,Essentials of Economics 2019 (Hubbard/O'Brien)
Chapter 2 Trade-offs, Comparative Advantage, and the Market System
2.1 Production Possibilities Frontiers and Opportunity Costs
1) Scarcity
A) stems from the incompatibility between limited resources and unlimited wants.
B) can be overcome by discovering new resources.
C) can be eliminated by rationing products.
D) is a bigger problem in market economies than in socialist economies.
Answer: A
Diff: 2 Page Ref: 42
Topic: Scarcity
*: Recurring
Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to
think like an economist
AACSB: Analytical thinking
2) Tesla Motors manufactures its cars at a plant in Fremont, California. At this plant, Tesla is
able to take advantage of the high level of technical training possessed by its American workers,
but it also sacrifices the ability to pay lower wages had it chosen to open its plant in a low-wage
country such as Mexico, India, or China. In deciding to open the Fremont plant, Tesla
A) faced no trade-offs because employing more technically-skilled workers increased efficiency.
B) faced a trade-off between higher cost and less technical skill.
C) adopted a negative technological change because it chose high-skilled workers over low-paid
workers.
D) eroded some of its competitiveness in the luxury electric car market because of its increased
cost of production.
Answer: B
Diff: 2 Page Ref: 40
Topic: Opportunity Cost
Learning Outcome: Micro-3: Discuss different types of market systems and the gains that can be
made from trade
AACSB: Analytical thinking
Special Feature: Chapter Opener: Managers at Tesla Motors Face Trade-Offs
,3) The concept of opportunity cost is that
A) in a market economy, taking advantage of profitable opportunities involves some money cost.
B) the economic cost of using a factor of production is the alternative use of that factor that is
given up.
C) taking advantage of investment opportunities involves costs.
D) the cost of production varies depending on the opportunity for technological application.
Answer: B
Diff: 2 Page Ref: 43
Topic: Opportunity Cost
*: Recurring
Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to
think like an economist
AACSB: Analytical thinking
4) The production possibilities frontier shows the combinations of two products that
can be produced in a particular time period with available resources.
A) minimum attainable
B) maximum attainable
C) only
D) equitable
Answer: B
Diff: 2 Page Ref: 42
Topic: Production Possibilities Frontiers
*: Recurring
Learning Outcome: Micro-3: Discuss different types of market systems and the gains that can be
made from trade
AACSB: Analytical thinking
5) The production possibilities frontier model shows that
A) if consumers decide to buy more of a product, its price will increase.
B) a market economy is more efficient in producing goods and services than is a centrally
planned economy.
C) economic growth can only be achieved by free market economies.
D) if all resources are fully and efficiently utilized, more of one good can be produced only by
producing less of another good.
Answer: D
Diff: 2 Page Ref: 42
Topic: Production Possibilities Frontiers
*: Recurring
Learning Outcome: Micro-3: Discuss different types of market systems and the gains that can be
made from trade
AACSB: Analytical thinking
, 6) The production possibilities frontier model assumes which of the following?
A) Labor, capital, land, and natural resources are unlimited in quantity.
B) The economy produces only two products.
C) Production of any level of the two products that the economy produces is currently possible.
D) The level of technology is variable.
Answer: B
Diff: 2 Page Ref: 42
Topic: Production Possibilities Frontiers
*: Recurring
Learning Outcome: Micro-3: Discuss different types of market systems and the gains that can be
made from trade
AACSB: Analytical thinking
7) The attainable production points on a production possibilities frontier are
A) the horizontal and vertical intercepts.
B) the points along the production possibilities frontier.
C) the points outside the area enclosed by the production possibilities frontier.
D) the points along and inside the production possibility frontier.
Answer: D
Diff: 2 Page Ref: 42
Topic: Production Possibilities Frontiers
*: Recurring
Learning Outcome: Micro-3: Discuss different types of market systems and the gains that can be
made from trade
AACSB: Analytical thinking
8) The points outside the production possibilities frontier are
A) efficient.
B) attainable.
C) inefficient.
D) unattainable.
Answer: D
Diff: 2 Page Ref: 43
Topic: Production Possibilities Frontiers
*: Recurring
Learning Outcome: Micro-3: Discuss different types of market systems and the gains that can be
made from trade
AACSB: Analytical thinking
Chapter 2 Trade-offs, Comparative Advantage, and the Market System
2.1 Production Possibilities Frontiers and Opportunity Costs
1) Scarcity
A) stems from the incompatibility between limited resources and unlimited wants.
