Exercise 2 Solution Chapter 2 Trade-offs, Comparative Advantage, and the Market System 2.1 Production Possibilities Frontiers and Opportunity Costs 1) Scarcity A) stems from the incompatibility between limited resources and unlimited wants. B) can be overcome by discovering new resources. C) can be eliminated by rationing products. D) is a bigger problem in market economies than in socialist economies. Answer: A Comment: Recurring Diff: 2 Page Ref: 38/38 Topic: Scarcity Objective: LO1: Use a production possibilities frontier to analyze opportunity costs and trade-offs AACSB: Reflective Thinking Special Feature: None 2) The principle of opportunity cost is that A) in a market economy, taking advantage of profitable opportunities involves some money cost. B) the economic cost of using a factor of production is the alternative use of that factor that is given up. C) taking advantage of investment opportunities involves costs. D) the cost of production varies depending on the opportunity for technological application. Answer: B Comment: Recurring Diff: 3 Page Ref: 38/38 Topic: Opportunity Cost Objective: LO1: Use a production possibilities frontier to analyze opportunity costs and trade-offs AACSB: Reflective Thinking Special Feature: None 3) The production possibilities frontier model shows that A) if consumers decide to buy more of a product its price will increase. B) a market economy is more efficient in producing goods and services than is a centrally planned economy. C) economic growth can only be achieved by free market economies. D) if all resources are fully and efficiently utilized, more of one good can be produced only by producing less of another good. Answer: D Comment: Recurring Diff: 2 Page Ref: 38/38 Topic: