular mix of goods and services in the
least costly way.
D)
there is production of that particular mix of goods and services most
wanted by society.
(8) The production possibilities curve represents which of the following ?
A)
the amount of goods attainable with variable resources
B)
the maximum amount of goods attainable with variable resources
C)
maximum combinations of goods attainable with fixed resources
D)
the amount of goods attainable if prices decline
(9) On a production possibilities curve, the single optimal or best combination of
output for any society :
A)
is at a point near the top of the curve .
B)
is at the precise midpoint of the curve .
C)
is at a point near the bottom of the curve .
D)
depends upon the preferences of society .
The following economy produces two products:
Product
Steel
Wheat
A
0
100
B
1
90
C
2
75
D
3
55
E
4
30
F
5
0
(10) Refer to the above table. A change from possibility C to B means that:
A)
1unit of steel is given up to get 75 units of wheat.
B)
2units of steel are given up to get 75 units of wheat.
C)
1unit of steel is given up to get 15 more units of wheat.
D)
2units of steel are given up to get 15 more units of wheat.
(11) A change from possibility B to C means that:
A)
11units of wheat are given up to get one more unit of steel.
B)
11units of wheat are given up to get one more unit of steel.
C)
11units of wheat are equal to one unit of steel.
D)
51units of wheat are equal to one unit of steel.
(12) In moving from possibility A to F, the cost of a unit of steel in terms of a unit of
wheat:
A)
increases.
B)
decreases.
C)
remains constant.
D)
increases from A to B, and decreases from B to F.
(13) A point inside the production possibilities curve is:
A)
attainable and the economy is efficient.
B)
attainable, but the economy is inefficient.
C)
unattainable, but the economy is inefficient.
D)
unattainable and the economy is efficient.
Good Y
B
C
A
D
E
Good X
(14) The graph above shows the production possibilities curve for an economy
producing two goods, X and Y. Which of the points on the graph indicate unemployed
resources ?
A)
D only
B)
E only
C)
E and A only
D)
B and C only
(15) If an economy that produces capital and consumer goods is operating at a point
on its production possibilities curve, this indicates that :
A)
it is achieving full employment but not full production .
B)
it is achieving full production but not full employment .
C)
more capital goods can be produced only at the cost of some consumer
goods .
D)
the economy is incapable of achieving significant economic growth .
(16) A reduction in the level of unemployment would have which effect with respect
to the nation's production possibilities curve ?
A)
It would shift the curve to the right .
B)
It would shift the curve to the left .
C)
It would not shift the curve; it would be represented by moving from a
point inside the curve toward the curve .
D)
It would not shift the curve; it would be represented by moving from a
point on the curve to a point to the right of the curve .
Food
C ●
● D
● G
● E
● F
●
H
Clothing
(17) Points C, D, E, and H on the above graph show :
A)
an inefficient allocation of society's scarce resources .
B)
a constant tradeoff between food and clothing .
C)
possible combinations of food and clothing .
D)
unattainable combinations of food and clothing .
(18) The combination of food and clothing shown by point G on the above graph :
A)
is not attainable, given society's available resources and technology .
B)
can be attained only if some of society's resources are unemployed .
C)
suggests that the law of increasing relative costs is not relevant in this
case .
D)
results only because society allocates its resources inefficiently .
(19) The combination of food and clothing shown by point F on the above graph :
A)
is an efficient use of society's resources because it is below the
production possibilities curve .
B)
would be a desirable combination of outputs only if there was no
international trade .
C)
is attainable but involves the unemployment and inefficient use of
some of society's resources .
D)
is not attainable with current resources and technology .
(20) If a production possibilities boundary is a concave curve and not a straight line,
then :
A)
resources are equally suited to producing alternative products .
B)
resources are not equally suited to producing alternative products .
C)
resources are perfectly interchangeable to alternative uses .
D)
there are unemployed resources .
(21) If economic resources are perfectly shiftable between the two products shown
on a production possibilities graph :
A)
the economy will always be at full employment .
B)
more of one product can be produced without producing less of the
other product .
C)
the production possibilities curve would be a straight line .
D)
the two products are of equal value to the economy.
(22) The law of increasing opportunity costs indicates that :
A)
resources are perfectly mobile except for transportation costs .
B)
the sum of all costs cannot rise above the market price of a product .
C)
to produce more of one good, society must sacrifice larger and larger
amounts of alternative goods .
D)
if the prices of all the resources involved in the production of goods
increase, the cost of producing those goods will increase at the same
rate .
The following economy produces two products :
Product
A
B
C
Tanks
0
1
2
Autos
1000
950
850
D
3
650
E
4
350
F
5
0
(23) Refer to the above table. The opportunity cost of each additional tank in terms
of autos :
A)
remains constant .
B)
falls as more tanks are produced .
C)
increases as more tanks are produced .
D)
cannot be measured because there is no currency.
(24) Refer to the above table. According to the production possibilities schedule, a
combination of four tanks and 650 autos is :
A)
attainable, but involves an efficient use of society's resources .
B)
attainable, but would not be in the best interests of a strong national defense .
C)
not attainable because it is not listed in the schedule .
D)
not attainable because society does not have sufficient resources to
produce this combination .
(25) Given the production possibilities schedule above, a combination of three tanks
and 350 autos :
A)
illustrates the tradeoff between tanks and autos .
B)
is attainable but involves the unemployment or inefficient use of some
of society's resources .
C)
cannot be produced by society, given its current level of resources and
production technology .
D)
is not attainable because this combination is not listed in the schedule .
(26) The basic economic problem is the combined existence of :
A)
inflation and unemployment .
B)
economic freedom and income equality .
C)
scarce economic resources and unlimited economic wants .
D)
growing populations and the depletion of natural resources.
(27) When a state government chooses to build more roads, the required resources are no
longer available for spending on public education. This dilemma illustrates the concept of :
A)
marginal analysis .
B)
full employment .
C)
full production .
D)
opportunity cost.
(28) All of the following would affect the position of a country's production
possibilities curve, except :
A)
the quantity of labor .
B)
the level of unemployment .
C)
the amount of the capital stock .
D)
technological progress.