Chapter 2 The Economic Problem

2.1 Production Possibilities and Opportunity Cost

1) The production possibilities frontier
A) is the boundary between attainable and unattainable levels of production.
B) is the boundary between what we want to consume and what we want to produce.
C) shows how production increases as prices rise.
D) shows prices at which production is possible and impossible.
E) illustrates why there need not be any scarcity in the world.
Answer: A
Diff: 1 Type: MC
Topic: Production Possibilities and Opportunity Cost

2) Which one of the following concepts is not illustrated by a production possibilities frontier?
A) scarcity
B) monetary exchange
C) opportunity cost
D) attainable and unattainable points
E) the tradeoff between producing one good versus another
Answer: B
Diff: 2 Type: MC
Topic: Production Possibilities and Opportunity Cost

3) A point inside a production possibilities frontier
A) indicates some unused or misallocated resources.
B) is unattainable.
C) is preferred to a point on the production possibilities frontier.
D) indicates a point of production efficiency.
E) illustrates the idea of opportunity cost.
Answer: A
Diff: 1 Type: MC
Topic: Production Possibilities and Opportunity Cost

4) Which one of the following concepts is illustrated by a production possibilities frontier?
A) profit
B) consumption
C) investment
D) monetary exchange
E) the tradeoff between producing one good versus another
Answer: E
Diff: 1 Type: MC
Topic: Production Possibilities and Opportunity Cost

5) If Sam is producing at a point inside his production possibilities frontier, then he
A) can increase production of both goods with zero opportunity cost.
B) is fully using all his resources and allocating his resources to their best use.
C) must be doing the best he can with limited resources.