Test Bank for Principles of Microeconomics 7th Edition by Gottheil
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Chapter 2
Production Possibilities and Opportunity Costs
TRUE/FALSE
Answer: T 1. Entrepreneurship is one of the factors of production.
Diff: 1
Answer: T 2. A tractor used in the fields by a farmer is an example of capital.
Diff: 1
Answer: F 3. Using robots on an assembly line is an example of an investment in human capital.
Diff: 3
Answer: T 4. Land is a resource category that includes timber growing on the land.
Diff: 1
Answer: T 5. If we move along a production possibilities curve and choose more of one type of good,
Diff: 3 the opportunity cost is measured in terms of the amount of the other good that is given
up.
Answer: F 6. All resources are assumed to be of equal quality when we draw a production possibilities
Diff: 5 curve that is bowed out.
Answer: F 7. A wealthy economy is likely to choose to produce all consumption goods and no capital
Diff: 3 goods.
Answer: T 8. If an economy is operating at a point inside its production possibilities curve, this reflects
Diff: 3 inefficient resource use.
Answer: F 9. If all countries specialize in producing goods for which they have a comparative
Diff: 3 advantage, then total world output will be lower.
Answer: F 10. The production of more capital goods this year means we must sacrifice the production of
Diff: 3 consumption goods in the future.
Answer: F 11. To move along a production possibilities curve from one point to another requires
Diff: 4 additional resources.
Answer: T 12. Unemployment or underemployment is shown by a point located inside the production
Diff: 3 possibilities curve.
Answer: T 13. When resources are destroyed the production possibilities curve inward to the
Diff: 2 left.
Answer: F 14. A country should always specialize in the production of any product for which it holds an
Diff: 4 absolute advantage.
Answer: T 15. Innovation is the application of new technology to a production process.
Diff: 2
Production Possibilities and Opportunity Costs — 25
Full all chapters instant download please go to Solutions Manual, Test Bank site: downloadlink.org
, Chapter 2 Chapter 2 Chapter 2
Comprehensive Micro Macro
Answer: F 16. Food in the pantry of a household is a resource.
Diff: 3
Answer: T 17. The law of increasing costs causes the production possibilities curve to be bowed
Diff: 5 outward from the origin.
Answer: F 18. An increase in unemployment will cause this year’s production possibilities curve to shift
Diff: 4 inward toward the origin.
Answer: F 19. Factors of production are resources used in the consumption of goods and services.
Diff: 3
Answer: T 20. Capital is a good used in the production of goods that households consume.
Diff: 1
Answer: T 21. The production possibilities curve shows the different combinations of goods that can be
Diff: 1 produced with a set of given resources.
Answer: T 22. The law of increasing costs states that the opportunity cost of producing a good increases
Diff: 1 as more of the good is produced.
Answer: F 23. The production possibilities curve shifts to the left when resources in the economy
Diff: 2 increase.
Answer: F 24. Any point inside a production possibilities curve indicates that the economy is using
Diff: 2 all its available resources and technology.
Answer: F 25. If resources are underemployed, then the economy is producing as much as possible.
Diff: 1
Answer: T 26. An economy is producing efficiently when all factors of production are used in their most
Diff: 1 productive capacity.
Answer: T 27. If Belgium has a comparative advantage over France in the
Diff: 2 production of beer, then it can produce beer at a lower opportunity cost than
France.
Answer: T 28. The United States has an absolute advantage over Mexico in the
Diff: 3 production of corn when it can produce corn using fewer resources than Mexico.
Exhibit B-1 below shows the quantity of thing-a-ma-jigs or truffala fruit that can be produced by each country, if all
of its resources are devoted to that product.
Exhibit B-1
Product Barbootland Canary Island
Coconuts 50 40
Kiwi fruit 25 10
Answer: T 29. In Exhibit B-1 Barbootland has an absolute advantage in the production of kiwi fruit.
Diff: 1
Answer: F 30. Referring to Exhibit B-1, Barbootland has a comparative advantage in the production of
Diff: 3 coconuts.
