Which of the following is always true of an economy operating on its production possibilities frontier?
(A)Its resources are fully employed.
(B)It is allocatively efficient.
(C)It cannot trade with other nations because it is the most efficient producer of tradeable goods.
(D)It will necessarily operate on the same frontier the following year.
(E)It must be a command economy.
Which of the following would shift a country’s production possibilities curve inward?
(A)A reduction in the country’s inflation rate
(B)A reduction in the country's real interest rate
(C)A reduction in the size of the country's labor force
(D)An increase in the typical retirement age in the country
(E)An increase in the country’s cyclical unemployment rate
For an economy that is operating inside its production possibilities curve, which of the following is true?
(A)It can increase the production of both goods.
(B)Its population is growing faster than the economy’s ability to increase production.
(C)It is using all available resources efficiently.
(D)It cannot move to a point on the production possibilities curve with available technology.
(E)It lacks the resources to increase production beyond its current output.
The diagram above shows three production possibilities curves (PPCs). If the current PPC is PPC1, which of the following
changes indicates a recession?
(A)Movement from point X to point Y
(B)Movement from point Y to point X
(C)Movement from point Y to point Z
(D)Shift from PPC1, to PPC0
(E)Movement from point Z to point X
Any point inside a production possibilities curve is
(A)better than points on the production possibilities curve
(B)allocatively efficient but technologically inefficient
(C)associated with inefficient use or unemployment of some resources
(D)associated with movements along the production possibilities curve
(E)associated with constant opportunity costs
If producing each additional unit of good X required giving up ever-increasing amounts of good Y, the production
possibilities curve between X and Y would be
(A)bowed outward
(B)bowed inward
(C)a straight line
(D)horizontal
(E)upward sloping
Which of the following concepts can be illustrated using the production possibilities curve?
I.Choice
II.Scarcity
III.Price level
IV.Opportunity cost
(A)II only
(B)I and III only
(C)III and IV only
(D)I, II, and IV only
(E)II, III, and IV only
The diagram above shows the production possibilities curve for an economy that produces only consumption and capital
goods. All of the following statements about this economy are true EXCEPT:
(A)Producing at point Z results in the underutilization of resources.
(B)The combination represented by point Y is unattainable, given the scarcity of resources.
(C)Resources are fully utilized at points W and X.
(D)Producing at point X will result in greater economic growth than will producing at point W.
(E)Point X represents the most efficient combination of the two goods that can be produced by this economy.
The diagram below shows a linear production possibilities curve for a country.
If the economy is currently producing 10 units of good A and 90 units of good B, the opportunity cost of increasing the
production of good A from 10 units to 20 units is how many units of good B?
(A)0.5
(B)1
(C)5
(D)10
(E)20
Which of the following would best explain an inward shift of the production possibilities curve?
(A)An increase in the labor-force participation rate
(B)An increase in the rate of savings
(C)A decrease in the quantity of inputs required to produce a unit of output
(D)A decrease in the quality of human capital
(E)A decrease in the government’s budget deficit that leads to lower real interest rates
Which of the following best describes human capital?
(A)The number of workers in the labor force
(B)The physical capital used by workers
(C)The financial assets owned by workers
(D)The training and education of workers
(E)The spending by business for worker recruitment
If a certain combination of goods or services lies outside the production possibilities curve of an economy, which of the
following is true?
(A)Effective trade barriers have reduced foreign imports into the economy.
(B)New technology is being used in production.
(C)Resources are not available to achieve that combination of goods or services.
(D)Resources are not being used efficiently to achieve that combination of goods or services.
(E)Resources are being used at a more rapid rate than they were in the past.
This question is based on the diagram below, which shows the production alternatives of two countries, Alpha and Beta,
producing two goods, grain and steel, using all of their available resources.
Before specialization and trade, the domestic opportunity cost of producing 1 ton of grain in Alpha and in Beta is which
of the following?
Alpha
Beta
(A) 1 ton of steel
1 ton of steel
(B) 1 ton of steel
2 tons of steel
(C) 2 tons of steel
1 ton of steel
(D) 1 ton of steel
0.5 ton of steel
(E) 0.33 ton of steel 1.5 tons of steel
This question refers to the following graph of a country’s production possibilities curve.
