Macro- Production Possibilities Frontier

Suppose that the alternative uses of an hour of your time in the evening, ranked from best to worst, are (i) study economics, (ii) watch two half-hour TV sitcoms, (iii) play pool, and (iv) jog around town. You can only choose one activity. What is the opportunity cost of studying economics for one hour, given this information?

• Jogging around town.

• Watching two half-hour TV sitcoms.

• Playing pool.

• The sum of watching two half-hour TV sitcoms, playing pool, and doing your laundry.

Opportunity cost represents the worst of the various alternatives that must be given up when a choice is made in the context of scarcity.

• True

• False

Everything scarce requires a choice, and these choices always involve an opportunity cost.

• True

• False

Which of the following best describes the three fundamental economic questions?

• What to produce, when to produce, and where to produce?

• What time to produce, what place to produce, and how to produce?

• What to produce, when to produce, and for whom to produce?

• What to produce, how to produce, and for whom to produce?

Inward shifts in the production-possibilities curve represents economic growth.

• True

• False

• B

• C

• A and D

• E

A production possibilities curve is drawn based on which of the following set of assumptions?

• Resources are fixed and fully employed, and technology advances at the rate of growth of the economy overall.

• Resources such as nonrenewable resources will decline, but labor remains fully employed, and technology is unchanged.

• Resources can vary, most resources experience times of unemployment, and technology advances, particularly during wartime.

• Resources such as labor and capital will grow, are fully employed, and technology is unchanged.

• None of the above are correct.

A production possibilities curve shows the various combinations of output:

• Consumers would like to consume

• Producers would like to produce.

• An economy can produce.

• An economy should produce.

Combinations of goods outside the production-possibilities curve (PPC) have which of the following characteristics?

• They are only attainable today if we employ all unemployed or underemployed resources.

• They are not attainable given our existing stock of resources and technology.

• They imply that some resources, such as labor, are unemployed or underemployed.

• They imply that some resources, such as labor, are unemployed or underemployed.

• None of the above.

If an economy can produce various combinations of food and shelter along a production possibilities curve (PPC), then if we increase the production of housing along the PPC, which of the following is correct?

• We also increase the production of food.

• We must decrease the production of food. This foregone food production represents the opportunity cost of the increase in the shelter.

• We cannot change the production of food.

• None of the above.