ECO Final Questions-ECONOMICS 501 Economics for Decision Makers
Chapter 2 Question 1: What do economists mean by scarcity?
a. Economists mean that unlimited wants exceed limited resources.
b. Economists mean that trade is not possible.
c. Economists mean that people are not employed.
d. Economists mean that production is inefficient.
e. Economists mean that economy is unable to produce increasing quantities of goods and
services
What of the following is not scarce according to the economic definition?
a. Coal
b. Time
c. Food
d. Capital
e. None of the above
Chapter 2 Question 2: A production possibilities frontier:
a. Shows the market for a good or service
b. Shows how unlimited wants exceed the limited resources available to fulfill those wants
c. Shows how participants in the market are linked
d. Shows the maximum attainable combinations of two goods that may be produced with
available resources.
We can show economic efficiency:
a. With points inside the production possibilities frontier
b. With points on the production possibilities frontier
c. With points inside and on the production possibilities frontier
d. With points on and outside the production possibilities frontier
e. With points outside the production possibilities frontier
We can show economic inefficiency:
a. With points inside the production possibilities frontier
b. With points on the production possibilities frontier
c. With points inside and on the production possibilities frontier
d. With points on and outside the production possibilities frontier
e. With points outside the production possibilities frontier
The production possibilities frontier will shirt outward:
a. If technological advances occur.
Chapter 2 Question 3: What does increasing marginal opportunity costs mean?
a. The economy is unable to produce increasing quantities of good and services.
b. Increasing the production of a good requires decreases in the production of another
good
c. Production is not occurring on the production possibilities frontier
, d. Increasing the production of a good requires smaller and smaller decreases in the
production of another good
e. Increasing the production of a good requires larger and larger decreases in the
production of another good
What are the implications of this idea for the shape of the production possibilities frontier?
a. The production possibilities frontier will be bowed inward
b. The production possibilities frontier will have a negative slope
c. The production possibilities frontier will be a straight line
d. The production possibilities frontier will have a positive slope.
e. The production possibilities frontier will be bowed outward.
Chapter 2 Question 4: GRAPH Consider the production possibilities frontier (PPF) that
shows the trade-off between the production of cotton and the production of soybeans
depicted in the figure to the right. Use the three-point curved line drawing tool to show the
effect that improved fertilizers/prolonged drought would have on the initial production
possibilities frontier by drawing a new production possibilities frontier. Properly label this
curve.
Chapter 2 Question 5: GRAPH Consider the production possibilities frontier (PPF) that
shows the trade-off between the production of cotton and the production of soybeans
depicted in the figure to the right. Suppose that genetic modifications make soybeans
resistant to insects, allowing yields to increase. Use the three-point curved line drawing
tool to show the effect of this technological change by drawing a new production
possibilities frontier. Properly label this curve.
Chapter 2 Question 6: GRAPH One of the trade-offs BMW faces is between safety and gas
mileage. For example, adding steel to a car makes it safer but also heavier, which results in
lower gas mileage.
Use the three-point curved line drawing tool to draw a hypothetical production
possibilities frontier that BMW engineers face that shows this trade-off. Assume that this
trade-off is consistent with increasing costs of added safety. Properly label this curve.
Chapter 2 Question 7: Suppose you win free tickets to a movie plus all you can eat at the
snack bar for free. Would there be a cost to you to attend this movie?
a. No because the movie ticket and snacks at the bar are free.
b. No because the movies are not scarce
c. No because the movie ticket is free
d. Yes because attending movies is not on the production possibilities frontier
e. Yes because the movie’s opportunity cost is equal to the highest-valued alternative that
must be given up to attend the movie.
Chapter 2 Question 8: Suppose we can divide all the goods produced by an economy into
two types: consumption goods and capital goods. Capital goods, such as machinery,
equipment, and computers, are goods used to produce other goods. Is it likely that the
production possibilities frontier in this situation would be a straight line: or bowed out?
a. The production possibilities frontier would likely be bowed out because not all
resources are equally well suited to produce both consumption and capital goods.
Chapter 2 Question 9: GRAPH Suppose we can divide all the goods produced by an
economy into two types: consumption goods and capital goods. Capital goods, such as
,machinery, equipment, and computers, are goods used to produce other goods. Suppose a
technological advance occurs that affects the production of capital goods but not
consumption goods. Use the three-point curved drawing tool to show the effect of this
technological change by drawing a new production possibilities frontier. Properly label this
curve.
