William Rainey Harper College
ECO 211

Review

Ch. 1 Production Possibilities

INSTRUCTIONS: Select the BEST answer for each question by marking the circle next to your selection, then click on the [Grade the Test] button at the bottom.

1.

R-1 F02072

Refer to the above diagram. Points A, B, C, D, and E show:

A.

that the opportunity cost of bicycles increases, while that of computers is constant.

B.

combinations of bicycles and computers which society can produce by using its resources efficiently.

C.

that the opportunity cost of computers increases, while that of bicycles is constant.

D.

that society's demand for computers is greater than its demand for bicycles.



2.

R-1 F02072

Refer to the above diagram. This production possibilities curve is:

A.

convex to the origin because opportunity costs are constant.

B.

linear because opportunity costs are constant.

C.

concave to the origin because of increasing opportunity costs.

D.

convex to the origin because of increasing opportunity costs.



3.

R-1 F02072

Refer to the above diagram. The combination of computers and bicycles shown by point G is:

A.

attainable, but too costly.

B.

unattainable, given currently available resources and technology.

C.

attainable, but involves unemployment.

D.

irrelevant because it is inconsistent with consumer preferences.



4.

R-1 F02072

Refer to the above diagram. If society is currently producing the combination of bicycles and computers shown by point D, the production of 2 more units of bicycles:

A.

cannot be realized because resources are fully employed.

B.

will cost 1 unit of computers.

C.

will cost 2 units of computers.

D.

will cause some resources to become unemployed.



5.

R-1 F02072

Refer to the above diagram. The combination of computers and bicycles shown by point F:

A.

is unattainable, given currently available resources and technology.

B.

is attainable, but entails economic inefficiency.

C.

is irrelevant because it is inconsistent with consumer preferences.

D.

suggests that opportunity costs are constant.



6.

R-1 F02072

Refer to the above diagram. The movement down the production possibilities curve from point A to point E suggests that the production of:

A.

computers, but not bicycles, is subject to increasing opportunity costs.

B.

bicycles, but not computers, is subject to increasing opportunity costs.

C.

both bicycles and computers is subject to constant opportunity costs.

D.

both bicycles and computers is subject to increasing opportunity costs.



7.

The law of increasing opportunity costs exists because:

A.

resources are not equally efficient in producing various goods.

B.

the value of the dollar has diminished historically because of persistent inflation.

C.

wage rates invariably rise as the economy approaches full employment.

D.

consumers tend to value any good more highly when they have little of it.



8.

The production possibilities curve illustrates the basic principle that:

A.

the production of more of any one good will in time require smaller and smaller sacrifices of other goods.

B.

an economy will automatically seek that level of output at which all of its resources are employed.

C.

if all the resources of an economy are in use, more of one good can be produced only if less of another good is produced.

D.

an economy's capacity to produce increases in proportion to its population size.



9.

Unemployment and/or productive inefficiencies:

A.

cause the production possibilities curve to shift outward.

B.

can exist at any point on a production possibilities curve.

C.

can both be illustrated by a point outside the production possibilities curve.

D.

can both be illustrated by a point inside the production possibilities curve.



10.

R-2 F02107

Refer to the above diagram. An improvement in technology will:

A.

shift the production possibilities curve from PP1 to PP2.

B.

shift the production possibilities curve from PP2 to PP1.

C.

move the economy from A to C along PP1.

D.

move the economy from A, B, or C on PP1 to D.



11.

Through specialization and international trade a nation:

A.

can attain some combination of goods lying outside its production possibilities curve.

B.

can move from a high consumption-low investment to a high investment-low consumption point on its production possibilities curve.

C.

will attain some combination of goods lying within its production possibilities curve.

D.

will cause its production possibilities curve to shift leftward.



12.

Some agricultural sub-Saharan nations of Africa have overfarmed and overgrazed their land to the extent that significant portions of it have turned into desert. This suggests that:

A.

the concavity of the production possibilities curves of such nations has increased.

B.

the production possibilities curves of such nations have shifted inward.

C.

the production possibilities curves of such nations have shifted outward.

D.

these nations are operating at some point outside of their production possibilities curves.



13.

If all discrimination in the United States were eliminated, the economy would:

A.

have a less concave production possibilities curve.

B.

produce at some point closer to its production possibilities curve.

C.

be able to produce at some point outside of its production possibilities curve.

D.

produce more consumer goods and fewer investment goods.




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