Thinking Like an Economist-Part two

Points outside the production possibilities frontier represent impossible levels of production.

• True

• False

When a production possibilities frontier is bowed outward, the opportunity cost of one good in terms of the other depends on how much of each good is being produced.

• True

• False

The production possibilities frontier is a graph that shows the various combinations of output that an economy can possibly produce given the available factors of production and

• society’s preferences.

• the available production technology.

• a fair distribution of the output.

• the available demand for the output.

A production possibilities frontier shifts outward when

• the economy experiences economic growth.

• the desires of the economy’s citizens change.

• at least one of the basic principles of economics is violated.

• opportunity costs are lessened.

Positive statements are

• macroeconomic

• microeconomic

• statements of description that can be tested

• statements of prescription that involve value judgments

Which of the following statements is normative?

• a. Large government deficits cause an economy to grow more slowly.
• People work harder if the wage is higher.
• The unemployment rate should be lower.
• Printing too much money causes inflation.

What is opportunity cost?

• a graph that shows how much an economy can produce between 2 goods
• how much money something is
• the opportunity one has to give up in order to gain something else
• land, labor, capital, entrepreneurs

Suppose there is a production possibilities frontier (PPF) for coffee and cheese. Which of the following situations would shift the PPF inward (toward the origin)?

• A. A severe weather event that destroys much of the economy’s productive capacity.

• B. Improved education of the work force.

• C. Discovery of a new, cheaper source of milk for making cheese.

• D. Increased popularity of coffee, as compared with cheese.

An efficient economy is one that

• has very few people who do not work for a living.
• is experiencing underutilization.
• uses its resources to make the most goods and services.
• Has production inside the boundaries of it’s production possibilities frontier.

_______________is the idea that because of scarcity, producing more of one good or service means producing less of another good or service. 

• Scarcity 
• Market Structure 
• Trade-off 
• Economics