Chapter 2
Practice Quiz Tutorial
Production
Possibilities and
Opportunity Cost
©2004 South-Western
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1. Which of the following decisions must be
made by all economies?
a. How much to produce? When to
produce? How much does it cost?
b. What is the price? Who will produce it?
Who will consume it?
c. What to produce? How to produce? For
whom to produce?
d. none of the above.
C. Regardless of the size of wealth of a
nation, it must choose a system to answer
these three basic questions
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2. The student who has one evening in which
to prepare for two exams on the following
day has the following two alternatives:
Possibility
A
B
Score in Economics
95
80
Score in Accounting
80
90
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Possibility
A
B
Score in Economics
95
80
Score in Accounting
80
90
The opportunity cost of receiving 90, rather
than 80, on the accounting exam is
represented by how many points on the
economic exam?
a. 15 points. A. By spending more time
b. 80 points. studying for accounting and
spending less time
c. 90 points. therefore
studying for the economics
d. 10 points. exam, 15 points on the
economics exam are given up.
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3. Opportunity cost is the
a. purchase price of a good or service.
b. value of leisure time plus out-of-pocket
costs.
c. best option given up as a result of
choosing an alternative.
d. undesirable sacrifice required to
purchase a good.
C. Opportunity cost is that which is
given up in the best alternative, not
that which is paid in money for the
good bought.
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Military Goods
Production Possibilities Curve
A
Efficient
Unattainable
Inefficient
B
Consumer Goods
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4. On a production possibilities curve, the
opportunity cost of more units of good A in
terms of units of good B is represented by
a. the distance to the curve from the
vertical axis.
b. the distance to the curve from the
horizontal axis.
c. the movement along the horizontal axis.
d. all of the above.
C. To have more units of good A a person will
have to give up units of good B as
represented on the horizontal axis.
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5. If a farmer adds 1 pound of fertilizer per acre,
the value of the resulting crops rises from $80 to
$100 per acre. According to marginal analysis,
the farmer should add fertilizer if it costs less
than
a. $12.50 per pound.
b. $20 per pound.
c. $80 per pound.
d. $100 per pound.
B. As long as the fertilizer costs less than $20
per pound, the farmer will gain more by
fertilizing then he or she will lose by the
expense of the fertilizer.
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6. On a production possibilities curve, a change
from economic inefficiency to economic
efficiency is obtained by
a. movement along the curve.
b. movement from a point outside the curve
to a point on the curve.
c. movement from a point inside the curve to
a point on the curve.
d. a change in the slope of the curve.
C. All points on the production possibilities
curve represents combinations of both
goods while operating at the most efficient
level possible.
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7. Any point inside the production
possibilities curve is a (an)
a. efficient point.
b. unfeasible point.
c. inefficient point.
d. maximum output combination.
C. While operating within the boundaries of
the production possibilities curve, more of
both goods can be attained if efficiency is
improved. However, points beyond the
curve are not possible without an increase
in resources or technological advance.
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8. Using a production possibilities curve,
unemployment is represented by a point
located
a. near the middle of the curve.
b. at the top corner of the curve.
c. at the bottom corner of the curve.
d. outside the curve.
e. inside the curve.
E. Any point underneath the production
possibilities curve indicates that the
economy’s resources are not being
used efficiently, including labor.
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9. Along a production possibilities curve, an
increase in the production of one good can
be accomplished only by
a. decreasing the production of another
good.
b. increasing the production of another
good.
c. holding constant the production of
another good.
d. producing at a point on the corner of the
curve.
A. Along the production possibilities curve,
there are no unemployed resources.
Therefore, in order to produce more of
one product, units of the other product
must be given up.
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10. Education and training that improve the
skill of the labor force are represented on
the production possibilities curve by a (an)
a. movement along the curve.
b. inward shift of the curve.
c. outward shift of the curve.
d. movement toward the curve from an
exterior point.
C. Investment in human capital enhances
people’s ability being able to more
effectively use the economy’s capital and
push the production possibilities curve
outward where more units of both
products can be attained.
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11. A nation can accelerate its economic
growth by
a. reducing the number of immigrants
allowed into the country.
b. adding to its capital stock.
c. printing more money.
d. imposing tariffs and quotas on
imported goods.
B. By increasing its stock of capital a nation
can increase its productivity.
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END
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