Chapter 2

Question 1

Opportunity cost represents the least valuable of the various alternatives that must be given up when a choice is made in the context of scarcity

Answer 1

False

Question 2

The opportunity cost of the time you are allocating to taking this quiz is subjective, and only you know the expected value of the best alternative foregone

Answer 2

True

Question 3

In terms of opportunity cost, ________ is the ultimate constraint

Answer 3

d. time

Question 4

While opportunity cost is subjective, in some circumstances the money paid for goods and services is a good approximation of their opportunity cost

Answer 4

True

Question 5

Which of the following is true regarding opportunity cost?

Answer 5

c. Opportunity cost may vary with circumstances

Question 6

The ________ states that the individual, firm, region, or country with the lowest opportunity cost of producing a particular good should specialize in producing that good

Answer 6

b. law of comparative advantage

Question 7

Suppose that in an hour you can either make 20 tortillas or word-process 5 pages of text, while in an hour your roommate can either make 15 tortillas or word-process 15 pages of text. Which of the following is correct?

Answer 7

a. Your comparative advantage is in making tortillas

Question 8

Resources are allocated most efficiently across the country and around the world when traders specialize in producing those goods for which they have a comparative advantage, and trade for the other things that they need.

Answer 8

True

Question 9

________ involves the direct exchange of one good for another without the use of money.

\_\_\_\_\_\_\_\_ involves the direct exchange of one good for another without the use of money. 

________ involves the direct exchange of one good for another without the use of money

Answer 9

b. Barter

Question 10

Which of the following is the best description of the production possibilities frontier (PPF)?

Answer 10

a. The PPF is a curve showing alternative combinations of goods that can be produced when available resources are used efficiently.

Question 11

A production possibilities frontier is drawn based on which of the following set of assumptions?

Answer 11

Resources are assumed to be fixed and fully employed, and technology is assumed to be unchanged.

Question 12

________ exists when there is no way resources can be reallocated to increase the production of one good without decreasing the production of another

Answer 12

Efficiency

Question 13

An increase in available resources, or a technological advance that enhances the productivity of one or more types of resources, can shift the PPF outward and lead to economic growth

Answer 13

True

Question 14

Suppose that an economy produces food and clothing, and a technological innovation occurs that enhances the productivity of resources used in producing both goods. Which of the following would be consistent with this situation?

Answer 14

The PPF shifts outward equally along the food and clothing axes

Question 15

Which of the following are the three fundamental economic questions?

Answer 15

What to produce, how to produce, and for whom to produce

Question 16

The key criteria used to distinguish among different economic systems are (1) ________, (2) ________, and (3) ________.

Answer 16

who owns the productive resources, how are allocation decisions made, what types of incentives guide economic decision-makers

Question 17

In market systems, the answer to the “for whom to produce” economic question is that goods are allocated to those with the willingness and ability to pay, as expressed through market demand.

Answer 17

True

Question 18

Under a pure command system of government, decisions are made by:

Answer 18

a central government

Question 19

The cost of the best of the alternatives that is forgone is known as

Answer 19

opportunity cost.

Question 20

A cost that has already been incurred and cannot be recovered is called:

Answer 20

a sunk cost.

Question 21

To consider the full cost of your college education, we would need to consider the cost of missing out on your next best alternative

Answer 21

True

Question 22

When you specialize in a task that you do best, you are applying the:

Answer 22

law of comparative advantage.

Question 23

If John can do each of two tasks faster than Bill, then there is nothing that Bill should do; John should do everything.

Answer 23

False

Question 24

The production possibilities frontier shows:

Answer 24

possible combinations of two types of goods that can be produced when all available resources are fully and efficiently employed

Question 25

The production possibilities frontier rotates outward along one of the axes when:

Answer 25

there is a technological change that enhances the production of only one of the goods.

Question 26

The downward slope of the production possibilities curve demonstrates:

Answer 26

opportunity cost, i.e., that in order to produce more of one good the economy must produce less of the other good.

Question 27

The questions resolved by an economic system include what good and services to produce, how they will be produced, and for whom they will be produced

Answer 27

True

Question 28

The economic system known as a market system is also referred to as:

Answer 28

capitalism.