Chapter 2 Question 10: GRAPH Suppose we can divide all the goods produced by an
economy into two types: consumption goods and capital goods. Capital goods, such as
machinery, equipment, and computers, are goods used to produce other goods. Suppose
that country A and country B currently have identical production possibilities frontiers but
that country A devotes only 5 percent of its resources to producing capital goods over each
of the next 10 years, whereas country B devotes 30 percent. Which country is likely to
experience more rapid economic growth in the future?
a. Country B
Use the three-point curved drawing tool to illustrate this by drawing two production
possibilities frontiers. Specifically, your graph should include production possibilities
frontiers for country A in 10 years (the future) and production possibilities frontiers for
country B in 10 years (the future). Properly label the curves.
Chapter 2 Question 11: What is absolute advantage?
a. The ability to produce more of a good or service than competitors using the same
amount of resources.
What is comparative advantage?
a. The ability to produce a good or service at a lower opportunity cost than other
producers.
Is it possible for a country to have a comparative advantage in producing a good without
also having an absolute advantage? A country without an absolute advantage in producing
a good:
a. Will have a comparative advantage if it has a lower opportunity cost of producing that
good.
Chapter 2 Question 12: What is the basis for trade?
a. Comparative advantage
How can a country gain from specialization and trade?
a. A country can specialize in producing that for which it has a comparative advantage and
then trade for other needed goods and services.
Chapter 2 Question 13: GRAPH The graph to the right shows how many pounds of apples
and pounds of cherries you and your neighbor can each pick in one week. For example, if
you devote all of your time to picking apples and none of your time to picking cherries, you
can pick 12 pounds of apples. If you devote all of your time to picking cherries, you can pick
72 pounds. At the same time, if your neighbor devotes all of her time to picking apples, she
can pick 32 pounds of apples. If she devotes all of her time to picking cherries, she can pick
32 pounds. Suppose initially that you (Y) are consuming 8 pounds of apples and 24 pounds
of cherries and that your neighbor (N) is consuming 4 pounds of apples and 28 pounds of
cherries, as indicated in the graph. Then, suppose you and your neighbor specialize by each
, only picking the good for which you have a comparative advantage and trade. In particular,
suppose you trade your neighbor half of your production for half of what your neighbor
produces. In the table below, first fill in production when specializing. Next fill in
consumption with trade. Recall that you trade your neighbor half of what you pick for half
of what your neighbor picks. Finally, fill in gains from trade.
Chapter 2 Question 14: GRAPH Using the same amount of resources, the United States and
Canada can both produce lumberjack shirts and lumberjack boots, as shown in the
production possibilities frontiers in the figure to the right.
The United States has a comparative advantage in producing lumberjack boots.
Canada has a comparative advantage in producing lumberjack boots.
Does either country have an absolute advantage in producing both goods?
a. Neither country has an absolute advantage in both goods because the United States can
produce more boots but Canada can produce more shirts.
Suppose initially that the United States is consuming 18 boots and 2 shirts and Canada is
consuming 4 boots and 8 shirts, as indicated in the figure. Then, suppose the United States
and Canada specialize by each only producing the good for which they have a comparative
advantage and then trade. In particular, suppose the United States trades Canada half of its
production for half of what Canada produces.
The United States will have 10 additional shirt(s) after the trade and 0 additional boot(s).
At the same time, Canada will be able to consume 4 additional shirt(s) as a result of the
trade and 14 additional boot(s).
Chapter 2 Question 15: In the 1950’s, the economist Bela Balassa compared 28
manufacturing industries in the United States and Britain. In every one of the 28 industries,
Balassa found that the United States had an absolute advantage. In these circumstances,
would there have been any gain to the United States from importing any of these products
from Britain? Explain.
a. Even with an absolute advantage, the United States would have benefited from
importing those products for which Britain had a comparative advantage.
Chapter 2 Question 16: CHART Suppose Iran and Iraq both produce oil and olive oil. The
following table shows combinations of both goods that each country can produce in a day,
measured in thousands of barrels.
Who has the comparative advantage in producing oil?
a. Neither country has a comparative advantage producing oil because their opportunity
costs of producing oil are equal.
Can these two countries gain from trading oil and olive oil?
a. These countries cannot gain from trade because neither has a comparative advantage
producing either good.
Chapter 2 Question 17: CHART Suppose that France and Germany both produce wine and
schnitzel. The table below shows combinations of the goods that each country can produce
in a day. Who has the comparative advantage in producing wine and who has the
comparative advantage in producing schnitzel?
a. France has a comparative advantage producing wine and Germany has a comparative
advantage producing schnitzel.