If two coats are currently being produced, the opportunity cost of producing the third coat is
(A)85 belts
(B)75 belts
(C)40 belts
(D)15 belts
(E)10 belts
The best combination of belts and coats for this economy to produce is
(A)95 belts and 1 coat
(B)85 belts and 2 coats
(C)70 belts and 3 coats
(D)40 belts and 4 coats
(E)indeterminate with the available information
On the basis of the diagram above showing an economy’s production possibilities curve for two goods, which of the
following statements must be true?
I.The opportunity cost of moving from point P to point R is 10 units of Y.
II.The opportunity cost of moving from point R to point P is 8 units of X.
III.The opportunity cost of moving from point Q to point R is 0 units of Y.
(A)I only
(B)III only
(C)I and II only
(D)II and III only
(E)I, II, and III
This question is based on the following production possibilities curve. Which of the following represents a movement
from efficiency to inefficiency?
(A)Point X to point W
(B)Point X to point Z
(C)Point Y to point Z
(D)Point W to point Z
(E)Point V to point Y
This question is based on the following production possibilities curve. Based on a comparison of points X, Y, and Z, the
opportunity cost of an additional consumer good is
(A)highest at point X
(B)highest at point Y
(C)highest at point Z
(D)lowest at point Y
(E)the same at points X, Y, and Z
Which of the following is true of an economy’s production possibilities curve?
(A)It shows the combinations of any two resources that can be used to produce an efficient level of output.
(B)It shows the alternative combinations of goods that can be produced by fully employing scarce resources.
(C)It must be a straight line when all resources are fully employed.
(D)It is bowed in (convex to the origin) because of changing levels of technology.
(E)It is bowed out (concave to the origin) when marginal opportunity costs are constant.
According to the production possibilities curve above, which of the following is true?
(A)The opportunity cost of producing another unit of good Y in terms of good X increases as more of good Y is produced.
(B)The opportunity cost of producing another unit of good Y in terms of good X decreases as more of good Y is produced.
(C)The opportunity cost of producing another unit of good X in terms of good Y increases as more of good X is produced.
(D)The opportunity cost of producing another unit of good X in terms of good Y decreases as more of good X is
produced.
(E)The opportunity cost of producing another unit of either good remains constant as the production of the other good
increases.
Which of the following explains why a production possibilities curve is often represented as concave (bowed out) from
the origin?
(A)The law of demand
(B)The law of supply
(C)Constant returns to scale
(D)Decreasing opportunity cost
(E)Increasing opportunity cost
A production possibilities curve is bowed out, indicating increasing opportunity cost because of
(A)the law of demand
(B)the law of diminishing marginal utility
(C)the existence of unemployment
(D)differences in consumer tastes
(E)imperfect adaptability of resources to alternative uses
The diagram above shows the production possibilities curve for Country Y. Which of the following statements is true?
(A)If Country Y is producing at point C, it is using all its resources efficiently.
(B)The opportunity cost of producing more machines is constant.
(C)Producing at point C is the most preferable, because butter is a nondurable good.
(D)Country Y cannot produce at point E.
(E)The economy is not producing at its potential, since it is not producing at point D.
If resources were perfectly substitutable in all activities, which of the following would be true?
(A)Output of all goods could be increased at zero opportunity cost.
(B)The production possibilities curve would be a straight line.
(C)Specialization and mutually beneficial trade would be impossible.
(D)No country or individual would have a comparative advantage in any activity.
(E)Scarcity of resources would be eliminated.
According to the graph above, if a country is currently producing at point X, the opportunity cost of producing another
consumer good is
(A)20 capital goods
(B)more than 20 capital goods
(C)fewer than 20 capital goods
(D)20 consumer goods
(E)fewer than 20 consumer goods
For an economy with a straight-line production possibilities curve, which of the following must be true?
I.The opportunity cost of producing another unit is constant.
II.Resources are completely adaptable to alternative uses.
III.Resources are used efficiently.
(A)I only
(B)II only
(C)III only
(D)I and II
(E)II and III
The table below represents points on an economy’s current production possibilities curve. The opportunity cost of
increasing the production of good Y from 0 to 200 is
(A)1,000 units of X
(B)980 units of X
(C)200 units of X
(D)20 units of X
(E)5 units of X
The diagram above shows an economy's current production possibilities curve for capital goods and consumer goods. If
society chooses point B over point A, society is choosing
(A)more future consumption in exchange for less current consumption
(B)more current capital goods in exchange for less future consumption
(C)more future and current consumption
(D)less future consumption in exchange for more current consumption
(E)less current capital goods in exchange for greater future consumption