University of Lethbridge – Department of Economics
ECON 1012 – Introduction to Macroeconomics
Lab Instructor: Michael G. Lanyi
Lab # 2
Chapter # 2 –– The Economic Organization of Society
Answer Sheet
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100) ________
1
University of Lethbridge – Department of Economics
ECON 1012 – Introduction to Macroeconomics
Lab Instructor: Michael G. Lanyi
Lab # 2
Chapter # 2 –– The Economic Organization of Society
1. If a production possibility curve representing a tradeoff between a grade in English and a grade
in math has a negative slope we know that
A) there is no relationship between grades in English and grades in math.
B) one can get better grades in English only if one gets better grades in math.
C) there is a direct relationship between grades in English and grades in math.
D) there is an inverse relationship between grades in English and grades in math.
2.
A)
B)
C)
D)
You can determine all the following using a production possibility table EXCEPT:
how much output can be produced from a given level of inputs.
what combination of outputs is best.
what combination of outputs can be produced.
how much less of one output can be produced if more of another output is produced.
3. Each of the following rows represents the choice faced by policy makers given current Canadian
institutions and technology. What is the opportunity cost of reducing unemployment from 8
percent to 4 percent?
Unemployment
10
8
6
5
4
A)
B)
C)
D)
Inflation
3
4
5
7
10
4 percentage points of inflation.
6 percentage points of inflation.
4 percentage points of unemployment.
6 percentage points of unemployment.
Page 1
4. Investment in capital goods is one way to increase the standard of living in the future.
Investment in capital goods, however, means that we must forgo consumption today. One of the
tradeoffs facing an economy is between consumption today and consumption in the future. The
following table presents such a trade off. Which of the following statements based upon the
table is TRUE?
Current
consumption
800
750
650
600
550
Future
consumption
100
260
340
380
400
A) The opportunity cost of increasing current consumption by 50 is the same whether you start at
550 or start at 750 consumption units.
B) The opportunity cost of increasing future consumption by 50 is the same whether you start at
260 or 340.
C) The opportunity cost of increasing future consumption from 100 to 260 is greater than the
opportunity cost of increasing future consumption from 380 to 400.
D) The opportunity cost of increasing current consumption from 750 to 800 is greater than the
opportunity cost of increasing current consumption from 550 to 600.
E) None of the above.
5. With the resources available, you can make the combinations of Ums and Umies (trinkets from
a place called Bandarban) shown in the table. The opportunity cost of producing 75 Umies
instead of 30 Umies is
Number
of Ums
60
50
40
30
20
10
0
A)
B)
C)
D)
E)
Number
of Umies
0
15
30
45
60
75
90
30 Ums.
40 Ums.
45 Ums.
10 Ums.
none of the above
Page 2
6. Evan can grow both roses and carnations in his garden. His production possibility table is given
below. If he is currently producing 110 roses, his opportunity cost of producing 40 more roses is
Number
of roses
0
60
110
150
180
A)
B)
C)
D)
E)
Number
of carnations
155
135
109
78
0
26 carnations.
31 carnations.
78 carnations.
20 carnations.
none of the above
7. Consider the table below, where each production choice represents a point on a production
possibility curve.
Choice
A
B
C
D
E
F
A)
B)
C)
D)
Eggs
10
8
6
4
2
0
Rye
0
10
20
30
40
50
This production possibility table could be graphed as a
curved line with positive slope.
straight line with zero slope.
straight line with negative slope.
curved line with negative slope.
Page 3
Number of Chickens
Use the following to answer question 8:
C
50
40
30
A
D
20
B
10
0
0
10
20
30
40
Number of Turkeys
50
8. Refer to the graph above. Suppose that the opportunity cost of producing 10 chickens is always
8 turkeys. Given this, the relevant production possibility curve must be
A) A
B) B
C) C
D) D
Page 4
Use the following to answer question 9:
40
Rye
30
20
10
0
10
20
Eggs
9. Refer to the graph above. The graph indicates that with the resources and technology it has
available, Ricardia
A) cannot produce both 20 units of rye and 5 units of eggs.
B) cannot produce both 20 units of rye and 10 units of eggs.
C) can produce either 20 units of rye or 40 units of eggs.
D) can produce both 40 units of rye and 20 units of eggs.
E) can produce either 40 units of rye or 20 units of eggs.
Page 5
Number of
Economics Problems
Use the following to answer question 10:
6
5
4
3
2
1
0
0
2
4
6
8
10
12
Number of Math Problems
10. Refer to the graph above. Laura's production possibility curve for doing math and economics
problems in one night is shown in the graph. Her opportunity cost of finishing 6 math problems
instead of 4 math problems is
A) 1 economics problem.
B) 2 economics problems.
C) 3 economics problems.
D) 4 economics problems.