Production Possibilities and Opportunity Costs — 26
, Chapter 2 Chapter 2 Chapter 2
Comprehensive Micro Macro
Answer: T 31. In Exhibit B-1 Canary Island has a comparative advantage in the production of
Diff: 3 coconuts.
Answer: F 32. Referring to Exhibit B-1, Canary Island has an absolute advantage in the production of
Diff: 1 both coconuts and kiwi fruit.
Answer: F 33. Canary Island, in Exhibit B-1, does not have a comparative advantage in the production
Diff: 2 of either product.
Answer: T 34. Trade is possible because Canary Island’s opportunity cost of coconuts is less than
Diff: 3 Barbootland’s.
Answer: F 35. Trade is not possible because Barbootland has an absolute advantage in the production of
Diff: 1 both goods.
MULTIPLE CHOICE
Answer: C 1. Referring to the information in Exhibit B-1, the opportunity cost of one kiwi fruit is
Diff: 3 a. 50 coconuts
b. ½ coconuts
c. 2 coconuts
d. 25 coconuts
e. 2.5
Answer: D 2. Canary Island’s opportunity cost (examine Exhibit B-1) of coconuts is equal to
Diff: 3 a. 10 kiwi fruit
b. 40 coconuts
c. 4 kiwi fruit
d. ¼ kiwi fruit
e. 4/5 kiwi fruit
Answer: A 3. Given the data in Exhibit B-1
Diff: 4 a. Canary Island should produce coconuts and trade with Barbootland for kiwi fruit.
b. Canary Island should produce kiwi fruit and trade with Barbootland for
coconuts.
c. Barbootland should produce coconuts and trade with Canary Island for kiwi
fruit.
d. trade is not possible because Barbootland does not have a comparative advantage
in producing either good.
e. trade is not possible because Barbootland has an absolute advantage in production
of both goods.
Answer: C 4. Starting from point B in Exhibit B-2 (on the next page), the opportunity cost of 4 more
Diff: 2 swimming helmets is
a. 20 nose bands
b. 5 nose bands
c. 15 nose bands
d. 3.75 nose bands
e. indeterminate
Answer: A 5. As we move from point A to B, to C, and finally to D in Exhibit B-2, the Law of
Diff: 2 Increasing Cost is reflected by the fact that the opportunity cost of swimming helmets
a. increases
b. decreases
c. remains constant
d. changes sporadically
e. is indeterminate
Production Possibilities and Opportunity Costs — 27
, Chapter 2 Chapter 2 Chapter 2
Comprehensive Micro Macro
Exhibit B-2
Nose Bands
A
25
B
20
C
5
D
10 14 15
Swimming Helmets
Figure 2-1.
Answer: D 6. Moving from point A to point B in Exhibit B-2 the opportunity cost of 1 swimming
Diff: 3 helmet is
a. 1 nose band
b. 2 nose bands
c. 4 nose bands
d. 5 nose bands
e. 8 nose bands
Answer: C 7. In addition to the items one must give up in order to afford the cost of cigarettes, the
Diff: 2 opportunity cost of smoking includes
a. your enjoyment from smoking
b. the health effects one places upon others
c. your expected health effects and shortened life span
d. harassment from nonsmokers
e. smoking cessation advertising on television
Answer: D 8. Susan Sneed gave up her $55,000 job at ACC, Inc. to return to college to change careers.
Diff: 3 She reduced her wardrobe to cheaper jeans and t-shirts, paid $5,000 in tuition, continued
to make her family’s $1,200 per month home mortgage payments, and bore the burden of
a variety of inane comments about the stupidity of older students giving up good paying
jobs to return to school. Which of the above items is not needed to determine the
opportunity cost of her return to college?
a. her $55,000 ACC, Inc. salary
b. the altered wardrobe costs
c. the $5,000 tuition expense
d. her family’s $1,200 per month mortgage expense
e. psychological stress from inane comments
Production Possibilities and Opportunity Costs — 28
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Chapter 2
Production Possibilities and Opportunity Costs
TRUE/FALSE
Answer: T 1. Entrepreneurship is one of the factors of production.