B) can be overcome by discovering new resources.
C) can be eliminated by rationing products.
D) is a bigger problem in market economies than in socialist economies.
Answer: A
Diff: 2 Page Ref: 42
Topic: Scarcity
*: Recurring
Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to
think like an economist
AACSB: Analytical thinking
2) Tesla Motors manufactures its cars at a plant in Fremont, California. At this plant, Tesla is
able to take advantage of the high level of technical training possessed by its American workers,
but it also sacrifices the ability to pay lower wages had it chosen to open its plant in a low-wage
country such as Mexico, India, or China. In deciding to open the Fremont plant, Tesla
A) faced no trade-offs because employing more technically-skilled workers increased efficiency.
B) faced a trade-off between higher cost and less technical skill.
C) adopted a negative technological change because it chose high-skilled workers over low-paid
workers.
D) eroded some of its competitiveness in the luxury electric car market because of its increased
cost of production.
Answer: B
Diff: 2 Page Ref: 40
Topic: Opportunity Cost
Learning Outcome: Micro-3: Discuss different types of market systems and the gains that can be
made from trade
AACSB: Analytical thinking
Special Feature: Chapter Opener: Managers at Tesla Motors Face Trade-Offs
,3) The concept of opportunity cost is that
A) in a market economy, taking advantage of profitable opportunities involves some money cost.
B) the economic cost of using a factor of production is the alternative use of that factor that is
given up.
C) taking advantage of investment opportunities involves costs.
D) the cost of production varies depending on the opportunity for technological application.
Answer: B
Diff: 2 Page Ref: 43
Topic: Opportunity Cost
*: Recurring
Learning Outcome: Micro-1: Identify the basic principles of economics and explain how to
think like an economist
AACSB: Analytical thinking
4) The production possibilities frontier shows the combinations of two products that
can be produced in a particular time period with available resources.
A) minimum attainable
B) maximum attainable
C) only
D) equitable
Answer: B
Diff: 2 Page Ref: 42
Topic: Production Possibilities Frontiers
*: Recurring
Learning Outcome: Micro-3: Discuss different types of market systems and the gains that can be
made from trade
AACSB: Analytical thinking
5) The production possibilities frontier model shows that
A) if consumers decide to buy more of a product, its price will increase.
B) a market economy is more efficient in producing goods and services than is a centrally
planned economy.
C) economic growth can only be achieved by free market economies.
D) if all resources are fully and efficiently utilized, more of one good can be produced only by
producing less of another good.
Answer: D
Diff: 2 Page Ref: 42
Topic: Production Possibilities Frontiers
*: Recurring
Learning Outcome: Micro-3: Discuss different types of market systems and the gains that can be
made from trade
AACSB: Analytical thinking
, 6) The production possibilities frontier model assumes which of the following?
A) Labor, capital, land, and natural resources are unlimited in quantity.
B) The economy produces only two products.
C) Production of any level of the two products that the economy produces is currently possible.
D) The level of technology is variable.
Answer: B
Diff: 2 Page Ref: 42
Topic: Production Possibilities Frontiers
*: Recurring
Learning Outcome: Micro-3: Discuss different types of market systems and the gains that can be
made from trade
AACSB: Analytical thinking
7) The attainable production points on a production possibilities frontier are
A) the horizontal and vertical intercepts.
B) the points along the production possibilities frontier.
C) the points outside the area enclosed by the production possibilities frontier.
D) the points along and inside the production possibility frontier.
Answer: D
Diff: 2 Page Ref: 42
Topic: Production Possibilities Frontiers
*: Recurring
Learning Outcome: Micro-3: Discuss different types of market systems and the gains that can be
made from trade
AACSB: Analytical thinking
8) The points outside the production possibilities frontier are
A) efficient.
B) attainable.
C) inefficient.
D) unattainable.
Answer: D
Diff: 2 Page Ref: 43
Topic: Production Possibilities Frontiers
*: Recurring
Learning Outcome: Micro-3: Discuss different types of market systems and the gains that can be
made from trade
AACSB: Analytical thinking
