Test Bank for Principles
of Microeconomics 7th
Edition by Gottheil
, Chapter 2 Chapter 2 Chapter 2
Comprehensive Micro Macro
Chapter 2
Production Possibilities and Opportunity Costs
TRUE/FALSE
Answer: T 1. Entrepreneurship is one of the factors of production.
Diff: 1
2. A tractor used in the fields by a farmer is an example of capital.
Answer: T
Diff: 1
3. Using robots on an assembly line is an example of an investment in human capital.
Answer: F
Diff: 3
4. Land is a resource category that includes timber growing on the land.
Answer: T
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.
Production Possibilities and Opportunity Costs — 26
, Chapter 2 Chapter 2 Chapter 2
Comprehensive Micro Macro
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
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.
19. Factors of production are resources used in the consumption of goods and services.
Answer: F
Diff: 3
20. Capital is a good used in the production of goods that households consume.
Answer: T
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.
Production Possibilities and Opportunity Costs — 27
, Chapter 2 Chapter 2 Chapter 2
Comprehensive Micro Macro
25. If resources are underemployed, then the economy is producing as much as possible.
Answer: F
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
Diff: 1 fruit.
Referring to Exhibit B-1, Barbootland has a comparative advantage in the
Answer: F 30. production of
Diff: 3 coconuts.
Answer: T 31. In Exhibit B-1 Canary Island has a comparative advantage in the production of
Diff: 3 coconuts.
Referring to Exhibit B-1, Canary Island has an absolute advantage in the
Answer: F 32. production of
Diff: 1 both coconuts and kiwi fruit.
Canary Island, in Exhibit B-1, does not have a comparative advantage in the
Answer: F 33. 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.
Trade is not possible because Barbootland has an absolute advantage in the
Answer: F 35. 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
Production Possibilities and Opportunity Costs — 28
of Microeconomics 7th
Edition by Gottheil
, Chapter 2 Chapter 2 Chapter 2
Comprehensive Micro Macro
Chapter 2
Production Possibilities and Opportunity Costs
TRUE/FALSE
Answer: T 1. Entrepreneurship is one of the factors of production.
Diff: 1
2. A tractor used in the fields by a farmer is an example of capital.
Answer: T
Diff: 1
3. Using robots on an assembly line is an example of an investment in human capital.
Answer: F
Diff: 3
4. Land is a resource category that includes timber growing on the land.
Answer: T
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.
Production Possibilities and Opportunity Costs — 26
, Chapter 2 Chapter 2 Chapter 2
Comprehensive Micro Macro
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
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.
19. Factors of production are resources used in the consumption of goods and services.
Answer: F
Diff: 3
20. Capital is a good used in the production of goods that households consume.
Answer: T
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.
Production Possibilities and Opportunity Costs — 27
, Chapter 2 Chapter 2 Chapter 2
Comprehensive Micro Macro
25. If resources are underemployed, then the economy is producing as much as possible.
Answer: F
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
Diff: 1 fruit.
Referring to Exhibit B-1, Barbootland has a comparative advantage in the
Answer: F 30. production of
Diff: 3 coconuts.
Answer: T 31. In Exhibit B-1 Canary Island has a comparative advantage in the production of
Diff: 3 coconuts.
Referring to Exhibit B-1, Canary Island has an absolute advantage in the
Answer: F 32. production of
Diff: 1 both coconuts and kiwi fruit.
Canary Island, in Exhibit B-1, does not have a comparative advantage in the
Answer: F 33. 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.
Trade is not possible because Barbootland has an absolute advantage in the
Answer: F 35. 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
Production Possibilities and Opportunity Costs — 28