Diff: 1
Answer: T 2. A tractor used in the fields by a farmer is an example of capital.
Diff: 1
Answer: F 3. Using robots on an assembly line is an example of an investment in human capital.
Diff: 3
Answer: T 4. Land is a resource category that includes timber growing on the land.
Diff: 1
Answer: T 5. If we move along a production possibilities curve and choose more of one type of good,
Diff: 3 the opportunity cost is measured in terms of the amount of the other good that is given
up.
Answer: F 6. All resources are assumed to be of equal quality when we draw a production possibilities
Diff: 5 curve that is bowed out.
Answer: F 7. A wealthy economy is likely to choose to produce all consumption goods and no capital
Diff: 3 goods.
Answer: T 8. If an economy is operating at a point inside its production possibilities curve, this reflects
Diff: 3 inefficient resource use.
Answer: F 9. If all countries specialize in producing goods for which they have a comparative
Diff: 3 advantage, then total world output will be lower.
Answer: F 10. The production of more capital goods this year means we must sacrifice the production of
Diff: 3 consumption goods in the future.
Answer: F 11. To move along a production possibilities curve from one point to another requires
Diff: 4 additional resources.
Answer: T 12. Unemployment or underemployment is shown by a point located inside the production
Diff: 3 possibilities curve.
Answer: T 13. When resources are destroyed the production possibilities curve inward to the
Diff: 2 left.
Answer: F 14. A country should always specialize in the production of any product for which it holds an
Diff: 4 absolute advantage.
Answer: T 15. Innovation is the application of new technology to a production process.
Diff: 2
Production Possibilities and Opportunity Costs — 25
Full all chapters instant download please go to Solutions Manual, Test Bank site: downloadlink.org
, Chapter 2 Chapter 2 Chapter 2
Comprehensive Micro Macro
Answer: F 16. Food in the pantry of a household is a resource.
Diff: 3
Answer: T 17. The law of increasing costs causes the production possibilities curve to be bowed
Diff: 5 outward from the origin.
Answer: F 18. An increase in unemployment will cause this year’s production possibilities curve to shift
Diff: 4 inward toward the origin.
Answer: F 19. Factors of production are resources used in the consumption of goods and services.
Diff: 3
Answer: T 20. Capital is a good used in the production of goods that households consume.
Diff: 1
Answer: T 21. The production possibilities curve shows the different combinations of goods that can be
Diff: 1 produced with a set of given resources.
Answer: T 22. The law of increasing costs states that the opportunity cost of producing a good increases
Diff: 1 as more of the good is produced.
Answer: F 23. The production possibilities curve shifts to the left when resources in the economy
Diff: 2 increase.
Answer: F 24. Any point inside a production possibilities curve indicates that the economy is using
Diff: 2 all its available resources and technology.
Answer: F 25. If resources are underemployed, then the economy is producing as much as possible.
Diff: 1
Answer: T 26. An economy is producing efficiently when all factors of production are used in their most
Diff: 1 productive capacity.
Answer: T 27. If Belgium has a comparative advantage over France in the
Diff: 2 production of beer, then it can produce beer at a lower opportunity cost than
France.
Answer: T 28. The United States has an absolute advantage over Mexico in the
Diff: 3 production of corn when it can produce corn using fewer resources than Mexico.
Exhibit B-1 below shows the quantity of thing-a-ma-jigs or truffala fruit that can be produced by each country, if all
of its resources are devoted to that product.
Exhibit B-1
Product Barbootland Canary Island
Coconuts 50 40
Kiwi fruit 25 10
Answer: T 29. In Exhibit B-1 Barbootland has an absolute advantage in the production of kiwi fruit.
Diff: 1
Answer: F 30. Referring to Exhibit B-1, Barbootland has a comparative advantage in the production of
Diff: 3 coconuts.
