Chapter 2- The PPC

Question 1

If you move along the PPC and the opportunity cost of producing one pod in terms of another never changes, it follows that the PPC

Answer 1

Must be a straight line

Question 2

Comparative advantage arises because

Answer 2

Not all resources are equally effective in the production of all goods

Question 3

When you produce wheat, it is initially relatively inexpensive to produce it, but then per unit costs tend to increase as more is produced. This is an example of:

Answer 3

Increasing marginal opportunity costs.

Question 4

Points inside the PPC are:

a) unattainable and inefficient
b) unattainable and efficient
c) attainable and efficient
d) attainable and inefficient

Answer 4

D) attainable and inefficient

Question 5

An increase in productive resources available for use in an economy will:

Answer 5

Shift the PPC outward

Question 6

A country’s pattern of comparative advantage:

a) doesn’t change over time
b) can change over time
c) determines whether or not it gains from trade
d) does not depend on the cost of its inputs

Answer 6

b) can change over time

Question 7

The phenomenon of outsourcing is the result of the force of what law?

Answer 7

The law of one price

Question 8

Country A can produce 200 cars or 100 tractors.
Country B can produce 400 cars or 100 tractors.
If both countries specialize and trade, what is the result?

Answer 8

400 cars, 100 tractors

Country B makes cars, Country A makes tractors

Question 9

If US workers earn $12/hr, Mexicans earn $3/hr, and US workers produce at 3 times more output than Mexican workers, where should facilities be located for the cheapest cost?

Answer 9

Mexico because the cost per unit of output will be lower

Question 10

Globalization:

a) eliminates old jobs without creating new jobs
b) creates new jobs but also eliminates jobs
c) create jobs without eliminating jobs
d) neither creates nor eliminates jobs

Answer 10

b) creates but also eliminates jobs

Question 11

When resources are better suited for some productive uses than others, the PPC is:

Answer 11

Bowed outwards

Question 12

Which reflects the principle of increasing marginal opportunity cost?

a) 2 hamburgers cost twice as much as one hamburger
b) a large soda can cost more than a small
c) 2 more hours/week studying could raise your grade from a B to a C, but an A requires 7 more hours/week
d) marginal costs increase whenever marginal benefits do

Answer 12

c) 2 more hours/week studying could raise your grade from a B to a C, but an A requires 7 more hours/week

Question 13

When trade is voluntary:

a) only the seller benefits
b) only the buyer benefits
c) either the buyer or seller can benefit, but not both
d) both benefit

Answer 13

d) both benefit

Question 14

If online courses cost $1,500 per pupil to create in the US, and only cost $150 per pupil to create in India, the law of one price suggests:

Answer 14

There will be strong economic pressure to outsource such courses to India

Question 15

Economists argue that the key benefit of countries engaging in trade based on comparative advantage, is that it:

Answer 15

Allows both countries to consume beyond their PPC because each of the traded goods is produced in the country with the lowest opportunity cost.

Question 16

If all of society’s resources are fully and efficiently employed, it must be producing where in regards to the PPC graph?

Answer 16

At some point on the PPC

Question 17

Which is an example of the law of one price?

a) exchange rates tend to have equivalent values. Ex: one yen= one dollar.
b) because their countries have similar institutions, engineers in France and Germany are paid the same wage.
c) because wages are lower in China, eventually all US jobs will be outsourced, leaving the US to import all goods at one price.
d) because people have essentially the same basic needs wherever they live, they tend to buy the same bundle of goods.

Answer 17

b) because their countries have similar institutions, engineers in France and Germany are paid the same wage.