Chapter 2 Study Guide Multiple Choice (1)

Chapter 2 - Multiple Choice Questions: 1. A.C. and Zack produce surfboards and hair gel. A.C.’s opportunity cost of producing a surfboard is lower than Zack’s opportunity cost of producing a surfboard. The suggests that they can increase their total output of these two goods if A.C. focuses his production on surfboards while Zack focuses his production on hair gel. A. Law of Absolute Advantage B. Law of Comparative Advantage C. Cost-Benefit Principle D. distributional decision 2. In regards to a Production Possibilities Frontier, which of the following statements is true? A. “All Attainable combinations of output are characterized by Productive Efficiency.” B. “A combination of goods is characterized by Productive Inefficiency if it cannot possibly be produced with the currently available resources and technology.” C. “A combination of goods is Unattainable if it cannot possibly be produced with the currently available resources and technology.” D. None of the above answers are correct. 3. Which of the following is one of the “Three Basic Economic Questions” that every society must address? A. “Which productive resources should be used for the production of which goods?” B. “How can we reduce our carbon footprint?” C. “How can we guarantee that all people have access to healthcare?” D. More than one (perhaps all) of the above is one of the “Three Basic Economic Questions” that every society must address. 4. For two individuals who engage in the same two productive activities, it is generally impossible for one of the two individuals to A. have a Comparative Advantage in both activities. B. have an Absolute Advantage in both activities. C. gain from trading with the other individual. D. More than one (perhaps all) of the above answers is correct. 5. Mike and Xavier spend each workday assembling bicycles and fixing computers. Mike can assemble 20 bicycles in a single day, while Xavier can assemble 15 bicycles in a single day. Based upon this information alone, we know that A. Mike possesses an Absolute Advantage in assembling bicycles. B. Xavier possesses an Absolute Advantage in fixing computers. C. Mike possesses a Comparative Advantage in assembling bicycles. D. More than one (perhaps all) of the above answers is correct.

6. Consider a society consisting of only three people: Andy, Bill, and Carrie. Andy and Bill spend all day producing clothing and food. At the end of each day they bring their output to Carrie, who then divides it between the three individuals. The “basic economic question” that Carrie is answering for this society is the A. Choice of Incentives. B. Resource Use Decision. C. Production Decision. D. Distributional Decision. For Questions 7 through 9, consider a society facing the Production Possibilities Curve illustrated below: 7. Which of the following combinations of output is “feasible but characterized by productive inefficiency”? A. “A” (150 Tanks and 375 bushels of Corn). B. “B” (300 Tanks and 500 bushels of Corn). C. “D” (210 Tanks and 1,000 bushels of Corn). D. More than one (perhaps all) of the above answers is correct. 8. Starting at Point “C” (i.e., 210 Tanks and 800 bushels of Corn), if this society wanted to produce 90 more Tanks, then A. they could not increase their output of Corn, but they also would not have to decrease their output of Corn at all. B. they could also increase their output of Corn by 90 bushels. C. they would have to decrease their output of Corn by at least 300 units. D. they would no longer be able to produce any Corn whatsoever. 9. If this society wanted to produce 650 bushels of Corn, then their maximum output of Tanks would be A. exactly 210 Tanks. B. more than 210 but fewer than 300 Tanks. C. exactly 300 Tanks. D. more than 300 Tanks.

15. are the decision making entities whose primary objective is to obtain benefits from consuming goods and services. A. Politicians B. Households C. Firms D. Economists 16. The Preliminary Circular Flow Diagram illustrates the A. movement of economic resources (i.e., factors of production and finished goods/services) between households and firms. B. transfer of money between households and firms. C. the limits of production that a society faces, by identifying the maximum amount of one good that can be produced for every possible level of production of another good. D. gains in output that can be realized when individuals focus their efforts on producing the goods for which they possess a comparative advantage. 17. Production refers to A. the consumption of goods/services. B. the creation of additional scarce resources/inputs. C. inputs, which can be broadly categorized as land, labor, and capital. D. the process by which inputs are transformed into outputs. For Questions 18 through 19, consider a society facing the Production Possibilities Frontier illustrated below which is “bowed-out” from the origin (in that it becomes steeper as one moves “down” the curve): 18. Of the five output combinations identified above, ________________ is/are “unattainable” (or “not feasible”)? A. A B. B C. C D. E 19. Focusing attention on output combinations “B,” “C,” and “D,” the opportunity cost of producing an additional car is ____________________. A. exactly equal at all three combinations B. lowest at “B” and highest at “D” C. lowest at “D” and highest at “B”

D. lowest at “C” (but the graph does not provide enough information to make a comparison of the value of the opportunity cost at combinations “B” and “D”) 20. Consider the following scenario. Greta and Henry spend their workdays producing bananas and cars. The table below provides a summary of the number of units of each good that each worker produces in a full week. Answer the following questions based upon these values. Henry’s Opportunity Cost for producing a car is _____ units of bananas. A. 2 B. 3 C. 12 D. 30 21. Consider the following scenario. Liam and Noel produce two goods, mirrors and razor blades. The productive ability of each worker for each task is summarized in the table below (which states the number of units of each good that the worker could produce in a full day). Note, Liam’s output of mirrors is not specified, but is rather given in generic terms as “Y” units. Noel’s Opportunity Cost for producing a unit of mirrors ____________________. A. is equal to 0.5 = ½ a unit of razor blades. B. is equal to 2 units of razor blades. C. is equal to 800 units of razor blades. D. Cannot be determined without knowing the value of Y Answers to Multiple Choice Questions: 1. B 2. C 3. A 4. A 5. A 6. D 7. A 8. C 9. B 10. B 11. C