Page 6
Number of articles
read in a week
Use the following to answer question 11:
15
13
11
9
7
5
3
1
B
C
A
4
8
12
16
20
24
Number of CDs
listened to in a week
11. Refer to the graph above. Given Vineetstan's production possibility curve of listening to CDs or
reading magazine articles in one week, when moving from point B to point A the opportunity
cost of listening to each CD in terms of reading articles is
A) 1 2 article.
B) 1 article.
C) 2 articles.
D) 3 articles.
Page 7
Initial cost
Use the following to answer question 12:
Repair cost
12. Refer to the graph above. The production possibility curve demonstrates the tradeoff between
initial cost of a car relative to repair costs. It tells us that as initial costs increase
A) repair costs increase at a decreasing rate.
B) repair costs increase at an increasing rate.
C) repair costs decrease at a decreasing rate.
D) repair costs decrease at an increasing rate.
13. If you move along the production possibility curve and the opportunity cost of producing one
good in terms of another never changes, it follows that the production possibility curve
A) must be bowed in.
B) must be bowed out.
C) has an indeterminate shape.
D) must be a straight line.
Page 8
Use the following to answer questions 14-15:
A
Good Y
B
D
C
Good X
14.
A)
B)
C)
D)
Refer to the graph above. In the graph, the opportunity cost of good X in terms of good Y is
always increasing as we move from A to C.
the same everywhere on the two segments.
higher along segment AB than along segment BC.
lower along segment AB than along segment BC.
15. Refer to the above graph. In the graph, a movement from ___ to ___ produces an increase in
efficiency.
A) D, B.
B) C, D.
C) B, D.
D) A, B.
16.
A)
B)
C)
D)
Points inside the production possibilities curve are
attainable and inefficient.
unattainable and inefficient.
unattainable and efficient.
attainable and efficient.
Page 9
Use the following to answer question 17:
A
Sweaters
C
D
B
Jeans
17.
A)
B)
C)
D)
Refer to the graph above. Productive inefficiency occurs at what point?
A
B
C
D
Page 10
Use the following to answer question 18:
40
38
Rye
30
22
12
0
9
14 17 20
19
Eggs
18. The graph above indicates that the economy can produce
A) both 10 units of eggs and 20 units of rye, although this would be less efficient than producing
only 40 units of rye.
B) both 10 units of eggs and 20 units of rye, and this would be more efficient than producing only
40 units of rye.
C) both 20 units of eggs and 5 units of rye, although this would be less efficient than producing 40
units of rye.
D) both 20 units of eggs and 5 units of rye, and this would be more efficient than producing 40
units of rye.
19.
A)
B)
C)
D)
An increase in productive resources available for use in an economy will
shift the production possibilities curve outward.
imply that the law of increasing costs no longer applies.
have no effect on the production possibilities curve.
shift the production possibilities curve inward.
Page 11
Use the following to answer questions 20-21:
C
Guns
Guns
C
A
Butter
(a)
B
B
D
Butter
A
(b)
20. Refer to the graphs above. The discovery of a new supply of resources used only in the
production of guns can be shown by which movement?
A) From A-C to A-B in Graph B.
B) From A-B to C-D in Graph A.
C) From C-D to A-B in Graph A.
D) From A-B to A-C in Graph B.
21. Refer to the graphs above. Destruction of some of the resources necessary to produce both guns
and butter would result in what movement?
A) From A-C to A-B in Graph B.
B) From A-B to A-C in Graph B.
C) From A-B to C-D in Graph A.
D) From C-D to A-B in Graph A.
Page 12
Children's toys
Children's toys
Use the following to answer question 22:
A
B
Pre-K toys
22.
A)
B)
C)
D)
E)
C
D
Pre-K toys
Which of the following would be most likely to shift Iraq's production possibility curve in?
Damage done to its human and capital resources during the U.S.-led invasion.
Attacks by insurgents opposed to the U.S. presence.
Aid given by foreign countries.
All of the above.
A and B.
23. Increasing marginal opportunity cost means that the production possibility curve is _______ so
that for every additional unit of one good given up you get ________ units of the other good.
A) bowed out, less and less
B) bowed in, less and less
C) bowed out, more and more
D) bowed in, more and more
24. This production possibility table illustrates
Eggs
10
8
6
4
2
0
A)
B)
C)
D)
Rye
0
10
20
30
40
50
decreasing marginal opportunity cost.
constant marginal opportunity cost.
zero opportunity cost.
increasing marginal opportunity cost.
Page 13
25. Suppose an economy is trying to decide whether it should increase military spending or increase
spending on the poor. In this case, the society should
A) always spend more on the military because national security is essential.
B) always spend more on both since reducing poverty and increasing national security are equally
important.
C) base its choice on the circumstances it is currently faced with.
D) always spend more on the poor because poverty is undesirable.
Use the following to answer question 26:
Y
12
10
8
6
C
4
B
A
2
0
X
0
2
4
6
8
10
12
26. Refer to the graph above. The opportunity cost of good X in terms of good Y is 2Y, so you'll
have to give up 2Y to get one X. The production possibility curve would look like
A) a.
B) b.