Chapter 2 Question 1: What do economists mean by scarcity?
a. Economists mean that unlimited wants exceed limited resources.
b. Economists mean that trade is not possible.
c. Economists mean that people are not employed.
d. Economists mean that production is inefficient.
e. Economists mean that economy is unable to produce increasing quantities of goods and
services
What of the following is not scarce according to the economic definition?
a. Coal
b. Time
c. Food
d. Capital
e. None of the above
Chapter 2 Question 2: A production possibilities frontier:
a. Shows the market for a good or service
b. Shows how unlimited wants exceed the limited resources available to fulfill those wants
c. Shows how participants in the market are linked
d. Shows the maximum attainable combinations of two goods that may be produced with
available resources.
We can show economic efficiency:
a. With points inside the production possibilities frontier
b. With points on the production possibilities frontier
c. With points inside and on the production possibilities frontier
d. With points on and outside the production possibilities frontier
e. With points outside the production possibilities frontier
We can show economic inefficiency:
a. With points inside the production possibilities frontier
b. With points on the production possibilities frontier
c. With points inside and on the production possibilities frontier
d. With points on and outside the production possibilities frontier
e. With points outside the production possibilities frontier
The production possibilities frontier will shirt outward:
a. If technological advances occur.
Chapter 2 Question 3: What does increasing marginal opportunity costs mean?
a. The economy is unable to produce increasing quantities of good and services.
b. Increasing the production of a good requires decreases in the production of another
good
c. Production is not occurring on the production possibilities frontier
, d. Increasing the production of a good requires smaller and smaller decreases in the
production of another good
e. Increasing the production of a good requires larger and larger decreases in the
production of another good
What are the implications of this idea for the shape of the production possibilities frontier?
a. The production possibilities frontier will be bowed inward
b. The production possibilities frontier will have a negative slope
c. The production possibilities frontier will be a straight line
d. The production possibilities frontier will have a positive slope.
e. The production possibilities frontier will be bowed outward.
Chapter 2 Question 4: GRAPH Consider the production possibilities frontier (PPF) that
shows the trade-off between the production of cotton and the production of soybeans
depicted in the figure to the right. Use the three-point curved line drawing tool to show the
effect that improved fertilizers/prolonged drought would have on the initial production
possibilities frontier by drawing a new production possibilities frontier. Properly label this
curve.
Chapter 2 Question 5: GRAPH Consider the production possibilities frontier (PPF) that
shows the trade-off between the production of cotton and the production of soybeans
depicted in the figure to the right. Suppose that genetic modifications make soybeans
resistant to insects, allowing yields to increase. Use the three-point curved line drawing
tool to show the effect of this technological change by drawing a new production
possibilities frontier. Properly label this curve.
Chapter 2 Question 6: GRAPH One of the trade-offs BMW faces is between safety and gas
mileage. For example, adding steel to a car makes it safer but also heavier, which results in
lower gas mileage.
Use the three-point curved line drawing tool to draw a hypothetical production
possibilities frontier that BMW engineers face that shows this trade-off. Assume that this
trade-off is consistent with increasing costs of added safety. Properly label this curve.
Chapter 2 Question 7: Suppose you win free tickets to a movie plus all you can eat at the
snack bar for free. Would there be a cost to you to attend this movie?
a. No because the movie ticket and snacks at the bar are free.
b. No because the movies are not scarce
c. No because the movie ticket is free
d. Yes because attending movies is not on the production possibilities frontier
e. Yes because the movie’s opportunity cost is equal to the highest-valued alternative that
must be given up to attend the movie.
Chapter 2 Question 8: Suppose we can divide all the goods produced by an economy into
two types: consumption goods and capital goods. Capital goods, such as machinery,
equipment, and computers, are goods used to produce other goods. Is it likely that the
production possibilities frontier in this situation would be a straight line: or bowed out?
a. The production possibilities frontier would likely be bowed out because not all
resources are equally well suited to produce both consumption and capital goods.
Chapter 2 Question 9: GRAPH Suppose we can divide all the goods produced by an
economy into two types: consumption goods and capital goods. Capital goods, such as
,machinery, equipment, and computers, are goods used to produce other goods. Suppose a
technological advance occurs that affects the production of capital goods but not
consumption goods. Use the three-point curved drawing tool to show the effect of this
technological change by drawing a new production possibilities frontier. Properly label this
curve.
