Core Economics 3e

Production Possibilities

Multiple Choice Questions

After watching the Production Possibilities video lecture, consider the question(s) below. Then “submit” your response.

Question

1. The basic factors of production are land, capital, labor, and:

coal, iron, and steel.

oil and gas.

entrepreneurial ability.

centers of creative excellence.

Question

2. The production possibilities frontier (PPF) shows:

how many products a society consumes.

how much an economy can produce when using all of its inputs efficiently.

how many factories are currently active in an economy.

how many inputs are consumed in producing the output desired by consumers.

Question

3. The typical PPF is:

concave (bowed outward).

convex (bowed inward).

a straight line.

a parabola.

Question

4. The opportunity cost of producing more of a good increases because of:

increasing returns to scale.

increasing returns to inputs.

diminishing opportunity costs.

diminishing returns to inputs.

Question

5. A combination of goods represented by a point on the PPF is considered efficient because the economy is:

employing as many workers as possible.

producing goods using the fewest inputs possible.

not using all of its available inputs.

producing the goods that consumers want to buy.

Question

6. A combination of goods that lies inside the PPF is considered inefficient because:

all of the economy’s resources are being productively utilized.

the economy has insufficient resources to produce that level of output.

the economy is capable of producing more of both goods.

the economy’s infrastructure is aging and is being appropriately replaced.

Question

7. A combination of goods that lies outside the PPF is:

inefficient.

possible.

impossible.

deficient.

Question

8. Short-run economic growth is illustrated on a PPF diagram by movement from inside the PPF toward the PPF. A situation where this would be an appropriate depiction is in an economy:

recovering from a recession.

with increasing unemployment.

going into a recession.

that is stagnant.

Question

9. To achieve long-run economic growth, an economy must:

reduce the workforce by lowering the retirement age.

increase the number of government-mandated holidays.

decrease investments in infrastructure.

expand its capacity to produce.

Question

10. A(n) _____ can cause the PPF to expand.

natural disaster destroying factories and infrastructure

improvement in production technology

workforce that is shrinking due to an accelerating death rate

decrease in the rate of inflation

True/False Questions

After watching the Production Possibilities video lecture, consider the question(s) below. Then “submit” your response.

Question

1. In an economy producing just beer and autos, producing increasing amounts of autos requires giving up decreasing amounts of beer.

True

False

Question

2. Combinations of output that lie on the PPF are inefficient.

True

False

Question

3. An economy that finds new inputs or improves technology to use existing inputs in a more productive manner is pushing its PPF outward and can experience long-run economic growth.

True

False

Short Answer/Discussion Questions

After watching the Production Possibilities video lecture, consider the question(s) below. Then “submit” your response.

Question

1. Explain the difference between output combinations that lie inside the PPF and those that lie outside the PPF.

Suggested solution: An output combination that lies inside a PPF indicates that the economy is not using all of its inputs to produce goods and services. An output combination that lies outside the PPF is impossible because the economy has insufficient resources to produce at these levels.

Question

2. What is required for an economy to experience long-run growth and how would this growth be captured on a PPF?

Suggested solution: For an economy to grow in the long-run, it must increase its capability to produce goods and services. Such an expansion can be achieved by expanding the inputs available to the economy and/or by deploying technology that enable producing more output with existing inputs. Economic growth is depicted on a PPF as a movement of the PPF curve away from the origin.

Question

3. An economy is recovering from recession; short-run economic growth is occurring. What happens to the economy’s inputs during the recovery and how is this presented on a PPF?

Suggested solution: As an economy is recovering, previously idle or underutilized resources become active and begin contributing to economic output. Examples of this phenomenon include unemployed people returning to work, empty stores becoming utilized, and previously idle factories again producing products. This is represented on a PPF by movement from a point inside the PPF to a point closer to or on the PPF.