Practice Quiz CH.2

Choice & Opportunity Cost

1. According to the law of increasing opportunity cost, a. opportunity cost rises as technology improves
b. the production possibilities frontier is a straight line
c. opportunity cost rises as society produces more of a good or service
d. the production possibilities frontier is convex with respect to the origin
e. monetary costs rise as opportunity cost rises
  2. After graduating from high school, Steve had three choices, listed in order of preference: (1) matriculate at our campus, (2) work in a printed circuit board factory, or (3) attend a rival college. His opportunity cost of going to college here includes which of the following?
                          a. the cost of books and supplies at the rival college b. the income he could have earned at the printed circuit board factory plus the cost of his textbooks
c. the benefits he could have received from going to the rival college
d. only the tuition and fees paid for taking classes here
e. cannot be determined from the given information
 

Table 2.1

                                Hours Studying              Physics Score                  Geology Score
                                       0                                         40                                        30
                                       1                                         50                                        60
                                       2                                         60                                        80
                                       3                                         85                                        90
                                       4                                         90                                      100 3. Grant has four hours of time to divide between studying for a physics exam and a geology exam. Table 2.1 shows his estimates of the grades (on a scale of 0 to 100) that he could earn from studying a particular number of hours on each subject. If he plans on spending two hours studying each subject, what would be his opportunity cost of an additional hour studying physics?
                          a. 10 points on his geology exam b. 20 points on his geology exam
c. 80 points on his geology exam
d. 25 points on his physics exam
e. 85 points on his physics exam
  4. Combinations of goods on the production possibilities curve a. are unattainable without additional resources
b. can be produced using currently available resources and technology
c. reflect minimum normative value allocations
d. will meet society's needs but not its wants
e. are attainable only through international trade


5. Assume that U.S. agricultural land is used either to raise cattle for beef or to grow wheat. Figure 003 in Study Guide question #3 represents the production possibility frontier for beef and wheat. Between points F and G, the opportunity cost of each pound of beef equals.

a. 0.25 million bushels of wheat
b. 1.75 million bushels of wheat
c. 0.125 bushels of wheat
d. 8 bushels of wheat
e. 0.5 bushels of wheat
  6. As a society produces more and more of one good, it must give up increasing amounts of the alternative good. This demonstrates the a. law of demand
b. convexity of the production possibilities frontier
c. law of increasing opportunity cost
d. principle of technical inefficiency
e. effects of shifts in the level of technology
  7. Two reasons why an economy might operate inside of its production possibilities frontier are a. technical efficiency and technological change
b. depressions and inflation
c. recessions and technical inefficiency
d. opportunity costs and substitutability of resources used in production
e. technical inefficiency and a decrease in the state of technology
  8. In one hour, George can fix 4 flat tires or type 200 words. His opportunity cost of fixing a flat tire is a. 200 words
b. 4 flat tires
c. 1/200 of a word
d. 50 words
e. 800 words


9. The concave shape of the production possibilities frontier reflects

a. the law of comparative advantage
b. the law of absolute advantage
c. the law of increasing opportunity cost
d. the simplifying assumption of scarce resources
e. technical inefficiency


10. All of the following, except one, help explain why specialization leads to greater production than is otherwise possible. Which is the exception?
           a. it allows the organization of production in business firms
           b. specialization reduces the time lost in moving from one activity to another
           c. as workers repeat an activity over and over, they hone their skills and become more expert
           d. specialization allows workers to be assigned to the activities for which they have the greater natural ability
           e. the more often workers repeat an activity, the more stimulating and enjoyable they find it

 11. Molly needs 30 minutes to wash the car and 45 minutes to mow the lawn. Renee needs 1 hour to wash the car and 2 hours to mow the lawn. Which of the following statements is correct? a. Molly should specialize in both tasks
b. Renee should specialize in both tasks
c. each woman should specialize in the task in which she has the absolute advantage
d. absolute advantage is not an appropriate guide for determining specialization
e. neither woman should specialize


12. Jenni can change a car's oil in 10 minutes and clean a bathroom in 20 minutes. Rob can change a car's oil in 20 minutes and clean a bathroom in 10 minutes. Therefore,

a. Jenni should clean the bathroom and Rob should change the car's oil
b. Rob should clean the bathroom and Jenni should change the car's oil
c. there are no gains from specializationd.
d. Rob has an absolute advantage in both activities
e. Jenni has an absolute advantage in cleaning the bathroom 13. In deciding where to operate along its production possibilities frontier, a society is answering the question of a. which goods and services should be produced with its scarce resources
b. what production methods should be used to produce goods and services
c. how will output be allocated among the individuals in the society
d. what prices will be charged for goods and services
e. how much will it trade with other societies in the world
  14. In a market system, resources are allocated by a. the orders of authority
b. traditional practices
c. prices
d. absolute advantage
e. production possibilities frontiers
  15. Tax collections in the United States are an example of a. tradition in a mainly market system
b. command in a mainly tradition system
c. market in a mainly tradition system
d. tradition in a mainly command system
e. command in a mainly market system
  16. In the theory of Karl Marx, a. all economies evolve toward capitalism
b. all economies will evolve towards communism
c. governments exploit economic agents
d. economies rarely evolve into other economic systems
e. capitalists are basically altruistic
  17. An economic system in which resources are owned by the state and allocated by the market is called a. market capitalism
b. market socialism
c. centrally-planned capitalism
d. centrally-planned socialism
e. a tradition-based economy
  18. An economy's production possibilities frontier is fixed in the long run. (T or F)

19. Suppose that the United States has an absolute advantage over Mexico in producing both agricultural and manufactured goods. In the U.S., the opportunity cost of 1 unit of agricultural output is 2 units of manufactured goods. In Mexico, the opportunity cost of 1 unit of agricultural output is 1.5 units of manufactured goods. Total production in the U.S. and Mexico will be maximized if

a. the U.S. specializes in both types of output
b. Mexico specializes in both types of output
c. the U.S. specializes in agricultural goods and Mexico specializes in manufactured goods
d. the U.S. specializes in manufactured goods and Mexico specializes in agricultural goods
e. each country achieves self-sufficiency
  20. World War II led to a dramatic increase in economic growth in the United States because a. the war caused the U.S. to move along its production possibilities frontier away from consumer goods and towards military goods
b. the economy was already at close to full employment
c. there were unemployed resources in the U.S. economy prior to the war
d. the economy shifted production towards more profitable consumer goods during the war
e. the opportunity cost of producing military goods increased considerably during the war years