Chapter 2 Question 10: GRAPH Suppose we can divide all the goods produced by an
economy into two types: consumption goods and capital goods. Capital goods, such as
machinery, equipment, and computers, are goods used to produce other goods. Suppose
that country A and country B currently have identical production possibilities frontiers but
that country A devotes only 5 percent of its resources to producing capital goods over each
of the next 10 years, whereas country B devotes 30 percent. Which country is likely to
experience more rapid economic growth in the future?
a. Country B
Use the three-point curved drawing tool to illustrate this by drawing two production
possibilities frontiers. Specifically, your graph should include production possibilities
frontiers for country A in 10 years (the future) and production possibilities frontiers for
country B in 10 years (the future). Properly label the curves.
Chapter 2 Question 11: What is absolute advantage?
a. The ability to produce more of a good or service than competitors using the same
amount of resources.
What is comparative advantage?
a. The ability to produce a good or service at a lower opportunity cost than other
producers.
Is it possible for a country to have a comparative advantage in producing a good without
also having an absolute advantage? A country without an absolute advantage in producing
a good:
a. Will have a comparative advantage if it has a lower opportunity cost of producing that
good.
Chapter 2 Question 12: What is the basis for trade?
a. Comparative advantage
How can a country gain from specialization and trade?
a. A country can specialize in producing that for which it has a comparative advantage and
then trade for other needed goods and services.
Chapter 2 Question 13: GRAPH The graph to the right shows how many pounds of apples
and pounds of cherries you and your neighbor can each pick in one week. For example, if
you devote all of your time to picking apples and none of your time to picking cherries, you
can pick 12 pounds of apples. If you devote all of your time to picking cherries, you can pick
72 pounds. At the same time, if your neighbor devotes all of her time to picking apples, she
can pick 32 pounds of apples. If she devotes all of her time to picking cherries, she can pick
32 pounds. Suppose initially that you (Y) are consuming 8 pounds of apples and 24 pounds
of cherries and that your neighbor (N) is consuming 4 pounds of apples and 28 pounds of
cherries, as indicated in the graph. Then, suppose you and your neighbor specialize by each
, only picking the good for which you have a comparative advantage and trade. In particular,
suppose you trade your neighbor half of your production for half of what your neighbor
produces. In the table below, first fill in production when specializing. Next fill in
consumption with trade. Recall that you trade your neighbor half of what you pick for half
of what your neighbor picks. Finally, fill in gains from trade.
Chapter 2 Question 14: GRAPH Using the same amount of resources, the United States and
Canada can both produce lumberjack shirts and lumberjack boots, as shown in the
production possibilities frontiers in the figure to the right.
The United States has a comparative advantage in producing lumberjack boots.
Canada has a comparative advantage in producing lumberjack boots.
Does either country have an absolute advantage in producing both goods?
a. Neither country has an absolute advantage in both goods because the United States can
produce more boots but Canada can produce more shirts.
Suppose initially that the United States is consuming 18 boots and 2 shirts and Canada is
consuming 4 boots and 8 shirts, as indicated in the figure. Then, suppose the United States
and Canada specialize by each only producing the good for which they have a comparative
advantage and then trade. In particular, suppose the United States trades Canada half of its
production for half of what Canada produces.
The United States will have 10 additional shirt(s) after the trade and 0 additional boot(s).
At the same time, Canada will be able to consume 4 additional shirt(s) as a result of the
trade and 14 additional boot(s).
Chapter 2 Question 15: In the 1950’s, the economist Bela Balassa compared 28
manufacturing industries in the United States and Britain. In every one of the 28 industries,
Balassa found that the United States had an absolute advantage. In these circumstances,
would there have been any gain to the United States from importing any of these products
from Britain? Explain.
a. Even with an absolute advantage, the United States would have benefited from
importing those products for which Britain had a comparative advantage.
Chapter 2 Question 16: CHART Suppose Iran and Iraq both produce oil and olive oil. The
following table shows combinations of both goods that each country can produce in a day,
measured in thousands of barrels.
Who has the comparative advantage in producing oil?
a. Neither country has a comparative advantage producing oil because their opportunity
costs of producing oil are equal.
Can these two countries gain from trading oil and olive oil?
a. These countries cannot gain from trade because neither has a comparative advantage
producing either good.
Chapter 2 Question 17: CHART Suppose that France and Germany both produce wine and
schnitzel. The table below shows combinations of the goods that each country can produce
in a day. Who has the comparative advantage in producing wine and who has the
comparative advantage in producing schnitzel?
a. France has a comparative advantage producing wine and Germany has a comparative
advantage producing schnitzel.