C) c.
D) a, b, and c.
Page 14
Butter
Use the following to answer question 27:
16
14
12
10
8
6
4
2
0
A
B
C
D
E
F
2
4
6
8
10 12
Guns
27. Refer to the graph above. Given the following production possibility curve, when you're moving
from point C to B the opportunity cost of butter in terms of guns is
A) 3/2.
B) 2.
C) 1/3.
D) 1.
28.
A)
B)
C)
D)
If countries specialize in producing goods for which they have a comparative advantage,
the production and consumption of each good in each country rises if trade occurs.
global production and consumption of the comparative advantage good decreases.
global production and consumption will increase with or without trade.
the production and consumption of each good in each country rises with or without trade.
Page 15
Use the following to answer questions 29-30:
First Bakery
Cookies
Pies
0
15
10
12
20
9
30
6
40
3
50
0
Second Bakery
Cookies
Pies
0
20
20
16
40
12
60
8
80
4
100
0
29. Given the production possibility tables for First and Second Bakeries presented above, the
opportunity cost of producing cookies
A) cannot be computed without further information.
B) is the same at both bakeries.
C) is higher at First Bakery.
D) is higher at Second Bakery.
30.
A)
B)
C)
D)
Given the production possibility tables for First and Second Bakeries presented above,
First Bakery has a comparative advantage in the production of pies.
neither bakery has a comparative advantage.
Second Bakery has a comparative advantage in the production of pies.
First Bakery has a comparative advantage in the production of both goods.
Page 16
Industrial Goods
Use the following to answer question 31:
8
7
6
5
4
3
2
1
0
A
B
1
2 3 4 5 6 7
Agricultural Goods
8
31. Refer to the graph above. If countries A and B face the production possibility curves shown,
which of the following statements is TRUE?
A) Both countries would do better if A specialized in the production of agricultural goods and B
specialized in the production of industrial goods.
B) Both countries would do better if A specialized in the production of industrial goods and B
specialized in the production of agricultural goods.
C) A and B cannot gain from specializing in the production of one good over the other.
D) Both countries would do best if they produced where their production possibility curves
intersect.
Page 17
Use the following to answer question 32:
32. Refer to the graph above. If countries A and B face the production possibility curves A and B
respectively, which dotted curve represents their combined production possibility curve?
A) C
B) D
C) E
D) F
Page 18
OPTIONAL:
Use the following to answer question 33:
33. Refer to the graph above. Given the following production possibility table for growing broccoli
and asparagus in a 320 square-metre garden in one season, the relevant production possibility
curve is
Broccoli
30
25
20
15
10
5
0
Asparagus
0
11
18
23
26
28
30
A)
B)
C)
D)
A
B
C
D
34.
A)
B)
C)
D)
The principle of increasing marginal opportunity holds in which of the following cases?
Each input can be used to produce more than one good.
All inputs are not equally adaptable to the production of all goods.
All inputs are equally adaptable to the production of all goods.
The production possibility curve is a downward sloping straight line.
Page 19
35. Suppose that it takes one unit of labour to produce a banjo and one unit of labour to produce a
guitar, no matter how many of each are produced. Suppose further that labour is the only input
in the economy and that banjos and guitars are the only outputs. In this case, marginal
opportunity cost
A) cannot be determined.
B) is decreasing.
C) is increasing.
D) is constant.
Use the following to answer questions 36-39:
Mary
Economics
Math
5
0
4
1
3
2
2
3
1
4
0
5
Paul
Economics
15
12
9
6
3
0
Math
0
1
2
3
4
5
36. Given Mary and Paul's production possibility tables for answering economics and math
problems in a day, we can conclude that:
A) Mary has a comparative advantage in solving math problems.
B) Mary does not have a comparative advantage in solving math or economics problems.
C) Paul has a comparative advantage in solving both math and economics problems.
D) Paul has a comparative advantage in solving math problems.
37. Given Mary and Paul's production possibility tables for answering economics and math
problems in a day, how many days would it take each of them to answer 15 economics problems
and 15 math problems?
A) It would take Mary 6 days and Paul 2 days.
B) It would take Mary 6 days and Paul 4 days.
C) It would take Mary 3 days and Paul 2 days.
D) It would take Mary 2 days and Paul 1 days.
Page 20
38. Given Mary and Paul's production possibility tables for answering economics and math
problems in a day, if they work together, what is the least number of days they would need to
solve 45 economics problems and 15 math problems?
A) 3.
B) 4.
C) 5.
D) 6.
39. Given Mary and Paul's production possibility tables for answering economics and math
problems in a day, if they work together, what is the least number of days they would need to
finish 30 economics problems and 30 math problems?
A) 3
B) 4
C) 6
D) 5
Use the following to answer question 40:
Y
A
D
B
C
X
40. Refer to the graph above. If the United States and Japan have production possibility curves as
shown, at what point are they most likely to be after engaging in trade?
A) A
B) B
C) C
D) D
Page 21