Production Possibilities and Opportunity Costs — 26
, Chapter 2 Chapter 2 Chapter 2
Comprehensive Micro Macro
Answer: T 31. In Exhibit B-1 Canary Island has a comparative advantage in the production of
Diff: 3 coconuts.
Answer: F 32. Referring to Exhibit B-1, Canary Island has an absolute advantage in the production of
Diff: 1 both coconuts and kiwi fruit.
Answer: F 33. Canary Island, in Exhibit B-1, does not have a comparative advantage in the production
Diff: 2 of either product.
Answer: T 34. Trade is possible because Canary Island’s opportunity cost of coconuts is less than
Diff: 3 Barbootland’s.
Answer: F 35. Trade is not possible because Barbootland has an absolute advantage in the production of
Diff: 1 both goods.
MULTIPLE CHOICE
Answer: C 1. Referring to the information in Exhibit B-1, the opportunity cost of one kiwi fruit is
Diff: 3 a. 50 coconuts
b. ½ coconuts
c. 2 coconuts
d. 25 coconuts
e. 2.5
Answer: D 2. Canary Island’s opportunity cost (examine Exhibit B-1) of coconuts is equal to
Diff: 3 a. 10 kiwi fruit
b. 40 coconuts
c. 4 kiwi fruit
d. ¼ kiwi fruit
e. 4/5 kiwi fruit
Answer: A 3. Given the data in Exhibit B-1
Diff: 4 a. Canary Island should produce coconuts and trade with Barbootland for kiwi fruit.
b. Canary Island should produce kiwi fruit and trade with Barbootland for
coconuts.
c. Barbootland should produce coconuts and trade with Canary Island for kiwi
fruit.
d. trade is not possible because Barbootland does not have a comparative advantage
in producing either good.
e. trade is not possible because Barbootland has an absolute advantage in production
of both goods.
Answer: C 4. Starting from point B in Exhibit B-2 (on the next page), the opportunity cost of 4 more
Diff: 2 swimming helmets is
a. 20 nose bands
b. 5 nose bands
c. 15 nose bands
d. 3.75 nose bands
e. indeterminate
Answer: A 5. As we move from point A to B, to C, and finally to D in Exhibit B-2, the Law of
Diff: 2 Increasing Cost is reflected by the fact that the opportunity cost of swimming helmets
a. increases
b. decreases
c. remains constant
d. changes sporadically
e. is indeterminate
Production Possibilities and Opportunity Costs — 27
, Chapter 2 Chapter 2 Chapter 2
Comprehensive Micro Macro
Exhibit B-2
Nose Bands
A
25
B
20
C
5
D
10 14 15
Swimming Helmets
Figure 2-1.
Answer: D 6. Moving from point A to point B in Exhibit B-2 the opportunity cost of 1 swimming
Diff: 3 helmet is
a. 1 nose band
b. 2 nose bands
c. 4 nose bands
d. 5 nose bands
e. 8 nose bands
Answer: C 7. In addition to the items one must give up in order to afford the cost of cigarettes, the
Diff: 2 opportunity cost of smoking includes
a. your enjoyment from smoking
b. the health effects one places upon others
c. your expected health effects and shortened life span
d. harassment from nonsmokers
e. smoking cessation advertising on television
Answer: D 8. Susan Sneed gave up her $55,000 job at ACC, Inc. to return to college to change careers.
Diff: 3 She reduced her wardrobe to cheaper jeans and t-shirts, paid $5,000 in tuition, continued
to make her family’s $1,200 per month home mortgage payments, and bore the burden of
a variety of inane comments about the stupidity of older students giving up good paying
jobs to return to school. Which of the above items is not needed to determine the
opportunity cost of her return to college?
a. her $55,000 ACC, Inc. salary
b. the altered wardrobe costs
c. the $5,000 tuition expense
d. her family’s $1,200 per month mortgage expense
e. psychological stress from inane comments
Production Possibilities and Opportunity Costs — 28
